SAAG, Paper no. 4738, 17-Oct–2011
By B. Raman
On October 12, 2011, the ONGC Videsh Limited (OVL) and the Vietnam Oil and Gas Group PetroVietnam (PV) signed at New Delhi an agreement on cooperation in the field of oil and gas. It was signed in the presence of the President of Vietnam Mr. Truong Tan Sang, who was on a visit to India, and Prime Minister Dr. Manmohan Singh.
2.It will be a framework agreement, which will be in force for three years. Its aim is to promote long-term cooperation in the field of oil and gas. The co-operation, which is already in force since 1988 under framework agreements signed from time to time since then, covers aspects such as the exchange of information on the petroleum industry, exchange of working visits by officials and specialists in various domains of the petroleum industry, new investments, expansion and operations of oil and gas exploration and production including refining, transportation and supply in Vietnam and India, and as well as to third countries.
3. The starting-block of the co-operation was the signing of a Production Sharing Contract ( PSC) between the Hydrocarbon India Ltd., (renamed later as ONGC Videsh Limited) and PetroVietnam on May 19, 1988, under which the Indian company was allowed to explore for gas in Block 06.1. This block contributes about 50% of the gas requirement of Vietnam.
4. Subsequently, in June 2006, PetroVietnam awarded two more blocks for exploration to the Indian company. These blocks called blocks 127 and 128 in the PhuKanh basin in Vietnam were awarded to OVL after a regular bidding process.
5.Details of these three blocks as disseminated by the Indian company through the web are as follows:
Block 06.1 :
Participating Companies and their Shares :OVL-45%,BP-35% ,PV-20% ,(Operator – British Petroleum (BP))
OVL, British Petroleum (Operator) and PetroVietnam have developed the Lan Tay field in Block 06.1 offshore Vietnam. The field started commercial production of Gas in January, 2003. The project is operated by British Petroleum. OVL’s share of production from the project was 2.249 BCM of gas and 0.038 MMT of condensate during 2010-11 as compared to 1.967 BCM of gas and 0.042 MMT of condensate during 2009-10. OVL’s share of the development expenditure was about USD 244 Million till March 31, 2011.
Block 127 :
It is an offshore deepwater Block, located at water depth of more than 400 meters with 9,246 sq km area in Vietnam. The PSC for the Block was signed on 24th May, 2006. OVL holds 100% stake in the Block with Operatorship. OVL has acquired 1,150 sq km 3D seismic data in the Block and the interpretation of the seismic data has been completed. Location for drilling of exploration well was identified and a well was drilled in July 2009 to a depth of 1265 mts. As there was no hydrocarbon presence, the Company has decided to relinquish the block to Petrovietnam. The Company had invested approx USD 68 million till March 31, 2010.
Block 128 :
OVL signed a contract for 100% stake in the project in May, 2006. The project is operated by OVL. OVL had deployed the Rig Hakuryu-V on well B 128-RV-1X on 2nd September 2009 for drilling. However, the rig could not be anchored despite adding Piggy Back to the existing anchors. The drilling activity was terminated and it is planned that the location would be drilled in 2012 subject to successful field testing of anchors. OVL has invested about USD 46 million till March 31, 2011.
6.In June 2006, the OVL had said as follows: “With this, OVL has bagged both blocks it had bid for among nine offered for global competitive bidding in Vietnam’s 2004 Licensing Round. “With the award of Blocks 127 and 128 for offshore exploration in Vietnam, OVL is consolidating its existing presence with 45 percent participating interest in the gas-producing properties of Lan Do and Lan Tay offshore blocks,” said OVL chairman Subir Raha. Blocks 127 and 128 are close to Nam Con Son project that sources gas from Lan Do and Lan Tay fields discovered by OVL (then Hydrocarbons India Ltd) in 1992 and 1993 respectively. OVL holds 45 percent participating interest in exploration activities in what is the biggest oil and gas project in Vietnam. The new exploration blocks awarded to OVL have in-place reserves of around 190 million tonnes of oil and oil-equivalent gas. With oil equity or participating interests in over a dozen countries including Russia and Sudan, OVL now has operatorship in four offshore exploration blocks. This includes the Farsi block in Iran, Najweet Najeem in Qatar and Blocks 127 and 128 in Vietnam. OVL is also the operator of an onshore exploration block in Libya.”
7.In September 2010,PetroVietnam chairman Dinh La Thang confirmed that his group had planned to submit a proposal to buy stakes in BP’s upstream offshore projects. Vietnam and BP are involved in four projects, the Lan Tay-Lan Do gas field in Block 06.1, Nam Con Son pipeline system, Phu My 3 power plant and BP Petco lubricant joint venture. BP planned to transfer stakes from the first three projects, but not the last one. A BP Vietnam representative said BP had informed the Vietnamese Government of its intention to explore options for divestment of its upstream assets and was now awaiting approval. She said: “Our top priority is to continue safe and reliable operations now, during transition and thereafter.”
