CONOCO PHILLIPS AND BP CONCERNS ABOUT PROJECTS IN

C O N F I D E N T I A L SECTION 01 OF 02 HANOI 001119 SIPDIS SIPDIS DEPT FOR EAP/MLS AND EB E.O. 12958: DECL: 06/14/2017 TAGS: ECON ENRG EPET PREL VM CH SUBJECT: CONOCO PHILLIPS AND BP CONCERNS ABOUT PROJECTS IN THE SOUTH CHINA SEA REF: HANOI 1076 HANOI 00001119 001.2 OF 002 Classified By: Ambassador Michael W. Marine; Reasons 1.4 (b) and (d) ¶1. (C) Summary. In separate meetings, officials of Conoco Phillips (CP) and the UK Ambassador briefed the Ambassador on the latest developments regarding China's pressure to stop work on gas projects licensed by Vietnam in the South China Sea in the vicinity of the Spratly Islands. According to CP officials, PetroVietnam, the state-owned energy firm, seems intent on forcing ConocoPhillips to honor the contract despite BP's refusal to continue operations. CP is convinced Vietnam has the more valid territorial claim to the disputed area. UK Ambassador Robert Gordon said the British are inclined to buy the "more pessimistic" theory that China's actions mark a permanent shift in its determination to assert its rights as a greater China rather than mere posturing in the run-up to the upcoming CCP Party Congress. End Summary. ¶2. (C) Three officials of Conoco Phillips/Vietnam - Bobby C. Nolen, President; Jim Andrew, Manager of Business Development and Government Affairs; and Ms. Nguyen Minh Tu, Government Affairs Coordinator - called on the Ambassador on June 13 to inform him of the latest developments affecting their work in the energy consortium headed by British Petroleum (BP). BP and its contractor, ConocoPhillips, signed a contract with the Vietnamese state-owned energy firm, PetroVietnam, to conduct exploratory operations in two disputed drilling areas in the South China Sea, blocks 5.2 and 5.3. ConocoPhillips holds a minority interest in block 5.2 and a majority interest with PetroVietnam in block 5.3. ¶3. (C) According to Nolen, the Chinese government told BP to halt its exploratory work or face economic consequences. As a result, BP has suspended the contract and ceased activity in the area. However, Nolen told the Ambassador that ConocoPhillips faces contractual deadlines -- 2008 in block 5.2, and 2010 in block 5.3 -- in which to conclude "significant seismic activity." He believes PetroVietnam is intent on forcing ConocoPhillips to honor the contract despite BP's refusal to continue operations. Nolen revealed that Bill Berry, CP's Executive Vice President for Exploration and Production, met this week with Vietnamese Deputy Prime Minister Nguyen Sinh Hung and Vice Foreign Minister Le Van Bang in order to discuss the status of the stalled project. While the DPM and DFM assured Berry of the GVN's strong interest in seeing this signficant project completed, they did not provide a timeline for resolution of their territorial dispute with the Chinese government. Berry proceeded to Beijing for further discussions. ¶4. (C) The Ambassador asked whether ConocoPhillips holds a particular position on the validity of Vietnam's territorial claim. Nolen replied that his company's legal reviews show that Vietnam has the most valid claim given the area's close proximity to Vietnam and its relative distance from Chinese territory. When the Ambassador questioned whether the drilling area is near the contested Spratly Islands, Nolen said no, noting that the area is several hundred miles away. The executives showed the Ambassador several maps that detail the area in the South China Sea. ¶5. (C) When the Ambassador asked whether anyone might adjudicate the matter, Nolen said the International Court of Justice (ICJ) could adjudicate and noted that Vietnam and China are both signatories to the ICJ. However, he acknowledged that there is no precedent for the use of the ICJ mechanism to solve territorial disputes of this type. ¶6. (C) The Ambassador noted that the GVN had conveyed to us the message that the GVN will do "everything necessary" to ensure ConocoPhillips,s ability to do business in the area and fulfill its contract (reftel). Nolen replied that GVN officials assured ConocoPhillips of its strong interest in seeing this signficant project completed and have urged CP to move ahead on its work plan. ¶7. (C) The Ambassador informed Nolen that, to his knowledge, the USG has not had discussions with the Chinese government regarding this issue. The Ambassador urged CP to continue sharing information to ensure the USG fully understands the issues. Nolen said there is a possibility that ConocoPhillips may ultimately "unwind" from its contract with PetroVietnam, but asked the Ambassador not/not to communicate this point outside USG channels. UK Ambassador Robert Gordon HANOI 00001119 002.2 OF 002 -------------- ¶8. (C) UK Ambassador Robert Gordon met with the Ambassador on June 14 and provided additional information as seen from the BP perspective. Ambassador Gordon described BP's unhappiness over a recent news leak that revealed details of BP's difficulties with the Chinese government concerning this project. Noting that BP has significant interests in China, he said the British government holds two contending theories regarding the Chinese government,s motivations for taking these actions now in the South China Sea. The first theory argues that the Chinese are merely posturing in the run-up to the upcoming CCP Party Congress. The second, and "more pessimistic," theory holds that China's actions mark a permanent shift in its determination to assert its rights as a greater China. He indicated that the British Foreign Ministry is inclined to support the second theory. ¶9. (C) Ambassador Marine offered a third option: The Chinese government may have assessed its comprehensive energy resources/needs and historical claims, and decided to pursue all disputed resources vigorously. The Chinese government staked out a claim on this area years ago, but had not voiced objections until now over BP activities in these blocks. The Chinese may have decided to pick a fight with the Vietnamese government for other reasons, but regardless of the reason, "Vietnam can't afford to blink." The UK Ambassador said that Sebastian Wood, the Foreign Office's Director of Asia Pacific Affairs, will shortly arrive in Vietnam in order to discuss the issue with the GVN. ¶10. (U) Subsequent to the Ambassador's meetings, the following q and a took place at the press briefing at the Vietnamese Ministry of Foreign Affairs on June 14: Begin text What is your response to BP's suspension of its excavation of two (oil) blocks (in Vietnam's offshore area) which was announced in London yesterday? (Reuter) It is confirmed that all cooperation activities between Vietnam and foreign partners, including BP and Conoco Phillips, on the continental shelf of Vietnam have been going on well and will be continued so. Another affirmation is that the two blocks (as you mentioned) belong to the exclusive zone and the continental shelf of Vietnam. (The control over) the two blocks are within the sovereignty rights and jurisdiciary rights of Vietnam. Therefore, all production and exploration activites in this area are up to Vietnam to decide. End text MARINE