On July 1, 2023, the Government issued Decree 45/2023/ND-CP ("Decree 45") detailing a number of articles of the 2022 Law on Petroleum. In addition to detailed instructions on the process of selecting contractors to sign oil and gas contracts, Decree 45 guides issues that investors are very interested in such as criteria for determining oil and gas plots eligible for investment incentives and principles of application of exploitation plans, clusters of mines, oil and gas blocks.
1. Providing the criteria for determining oil and gas blocks eligible for investment incentives
The 2022 Law on Petroleum sets out criteria for oil and gas blocks and fields to enjoy investment incentives (corporate income tax rate of 32%, crude oil export tax rate of 10%, and cost recovery of up to 70% of oil and gas production exploited during the year) and special investment incentive policies (tax rate collected enterprise import is 25%, crude oil export tax rate is 5% and cost recovery is maximum 80% of oil and gas production exploited during the year).
Decree 45 clarifies the determination criteria for a number of cases where oil and gas plots and fields fall under preferential status:
- Oil and gas blocks in deep-water, offshore areas, areas with extremely difficult geographical conditions and complex geology shall be defined as blocks with:
(i) The shallowest point of the oil and gas block is 150 m deep or more;
(ii) The nearest point to the shore of the oil and gas block is 150 km or more from the shore.
- A marginal oil and gas field is an oil and gas field with an intrinsic rate of return for the life of a project approaching less than 10% in USD terms and less than the average cost of capital.
Vietnam Oil and Gas Company - PetroVietnam shall be responsible for formulating a list of oil and gas blocks and fields entitled to investment incentives and special investment incentives, submitting them to the Ministry of Industry and Trade for consultation with relevant ministries and sectors and submitting them to the Prime Minister for consideration and approval.
2. The exploitation of mines, clusters of mines, oil and gas blocks
According to the 2022 Law on Petroleum, for oil and gas fields, clusters and blocks received back from contractors when the oil and gas contract expires, PetroVietnam will consider and report to the Ministry of Industry and Trade for appraisal and submit to the Prime Minister for consideration treatment options such as not continuing exploitation; continue to exploit but adjust appropriate economic and technical conditions; or assign PetroVietnam to exploit the revenue.
Decree 45 provides detailed guidance on the principles and contents of the exploitation mechanism, namely:
a. The exploitation and collection of mines, clusters of mines, and oil and gas blocks shall be carried out according to the exploitation management mechanism suitable to the characteristics of each mine, mine cluster and oil and gas block.
b. Petroleum activities for mines, tissue clusters and oil and gas blocks exploited for harvest, must ensure safety, savings, efficiency, and strictly control costs and shall be carried out on the basis of the permissions of economic and technical norms.
c. PetroVietnam directly manages and operates the exploitation and collection of mines, clusters of mines, and oil and gas blocks; be selected and appointed an operator with sufficient financial, technical and experience capacity in oil and gas activities, ensuring efficient utilization of petroleum resources.
d. The exploitation of mines, clusters of mines and oil and gas blocks shall cease when one of the following cases occurs:
- Insufficient revenue forecasts to cover expenses;
- The status of works and equipment of mines, clusters of mines and oil and gas blocks is not safe;
- Force majeure circumstances lead to the inability to continue oil and gas exploitation activities.
Decree 45/2023/ND-CP takes effect from July 1, 2023; replacing Decree 95/2015/ND-CP and Decree 33/2013/ND-CP.
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