(Adds comment on China-Vietnam territory dispute in eighth paragraph.)
Aug. 22 (Bloomberg) -- Vietnam Oil & Gas Group Chief Executive Do Van Hau said the company may reach an agreement by next year with Exxon Mobil Corp. on a $10 billion natural gas and power project, the country’s biggest of its kind.
Vietnam’s plans to develop its natural gas fields, estimated to be the fourth-largest in East Asia, received a boost from Exxon’s gas discovery off the coast in 2012, which Hau described last year as “huge.”
The first phase of the project would pipe gas from the field to a processing station from which it will be used to fuel a planned 2,500 megawatt power plant, Hau said in an interview in his Hanoi office on Aug. 19. The power plant, one of the country’s biggest, will help alleviate electricity shortages that are dragging on the $171 billion economy.
Exxon is interested in investing in the field, the pipeline and processing plant, according to Hau. Vietnam Oil & Gas, known as PetroVietnam, will be the main investor in the power plant, with the total project “somewhere around $10 billion,” he said.
“ExxonMobil is in ongoing discussions with PetroVietnam and Vietnam government agencies and businesses to evaluate the feasibility of developing central Vietnam’s natural gas resources,” Exxon Mobil spokeswoman Kim Jordan said in an April 20 statement.
The project includes developing the field, pipeline, gas plant and power plant. “A detailed cost estimate has not been developed,” she said in the statement.
The power plant project aims to tap 6 trillion to 8 trillion cubic feet of natural gas in the field off central Vietnam, Hau said in the interview. That amount of gas is about two-thirds of the proven reserves in neighboring Thailand and Myanmar, according to BP Plc data.
The Exxon field is not in disputed waters, Hau said, when asked if there is any concern that drilling in the area may create problems with China. “It’s very clear,” he said.
China has made claims to large sections of the South China Sea that are disputed by countries such as Vietnam and the Philippines.
While the talks with Exxon look promising, other international oil companies have stumbled in tapping Vietnam’s gas reserves.
Hau said last year that Chevron Corp. was looking for a buyer for its stake in gas fields off southern Vietnam after years of talks failed to reach agreement on the price PetroVietnam would pay for the fuel. Other partners in the Chevron fields are PetroVietnam, a unit of Japan’s Mitsui & Co., and Thailand’s PTT Exploration & Production Pcl.
“Chevron does not comment on speculation or confidential commercial matters,” Singapore-based spokesman Alex Yelland said in an e-mailed response to questions.
Hau said Chevron has been in talks with Rosneft OAO, Russia’s state-run oil company, for a few months over selling the stake for “roughly about” $200 million.
“We want them to complete their talks as soon as possible, and then we’ll see what terms and conditions they reach,” he said. Partners in the Chevron fields have a first option on any stake sales within the group, Hau said.
Rosneft “sees great capabilities and opportunities for growth in the cooperation with Vietnamese partners,” the company said in a statement on Aug. 20, declining to comment on specific talks.
Rosneft in July was placed on a list of entities under U.S. sanctions triggered by the conflict in Ukraine. It has since asked the state for as much as 1.5 trillion rubles ($41 billion) of aid. The company said in July it hasn’t changed its investment plans because of the sanctions.
Chevron owns 42.4 percent of a production sharing contract with Vietnam that covers areas known as Block B and block 48/95, according to a filing with the U.S. Securities and Exchange Commission. It also owns 43.4 percent in the adjacent 52/97 area.
“Concurrent with the commercial negotiations, the company is also evaluating the assets for possible divestment,” Chevron said in a February filing with the U.S. Securities and Exchange Commission.
PetroVietnam is optimistic about avoiding a repeat of the drawn out Chevron talks with Exxon, Hau said.
“We agree with Exxon Mobil that the gas price is going to be based on the market price,” Hau said. “We didn’t start yet talking about concrete formulas or the gas pricing scheme, but the main idea is to follow the market.”
Talks with Exxon Mobil over gas pricing, which may be linked to oil prices, may start next month, with an agreement possible “maybe within this year or sometime next year,” Hau said. More drilling is planned for December and production should begin in 2021, he said.
--With assistance from Elena Mazneva and Stephen Bierman in Moscow and Joe Carroll in Chicago.