Repsol and the future of S. China Sea energy

/

So the long and difficult case of Repsol energy is over in Vietnam. A bit of history here: Repsol signed an agreement with the Vietnamese government to develop 2 blocks in the South China Sea back in the day. Then in 2017 one of them was cancelled after push back from China. And in March 2018, the second project was halted as well. Repsol at the time said that it would ask for compensation.

Now Repsol, in a statement published on the Madrid stock exchange on Monday, said that it:

“has signed an agreement with PetroVietnam to transfer to the latter its 51.75% stake in Block 07/03 PSC and its 40% stake in Blocks 135-136/03 PSC in Vietnam.”

Notably there is no significant impact on Repsol’s financial statements, so either a) there was no compensation, or b) the compensation is so minimal that it wouldn’t make a material impact. I feel bad for Repsol, because I am sure it took forever to negotiate these.

The second block (Block 07/03 PSC) was to produce:

The field’s estimated potential recovery is around 45 million barrels of crude oil, 172 billion cubic feet of natural gas and 2.3 million barrels of condensate, a super light form of crude oil that is mostly a byproduct of gas production.

This would equate to more than $2bn in revenues for the oil company (less in income, because Respol only owned 51.75% and the Vietnamese state would take out taxes/fees). But this would have been significant. The company had $2.0bn in upstream operating income in 2019. And it seems unclear, based on what I have read, to determine how much oil and gas is in the South China sea.

Right now, it looks like there is still a Rosneft oil project off the coast of Vietnam, which the Vietnamese government has zealously guarded (literally - it sent out ships to protect the drilling).

Vietnam is not along. Other ASEAN countries are facing similar pressure from China, and they have taken different paths. Duerte in the Philippines signed an agreement with China to jointly explore for oil and gas in the South China Sea. This was hotly contested in the country and internationally.

And Malaysia has arguably lost a dispute with China over a block very close to where Repsol was supposed to develop. Basically, Petronas, the Malaysian NOC, sent out a contractor (Seadrill) ship to do exploratory drilling in the block. The survey was supposedly successful, but it was involved in a standoff with a Chinese state-owned survey ship. And ultimately, Petronas may have to tie up with a Chinese NOC to develop any field.

Sorry to keep harping on the same thing over and over, but this is YET ANOTHER reason to focus on renewables. Sure, offshore wind mind face some difficulties, but most offshore wind isn’t far offshore. And there is plenty of solar and on-shore wind potential within Vietnamese borders. If there is little need for oil and gas, and if oil and gas are less lucrative because everyone is shifting to renewables, then maybe we can de-escalate disputes over the South China Sea. Wishful thinking, I know.