Vietnam halts South China Sea oil drilling project under pressure from Beijing

HANOI/SINGAPORE (Reuters) - Vietnam has halted an oil drilling project in the “Red Emperor” block off its southeastern coast licensed to Spanish energy firm Repsol following pressure from China, three sources with direct knowledge of the situation told Reuters on Friday.

FILE PHOTO: A Repsol logo at a petrol station in Bormujos near the Andalusian capital of Seville, southern Spain March 3, 2016. REUTERS/Marcelo del Pozo/File Photo

It would be the second time in less than a year that Vietnam has had to suspend a major oil development in the busy South China Sea waterway under pressure from China.

A source with direct knowledge of the situation said government ministries in Vietnam had paused the project while the decision-making politburo debates whether to suspend or indefinitely terminate the contract.

The decision, which hangs on whether the fees incurred by contract cancellation will exceed the cost of resisting Chinese pressure, is on hold until the politburo meets, the source said.

That meeting has been delayed by overseas trips by Vietnam’s prime minister Nguyen Xuan Phuc, a series of visits by foreign dignitaries to Hanoi, and the death of former prime minister Phan Van Khai on Saturday.

“The ministries are determined to terminate the contract,” said the source, who asked not to be identified because of the sensitivity of the situation.

A source with direct knowledge of the situation confirmed that the project, which is a joint venture with state oil company PetroVietnam, had been stopped following pressure from China.

A source at Repsol told Reuters high-level executives had been discussing how to respond to the pressure, which had been applied both directly by China, and indirectly via Vietnam.

A spokesman for Repsol in Madrid declined to comment. PetroVietnam executives declined to comment. The Vietnamese foreign ministry did not immediately respond to an emailed request for comment.

Asked at a regular briefing if China had pressed either Vietnam or Repsol, Chinese foreign ministry spokeswoman Hua Chunying said she did not know where such news had come from, but did not elaborate.

“We hope the relevant sides can work together to maintain the hard-earned positive situation in the South China Sea,” she said.


Red Emperor, known in Vietnamese as the Ca Rong Do field, is part of Block 07/03 in the Nam Con Son basin, 440 km (273 miles) off the coast of Vietnam’s southern city of Vung Tau.

The $1-billion field of moderate size by international standards is seen as a key asset to help slow the decline of Vietnam’s stalling oil and gas production.

But the block lies near the U-shaped “nine-dash line” that marks the vast area that China claims in the sea and overlaps what it says are its own oil concessions.

Located in waters around 350 metres (1,148 ft) deep, it is considered to be profitable from around $60 per barrel. Current Brent crude oil prices are almost $70 per barrel.

The field’s estimated potential recovery is around 45 million barrels of crude oil, 172 billion cubic feet of natural gas and 2.3 million barrels of condensate, a super light form of crude oil that is mostly a byproduct of gas production.

Global crude oil, by comparison, is at almost 100 million barrels per day. Global gas consumption is around 4 trillion cubic metres per year.

The move came as Repsol was making final preparations for commercial drilling, according to the BBC, which first reported the news on Friday.

A rig, the Ensco 8504, was due to depart from Singapore for the drill site on Thursday, the BBC said, citing an unnamed energy industry source.

Repsol spent around 33 million euros ($41 million) on exploration in Vietnam last year, according to the company’s 2017 profit and loss statement.

Repsol’s top management considers the Red Emperor site one of the company’s future growth projects.

Repsol, which has a 51.75 percent stake in the project, signed a 384-million-euro rental contract for a rig to start work on a Vietnamese site in 2019, according to the statement.

Just under half the company’s 1 billion euro ($1.23 billion) investments for which contracts have been signed for 2018 are in Vietnam.

(This version of the story has been refiled to clarify attribution in paragraph 7)

Additional reporting by Jose Elias Rodriguez in MADRID and Christian Shepherd in BEIJING; Editing by Clarence Fernandez