International Business : Vietnamese Officials Eager for U.S. Firms to Join Search for Oil

ISSUE: Vietnamese officials are optimistic that oil production will play an increasingly important role in their country’s economy, despite disappointing results from early offshore exploration.

When Vietnam opened its coastal waters to exploration in the 1980s, 26 major European, Japanese and Australian firms lunged at the chance to hunt for oil in what many consider to be the last part of the world where reserves are likely to exist and exploration has been minimal.

American firms were excluded because of the U.S. economic embargo.

At least two firms, Britain’s Enterprise Oil and Petro Canada, have decided against continuing to explore because they have not found oil in sufficient quantities to make the investment worthwhile.

“I personally remain very optimistic about the oil and gas potential of Vietnam,” said Ho Si Thoang, chairman of PetroVietnam, the government oil monopoly. “Some blocks have not been successful so far, but many companies are asking for an extension.”

BACKGROUND: Oil was discovered off Vietnam in 1975, just as the war was ending, by Mobil Corp. Mobil’s investment was lost when the South Vietnamese government collapsed to communist forces from Hanoi.

Mobil’s platforms were taken over in 1986 by a joint Soviet-Vietnamese company called VietSovPetro--still the only commercial oil producer in Vietnam.

Production at the White Tiger field has risen steadily to 176,000 barrels a day, about 6.3 million tons of petroleum a year. All of the oil is exported--mostly to Japan--because Vietnam still has no refinery.

Next year should see commercial production starting in the Big Bear oil field, which lies southwest of White Tiger. Big Bear is believed to be Asia’s largest untapped oil field, with 800 million barrels of oil and another 3 trillion cubic feet of natural gas, according to BHP, the Australian oil company leading the consortium that is exploring Big Bear.

The East-West Institute, a think tank based in Hawaii, estimates that Vietnam has about 1.7 billion barrels of oil reserves overall. It predicted that oil production could reach 350,000 barrels a day by the year 2000.

OUTLOOK: Although the American embargo has not been lifted, Mobil has been given a license to take part in a consortium looking for oil in the Blue Dragon field, another area believed to be rich in natural resources.

Under the terms of its license from the Treasury Department, Mobil can conduct seismic surveys and exploratory drilling, but cannot begin commercial production until the embargo is lifted.

The Vietnamese have been eager to get American oil companies involved for two reasons: U.S. firms have special skills, developed for the Gulf of Mexico, to extract oil using deep-water platforms. And they wield considerable political influence in Washington, where the Clinton Administration is weighing whether to end the embargo.

Sen. Bennett Johnston, a Louisiana Democrat, told the Vietnamese here recently, “It’s a very good bet that you can do business with Americans and (that) by the time you find the oil, the embargo will be lifted.”

STRATEGY: An end to the embargo will create special opportunities for U.S. companies in the energy sector, not only in oil production.

The government is already drawing up plans for two oil refineries that will cost $300 million each.

A $350-million liquefied natural gas plant is also planned for Vung Tau, a small port north of Ho Chi Minh City that is the center of the country’s oil and gas activity. Several pipelines are in the works.

Big American construction firms, such as Brown & Root and Bechtel, are well placed to bid on such projects, because they helped build the original port facilities and infrastructure at Vung Tau under contract to the United States and South Vietnam. They are believed to have most of the old blueprints--lost long ago in Vietnam--in their office files.

U.S. construction companies are likely to start bidding on projects being financed by the World Bank and the Asian Development Bank because the Clinton Administration has already exempted those projects from the embargo.

The projects are expected to include rebuilding the country’s north-south highway and bringing electricity from the undeveloped north to the power-hungry south.