PetroVietnam sign $11 bln oil agreement with Venezuela

Vietnam Oil and Gas Group, known as PetroVietnam, Thursday signed a 25-year accord with Venezuela to produce and explore for oil at an estimated cost of US$11.4 billion, according to Chairman Dinh La Thang. “Almost $5 billion, or 40 percent, will come from PetroVietnam and Venezuela will fund the remaining 60 percent,” Thang said by telephone from Hanoi.
Vietnam is trying to boost crude-oil output because of declining production at Bach Ho, the country's biggest field. State-owned PetroVietnam is setting aside as much as 10 percent of its annual earnings to establish a fund aimed at boosting oil exploration abroad and at home. Crude output fell 7 percent from last year to 10.78 million tons in the first nine months of this year.

The oil agreement was signed between top officials from PetroVietnam and state oil company Petroleos de Venezuela SA in the presence of Vietnamese President Nguyen Minh Triet, who is on an official visit to the Latin American nation.

Of the $11.4 billion, about $4 billion will be used to build a plant to upgrade the crude oil produced at Venezuelan fields, Thang said. PetroVietnam plans to transport the upgraded crude to a refinery in Vietnam, he said. “Venezuela's crude is heavy oil, so we need the plant to upgrade it to one of a higher quality for use in refineries in Vietnam,” Thang said.

Increasing output

Meanwhile, output at Su Tu Vang, Vietnam’s biggest oilfield to come onstream in the past five years, is expected to double to 65,000 barrels per day (bpd) by the end of 2008, boosting national crude production by 25 percent to 325,000 bpd.

The new production from Su Tu Vang, marketed as the existing Su Tu Den crude, would bring Vietnam’s total Su Tu Den exports to more than 100,000 bpd, the field’s operator, Cuu Long Joint Operating Company said in a statement Wednesday. The additional output has already started to weigh on the price of medium-light sweet Su Tu Den crude.

Last week, several companies agreed with Vietnam to buy term volumes of Su Tu Den for the first half of 2009 at a deep discount of $2.20 a barrel to Minas quotes, likely the deepest discount ever fetched in term discussions for the grade. Minas crude, from Indonesia, is used as a benchmark for oil prices in Asia. In contrast, for the current July-December term supplies, lifters had agreed on a record-high premium of $7.00 a barrel.

Adding pressure to the rising output, weakening oil demand in Asia has pushed most Vietnamese crude to record-deep discounts to their benchmarks over the past two months. Before Su Tu Vang’s commercial production in October, Vietnam’s total crude oil production averaged about 260,000 bpd, officials from PetroVietnam have said. Su Tu Vang now churns out about 30,000 to 32,000 bpd and its floating storage vessel, M/V Queensway, has a storage capacity of 1.1 million barrels.

Cuu Long JOC, led by US oil firm ConocoPhilips and PetroVietnam, said in a statement it planned to put into operation five more wells in the Su Tu Vang oilfield by the end of 2008 to reach the output target.

Flagship crude

At a production of 100,000 bpd, the Su Tu Den grade crude is expected to overtake Bach Ho next year as Vietnam’s flagship crude export since most of the Bach Ho output, which now stands at 150,000 bpd, would be used for the country’s first refinery, the 140,000-bpd Dung Quat plant. “Even when Dung Quat is at full capacity by the end of 2009, crude exports should still be maintained at nearly 200,000 bpd, thanks to the oil from block 15.1,” a PetroVietnam official said, referring to the block housing Su Tu Den and Su Tu Vang.

Five to six companies might have agreed to buy up to 60,000 bpd of Su Tu Den crude via term deals for the first half of next year, traders said last week. The rest are expected to be sold through monthly spot tenders, whose volumes have already surged this quarter, with some 1.2-1.5 million barrels offered for November and December, after the startup of Su Tu Vang.

The PetroVietnam official also said Cuu Long JOC planned to start production of smaller fields within block 15.1, which has been touted as the Golden Triangle by Vietnam’s oil sector, to ensure stable production of more than 100,000 bpd in the next several years. Block 15.1 is 50 percent owned by PetroVietnam. Conoco holds 23.3 percent. Other stakeholders include Korea National Oil Co with a 14.2 percent stake, SK Energy with a 9 percent stake and France’s Geopetrol with 3.5 percent.

Crude oil export is one of Vietnam’s top cash earners with revenues in the first 10 months jumping more than 43 percent to nearly $9.5 billion, reflecting higher oil prices earlier this year.