Nikolai Brunich, Director General of Zarubezhneft, and Phug Dinh, the Chief Executive Officer of Petrovietnam, entered into several cooperation agreements for developing cooperation on projects in the petroleum industry.

According to Viktor Gorshenev, Zarubezhneft first deputy general director, the agreements contemplate the creation of a tight bond between the Vietnamese oil sector and the Russian company. Specifically, it is expected that in October of 2010 the companies will enter into an agreement that would allow Zarubezhneft to explore and develop the southern continental shelf of Vietnam. Zarubezhneft is also likely to take part in the gas development project in Vietnam. The Russian company is expected to make a decision on the gas venture by December 2010.

Rusvietpetro is the joint venture between the companies. The company is expected to extract its first oil in the third quarter of 2010. In the next few years the company anticipates that its stated reserves will increase to over 100 million tons.

Mr. Gorshenev had earlier said that Zarubezhneft will sign a contract with its Vietnamese counterpart for developing the 09-1 block on the southern shelf of Vietnam sometime in the fall of 2010. In August, Petrovietnam submitted to the country’s government the principal technical and economic characteristics of the project and is now awaiting approval.

It is likely that the contract between the Russian and the Vietnamese entities will be concluded during the planned visit of the Russian President to Vietnam. Dmitry Medvedev is expected to travel to the South Asian state in October.

The 09-1 block includes the White Tiger and the Dragon fields. Vietsovpetro, another joint venture group between Petrovietnam and Zarubezhneft, is currently conducting exploratory work in the area.

The gas project that Zarubezhneft must decide on in the coming months envisions the development of the 05-2 and 05-3 gas condensate blocks, whose reserves have been calculated at 200 million tons of oil equivalent. The Russian company is now reviewing geological surveys and plans to hold consultations with Petrovietnam on making changes to the project’s roadmap. For one, Zarubezhneft would like to get a more accurate picture as to how the natural resources are distributed in the two gas fields. In July 2010, the companies inked joint memoranda of intent stating that Zarubezhneft plans to enter into the project. The documents will remain in force for half a year.

The Russian company did not receive from Vietnam a statement of its prior investment in the development of the gas fields yet. One notable advantage that is likely to lead Zarubezhneft into accepting the leading role in the development of the 05-2 and 05-3 blocks is that the two sites are located in close proximity to the areas already being explored by Vietsovpetro. As a consequence, the cost of the project’s implementation will be minimized. At the present time, the position of Zarubezhneft is that Vietsovpetro should be in charge of the project. Petrovietnam in its turn wishes to be the sole operator. The two blocks at issue were under development by British Petroleum before the end of 2009, when the fields were abandoned.

The package of agreements signed between Russia and Vietnam included a protocol for the meeting of the joint board of Vietsovpetro, the meeting of the shareholders of Rusvietpetro LLC, as well as the memorandum on blocks 05-2 and 05-3.

Vietsovpetro was instrumental to developing the production of hydrocarbons resources in Vietnam in the 1980s and 1990s, and is now responsible for almost 40 percent of Vietnam’s oil production. As such, the oil company accounts for 18 percent of Vietnam’s GDP and around one fifth of the country’s revenue. In the near future Vietsovpetro will be reorganized into a limited liability company. Petrovietnam will have a 51-percent stake in the company, while Zarubezhneft will retain a 49-percent stake.

For 2010 Vietsovpetro set the goal of producing 6 million tons of oil, and the company expects that the targets will be easily reached. The company’s shareholders have also devised long-term plans for the venture. Vietsovpetro set 5-year targets for production this year. Under previous practices, the company had only a 2-year planning period.

According to Sergei Kudryashov, Deputy Minister of Energy of the Russian Federation, the work of Vietsovpetro is the most vivid example of successful bilateral cooperation between Vietnam and Russia. In addition to developing the oilfield at block 09-1, the company is involved in other projects in Vietnam and other countries. The joint venture has been in existence since 1981, and oil production was at its highest in 2002, with 13.5 million tons produced. Production volume for 2010 has been estimated at 6.2 million tons. With Vietnam’s declining reserves, the company’s production is likely to go down in the future.

Viktor Gorshenev of Zarubezhneft believes that Rusvietpetro will have stated reserves exceeding 100 million tons in the near future. The company is now engaged in developing several sites in the Central Khorei Ver region in the Nenets autonomous district of Russia that have combined C1+C2 reserves of up to 95 million tons. Zarubezhneft intends to participate in auctions and tenders for access to other oil and gas fields.

At the current rate of preparatory efforts, Rusvietpetro will produce its first ton of oil in the third quarter of 2010. At first, production will be 1 to 1.2 million tons. Production is expected to rise to 2 million tons. The oil will be transported to the South of Russia through Transneft’s pipeline delivery network. Zarubezhneft holds a 51-percent stake in Rusvietpetro. Petrovietnam’s share is at 49 percent.