Oil Boom Makes Waves in South China Sea : Energy: Expectations are high as international companies pump in the cash to extract the gas.

More than 300 years ago, Portuguese mariners christened this wind-swept peninsula Cap St. Jacque. Over the centuries, it became the favorite seaside playground of rich Vietnamese, French colonialists and U.S. servicemen on leave from the long Indochina War.

Now, once-sleepy Vung Tau is being transformed into an oil boom town, reflecting the rush of international energy companies into the uncharted but hotly contested South China Sea.

Flashy hotels and beach resorts cater to expensively attired oil executives representing 27 European, U.S. and Japanese companies that have signed contracts with the Vietnamese government for offshore drilling rights.

Equipped with advanced drills and computers, roughnecks in cowboy boots have displaced several thousand Russian workers who used technology better suited to Siberia to operate 10 aging rigs in Vietnam’s White Tiger offshore field for the past decade.

In 1981, when Communist ties still bound Vietnam to the former Soviet Union, the Russians and a handful of Ukrainians and Azerbaijanis came to Vung Tau to exploit oil discovered by Mobil Oil Corp. The U.S. company had opened up Vietnam’s first two offshore fields--Big Bear, the largest and most prolific, and White Tiger, which industry sources describe as a billion-barrel field.

Because of the Communist takeover in 1975, Mobil did not recover a drop of oil from its discoveries. The collapse of the U.S.-backed South Vietnamese government forced the company to suspend operations in the turbulent South China Sea, where typhoons and Chinese gunboats are occupational hazards in the international scramble for about $1-trillion worth of oil and natural gas.

“The jury is still out on whether Vietnam will become another Norway or North Sea,” says Robert Aberbach, a Mobil executive who helped negotiate the return of the U.S.-energy giant a few months ago. “Expectations are high, but so are the risks.”

In the last eight months, five separate oil discoveries off Vietnam’s southeastern coast have been announced by Malaysia’s Petronas, Japan’s Mitsubishi Oil, France’s Total, British Petroleum and Vietnam’s joint venture with Russia, VietSovPetro. These finds come on top of 6.9-million metric tons of oil pumped last year by VietSovPetro from the Dragon and White Tiger fields. Australia’s BHP Petroleum started pumping in Big Bear last October. Mobil is now drilling right next-door.

Until President Clinton lifted the trade embargo against Vietnam last year, U.S. companies were shut out of the international oil scramble, even though they were willing to share badly needed technical know-how with neighboring countries such as Malaysia, Singapore and Indonesia. Mobil’s multimillion-dollar investment has made the United States Vietnam’s 10th-largest trading partner and 11th-largest foreign investor, according to the Vietnamese liaison office in Washington.

“After Vietnam’s unhappy experience with the Russians,” says Mobil attorney N.E. (Skip) Maryan Jr., a former Navy pilot who fought in Vietnam, “the Vietnamese wanted superior American technology and a buffer against the Chinese. The Vietnamese think we have the keys to unlock the South China Sea.”

But China claims about 80% of the sea in a sweeping horseshoe-shaped tract that runs the length of Vietnam’s coastline and includes the disputed Spratly Islands, scattered over 340,000 square miles. Malaysia, Brunei, Vietnam, Taiwan and the Philippines also claim sovereignty over at least some of the Spratlys. All except Brunei have military forces occupying parts of the archipelago.

China and Vietnam both claim the Paracel Islands off the Vietnamese coast. To back up China’s assertions of sovereignty, its warships spy on oil rigs licensed by Vietnam and have blocked resupplying of several drilling ships. Backed by 24 long-range fighter-bombers recently purchased from Russia, China has fortified several Spratly atolls since driving Vietnamese marines from the archipelago in 1988.

Diplomats and oil-industry analysts tell National Geographic that by doling out exploration contracts for areas claimed by China, Vietnam risks a military clash with its gigantic neighbor--something that has happened twice in the last 20 years. Of the nearly 100 wells drilled so far in the South China Sea, none is Chinese, which analysts say accounts for some of Beijing’s belligerence.

“Vietnam is a dangerous ballgame for the majors,” says Piers Tonge of the Petroleum & Energy Intelligence Weekly in Singapore. “Everyone rushed into Vietnam, but until they understand the geology better, the oil companies are just holding their breath.”

The companies have had to drill deeper than planned, costing them millions in overruns, only to find unlikely sources of oil. Dozens of holes have been dry. Oil analysts quote British Petroleum officials as saying their discovery was a fluke.

“Mobil is squirming,” Tonge says. “Everyone underestimated the risks in Vietnam, and no one understands the geology of those basins. The undersea structures change every 50 miles. They’re having to rewrite the rules as they go.”

A Mobil-chartered drilling rig more than 200 miles offshore in “Typhoon Alley” has been abandoned temporarily at least three times because of foul weather. Raging seas and pitching decks make the delivery of precious drilling pipe and other supplies hazardous for helicopter pilots and supply-boat crews working out of Vung Tau, where the weather is balmy and the seas are calm much of the year.

One of two wells drilled in the Blue Dragon field by MJC Petroleum, an international consortium led by Mobil, was abandoned in March after drillers encountered a pocket of unusually high pressure. A second attempt is planned this summer.