Slumping prices put Vietnam oil firms in hot water

Vietnamese oil firms have had to reduce production, lay off employees, and cut costs at a time when oil barely fetches US$30 a barrel, having slid from US$100 in mid-2014.

The current oil price is far from the estimates Vietsovpetro, a Russian-Vietnamese joint venture for oil and gas exploration, prepared in its 2016 business plan.

This year Vietsovpetro targets US$2.1 billion in revenue from the exploration of five million metric tons of oil, anticipating the price would average US$55 a barrel. But with oil at US$30 a barrel, the company only achieved half of that target.

An engineer works on an oil rig operated by Vietsovpetro off Vung Tau City, located in southern Vietnam.

In 2015 the company also fell short of their target revenue when the average barrel price was US$56.1 rather than the estimated US$75 a barrel.

It cost Vietsovpetro approximately US$24 to produce a barrel of oil last year and the current price means little likelihood of profit for the company, according to a seasoned oil and gas engineer.

The company has been trying to cut costs by ceasing some expensive, high-risk exploration projects and delaying several others.

“We have to stop exploring oil in some distant waters to save money for other essential spending,” said Nguyen The Kim, head of secretariat with Vietsovpetro.

“Although this affects our long-term and stable development strategies, no one will dare throw tens of millions of US dollars to oil exploration during these tough times.”

The company has also had to reduce the number of engineers at four of its oil rigs, and closed some platforms with poor production.

Another oil and gas giant, state-run PetroVietnam (PVN), is in the same boat.

A facility that makes oil platforms is seen in Vung Tau City in southern Vietnam.

Last year PVN managed to cut costs by US$3 billion and is currently seeking more cuts to avoid a global oil price development that is “causing myriad difficulties to the company,” deputy general director Le Minh Hong said.

The average production cost of PVN is currently US$24.4 a barrel, and the company is expected to trim production to 16 million metric tons, two million metric tons lower than last year.

The collapse in oil prices has also impacted many of the oil refineries PVN is developing, including Dung Quat, the country’s sole oil processing facility.

While Gazprom Neft had planned to buy a 49% stake in the US$3 billion facility, based in the central province of Quang Ngai, the Russian oil firm last month asked to cancel talks on the proposed purchase.

Gazprom Neft, the oil arm of top global gas producer Gazprom, said the move came after Vietnam refused to approve several preferential conditions it had requested, whereas PVN said the slumping oil prices could be held responsible.

The Russian firm may have decided to cease its investment expansion as a result of any difficulty they might be experiencing in the wake of the drop in oil price, according to PVN.

This could be the same reason why Qatar Petroleum withdrew its interest in investing in the PVN-developed Long Son refinery in the southern province of Ba Ria-Vung Tau, the company added.