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