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PETROLEUM
AGREEMENTS
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Introduction |
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The
first type of oil and gas agreement applied in Vietnam
was the concession system, in which an oil company is
permitted by the host country to explore and produce petroleum
on a certain area on the condition that it must pay to
the State of this country compulsory taxes with a fixed
rate. At the early stage of oil exploration in offshore
southern Vietnam, the former Saigon Administration allowed
oil companies including Pecten, Mobil, Esso and Marathon
to conduct petroleum activities through concession agreements. |
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After
the establishment of PetroVietnam in 1975, in recognition
of the advantage of the production-sharing system, it
has been chosen as a basic frame for petroleum contracts.
The Production-Sharing Contracts (PSCs) are very similar
to Business Co-operation Contracts (BCCs) as an investment
form. The benefits of the PSC system, in comparison with
the concession system, in the environment of Vietnam,
is the flexibility that enables the oil company to enter
into an agreement with the Government on a wide range
of issues, especially on the financial matters, which
will lead to an "open" mechanism applicable
for many regions with various geographical and economic
conditions on the principle of ensuring the right of investors
during the period of the project. |
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Since
the first PSC signed with oil companies Deminex (block
15), Agip (blocks 04, 12) and Bow Valley (blocks 28, 29)
during the period 1978-79, the form of a PSC in Vietnam
has continuously progressed with its main objectives being
to encourage foreign investors, to ensure equity between
the revenue of the State and the profit of the company,
while strengthening the role of State management in the
operation of oil and gas activities. The Law of Foreign
Investment in Vietnam (1987), the Petroleum Law (1993)
and a system of specialized legal documents and regulations
have played an important role in attracting foreign investment
into the oil and gas industry, thus pushing up the tempo
of exploration and increasing the output of hydrocarbon
production. The Vietnamese PSCs comprise a number of terms
that were developed from similar systems to increase conformity
with flexible policies of the Government of Vietnam and
still maintaining its suitability to common international
practices. |
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Recently,
the Government of Vietnam has developed a new investment
form similar to the Joint Venture Contracts that apply
to the petroleum industry called the Joint Operating
Agreement (JOA). The JOA by nature is an extended type
of conventional PSC, which has been applied for most
prospective projects since 1998 on the basis that foreign
parties shall bear all the costs and take risks during
the exploration phase. The cooperation is represented
by the Joint Operating Company (JOC), a Vietnamese legal
entity which merely acts as an agent on behalf of the
contracting parties. The major differences are that
PetroVietnam has higher participating interest than
in a PSC, normally of 30-50% and the right to assign
its own staff to the JOC from the beginning.
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The
effects of the amendments to the Petroleum Law since June
2000 have brought new incentives for foreign investment
in the industry. The table below summarizes the basic
terms of a petroleum contract, with regards to the new
modifications. |
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BASIC
TERMS OF A PETROLEUM CONTRACT |
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Contractual
Duration: |
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| Oil
Projects |
Not
in excess of 25 years with 5 years for exploration |
| Gas
and Incentive Projects |
Not
in excess of 30 years with 7 years for exploration
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| Contractual
Area: |
Not
more than 2 blocks or 4 blocks in special cases |
| Participation
of PetroVietnam: |
Negotiable
(10-20% in a PSC or 30-50% in a JOC) |
| Work
Program and Budget: |
Firm
and optional, including:
- Periods of each exploration phase
- Work commitments (seismic, drilling, etc.)
- Relative financial commitments |
Tax
Regime:
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| Royalty
Tax |
4-25%,
tax deductible, subject to rate of production output
as below: |
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| Crude
Oil |
Incentive
Projects
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Other
Projects
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| Up
to 20,000 bopd |
4%
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6%
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| Over
20,000 - 50,000 bopd |
6%
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8%
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| Over
50,000 - 75,000 bopd |
8%
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10%
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| Over
75,000 - 100,000 bopd |
10%
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15%
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| Over
100,000 - 150,000 bopd |
15%
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20%
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| Over
150,000 bopd |
20%
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25%
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| Natural
Gas |
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| Up
to 5 mmcmd |
0%
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0%
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| Over
5 mmcmd - 10 mmcmd |
3%
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5%
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| Over
10 mmcmd |
6%
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10%
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| Enterprise
Income Tax |
32%
for incentive projects; 50% for others |
| Remittance
Tax |
3-7% |
| Value
Added Tax (VAT) |
0-10% |
| Export
Tax |
4%
for Oil, non applicable for Gas, tax deductible |
| Maximum
Cost Recovery: |
Up
to 70% for incentive projects; up to 50% for others |
| Profit
Sharing: |
Incremental
tranches with agreed ratio among the Parties |
| Financial
Contribution |
Negotiable
(non-recoverable costs) as seen generally in international
petroleum industry common practice
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