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Cablegate: Chevron Vietnam Executives Discuss Energy Project

VZCZCXRO0402
RR RUEHCHI RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHPB
DE RUEHHI #1379/01 2151735
ZNR UUUUU ZZH
R 031735Z AUG 07
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC 5994
INFO RUEHHM/AMCONSUL HO CHI MINH 3461
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION

UNCLAS SECTION 01 OF 02 HANOI 001379

SIPDIS

STATE FOR EAP/MLS AND EEB
STATE PASS USTR FOR BISBEE

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EPET ECON ENRG TRGY EINV ETRD VM
SUBJECT: CHEVRON VIETNAM EXECUTIVES DISCUSS ENERGY PROJECT

HANOI 00001379 001.2 OF 002


(U) THIS CABLE IS SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET.

1. (SBU) Summary: Chevron Vietnam Ltd has been negotiating for
several years with Vietnam's Ministry of Industry (MOI) and the
state-owned energy firm, PetroVietnam, over the Malay-Tho Chu Basin
Natural Gas Concession Project. Chevron seeks to extract and sell a
portion of the gas into regional markets, which would allow the
company to provide gas to the power generators in Vietnam at a
competitively low price while earning a viable return on investment
on the venture. While the production sharing agreement originally
signed by Chevron and PetroVietnam gives Chevron the right to export
27 percent of the gas, MOI is now resisting this move. Chevron
could ultimately terminate the project if MOI continues to deny the
company the right to export a share of the gas. End summary.

2. (SBU) On July 25, Econoff met with three executives of Chevron
Vietnam Ltd: Andrew Latham, President; David Bates, Senior Counsel;
and Jim Ollen, Chief Representative, to learn about Chevron's work
in Vietnam. Chevron has been negotiating with MOI and PetroVietnam
for several years over the Malay-Tho Chu Basin Natural Gas
Concession Project, and has signed a Letter of Intent with
PetroVietnam. The Malay-Tho Chu Basin is located off the
southwestern tip of Vietnam, in the eastern Gulf of Thailand.
Geologists estimate the Chevron parcel contains approximately 3.6
trillion cubic feet of gas (TCFG). Chevron proposes to extract the
gas and transport it to an onshore power plant in southern Kien
Giang Province via a 400-kilometer pipeline that Chevron would
build.

3. (SBU) The executives explained that while conventional reservoirs
typically require anywhere from six to several dozen drilling rigs
to extract the gas, the fractured nature of the Malay-Tho Chu Basin
will require that Chevron construct and disassemble 400-500 drilling
rigs to recover all of the gas. Consequently, the drilling and
completion costs, including construction of the pipeline, will
likely cost as much as USD 2 billion. Moreover, due to the rapid
escalation in costs of materials and services in the construction
sector over the last year - as negotiations with MOI and
PetroVietnam have dragged on - Chevron needs to sell a portion of
the gas into regional markets, primarily to Thailand. This will
allow Chevron to provide gas to Electricity Vietnam (EVN) power
generators at a competitively low price while earning a viable
return on investment on the venture.

4. (SBU) Although the production sharing agreement (PSC) signed by
Chevron and PetroVietnam gives Chevron the right to export 27
percent of the gas, MOI is now resisting this move. In a meeting
with Chevron one year ago, MOI's Minister Hai confessed that
political considerations were behind his refusal to allow Chevron to
export a share of the gas. According to Hai, the Vietnamese people
already view power and gasoline as prohibitively expensive, despite
heavy subsidization by the GVN, and blame foreign energy companies
for gouging the Vietnamese consumer. Allowing Chevron to export a
share of the national wealth would merely exacerbate this
perception, he said.

5. (SBU) Latham highlighted what he sees as a disconnect between the
often lofty commitments made by GVN leaders, and the cautious,
almost grudging actions of the GVN bureaucracy, by describing a
scene he witnessed at a PetroVietnam anniversary celebration in
February 2007. At the event, Vietnamese Prime Minister Nguyen Tan
Dzung stood up and launched into a lengthy diatribe berating
PetroVietnam's assembled staff for their poor performance. Latham
said Dzung has sharply criticized PetroVietnam's failure to
undertake or complete energy infrastructure projects during several
on-camera interviews recently.

6. (SBU) The Chevron executives were inquisitive about the motives
behind China's recent confrontation with the GVN over BP's work in
parcels 53 and 54 near the Spratly Islands. Chevron would like to
commence gas explorations in a parcel located approximately 500
miles north of the Islands, along the disputed line of demarcation,
and the company is evidently concerned about China's potential
reaction.

7. (SBU) To date, Chevron has invested approximately USD 100 million
in the Malay-Tho Chu Project. Latham, who pointedly noted that
Chevron abandoned its holdings in Sudan in 1984 after the company
had invested over USD 1 billion, said Chevron could do the same in
Vietnam if MOI continues to deny the company the right to export a
share of the gas.

8. (SBU) If Chevron ultimately abandons the project, Latham said it
is conceivable that a Russian, Chinese, Malaysian, or Venezuelan
energy firm could step in to build the pipeline and agree to sell
100 percent of the gas to PetroVietnam. However, he said Chevron's
expertise is particularly suited to the technical challenges of this

HANOI 00001379 002.2 OF 002


project, and warned that the integrity of the enterprise could
suffer if taken over, for example, by the Russian state-owned oil
firm Zarubezhneft, or Venezuela's state-owned oil company, PDVSA.

MARINE

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