8.Dinh was quoted by the local press as saying that under the agreement signed among partners of the above projects, if one of the partners wanted to withdraw the investment capital or quit the project it would offer priority rights to buy stakes to the other partners in the project. “We have already made a plan to coordinate with the Indian partner [the third partner in those projects] to buy those stakes,” he said. Sections of the media quoted India’s then Petroleum Secretary S Sundareshan as sayingthat India’s Oil and Natural Gas Corporation (ONGC) and PetroVietnam would jointly bid for BP’s assets in Vietnam.
9. Thus, since May 1988,the OVL had been involved in oil and gas exploration in Vietnam. In the first block 06.1 awarded in May 1988, the OVL had a 45 per cent stake, the BP had a 35 per cent stake and the PV a 20 per cent stake. Even though the project has been working successfully, BP decided last year to disinvest its holdings reportedly due to poor security conditions and talks were on for the OVL and the PV to buy it.
10. In the remaining two blocks awarded to the OVL in 2006, the OVL has a 100 per cent stake. In Block 127 no oil or gas has been found and there were reports that the OVL was planning to disinvest it to the PV. Exploration work is still going on in Block 128 without any discovery of oil or gas so far. In the meanwhile, there have been reports that Essar, another Indian company, was also planning to enter the field of oil and gas exploration in co-operation with the PV.
11. China did not formally raise any objection to any of the agreements or projects till last year despite the fact that Indo-Vietnamese co-operation in the field of oil and gas is now 23 years old. Last year on two occasions, Chinese officials were reported to have privately informed their US counterparts that China considered the South China Sea also as its core interest in addition to Taiwan and Tibet. By core interest, China means an issue on which no compromise on the question of sovereignty is possible. Neither the US nor the ASEAN countries have accepted the new Chinese assertion of the South China Sea as of core interest to China with Chinese sovereignty paramount.
12. Since the beginning of this year, sections of the Chinese media and non-Governmental experts have mounted a campaign to oppose the Vietnamese action in awarding these three blocks to an Indian company for exploration on the ground that these blocks belonged to China. The Chinese contention has been rejected by Vietnam.
13. The firm adherence of the OVL and the PV to the contracts of 1988 and 2006 in respect of these blocks has infuriated the Chinese. After the signing of the three-year framework agreement at New Delhi on October 12, the party-owned “Global Times” and the “China Energy News”,owned by the party-owned “People’s Daily”, have come out with comments of a jingoistic nature on the subject.
14. In an editorial published on October 14, the “Global Times” wrote: “Both countries clearly know what this means for China. China may consider taking actions to show its stance and prevent more reckless attempts in confronting China in the area. By inking pacts with Vietnam, India probably has deeper considerations in its regional strategy than simply getting barrels of oil and gas. India is willing to fish in the troubled waters of the South China Sea so as to accumulate bargaining chips on other issues with China. There is strong political motivation behind the exploration projects. China’s vocal objections may not be heeded. China must take practical and firm actions to make these projects fall through. China should denounce this agreement as illegal. Once India and Vietnam initiate their exploration, China can send non-military forces to disturb their work, and cause dispute or friction to halt the two countries’ exploration. In other words, China should let them know that economic profits via such cooperation can hardly match the risk.” .
15.In a front-page commentary published on October 16, the “China Energy News” said: “India is playing with fire by agreeing to explore for oil with Vietnam in the disputed South China Sea. India’s energy strategy is slipping into an extremely dangerous whirlpool. On the question of cooperation with Vietnam, the bottom line for Indian companies is that they must not enter into the disputed waters of the South China Sea. Challenging the core interests of a large, rising country for unknown oil at the bottom of the sea will not only lead to a crushing defeat for the Indian oil company, but will most likely seriously harm India’s whole energy security and interrupt its economic development. Indian oil company policy makers should consider the interests of their own country, and turn around at the soonest opportunity and leave the South China Sea.”
16.The association of the Indian company with exploration for oil and gas in the blocks awarded by Vietnam is 23 years old. One of the blocks is already producing gas, in one block exploration has been given up as there was no oil or gas and in the third the exploration is still going on.
17.After having kept quiet for 23 years, sections of the party-owned media in China have mounted a jingoistic campaign against India and Vietnam —more particularly against India— on the ground that the exploration violates China’s core interest. Till now, for the last 23 years, China had never tried to disrupt the Indian exploration through the use of force, but now the “Global Times” has urged the Government to use force to disrupt the Indian exploration.
18.It is not yet known whether the media comments reflect the views of the Chinese Government. The options available to India if the Chinese security forces use force in future to disrupt the exploration have to be carefully examined so that we are not taken by surprise. At the same time, the matter has to be discussed at the diplomatic level with the Chinese authorities. It is apparent from the campaign that there is a lot of lack of knowledge of the long Indian association with oil/gas exploration in the community of Chinese strategic analysts. This has to be rectified.
(The writer is Additional Secretary (retd), Cabinet Secretariat, Govt. of India, New Delhi, and, presently, Director, Institute For Topical Studies, Chennai, and Associate of the Chennai Centre For China Studies. E-mail: email@example.com . Twitter : @SORBONNE75)
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