Vietnam’s National Assembly passes amended Petroleum Law: Petrovietnam gains more authority, major incentives for marginal fields — BigGo Finance

On the morning of August 23, Vietnam’s National Assembly officially voted to pass the amended Petroleum Law with an approval rate of up to 94.2%, opening a new legal framework with a series of incentives aimed at attracting investment into the petroleum sector, while granting additional authority to the Vietnam National Energy Industry Group (Petrovietnam). The law consists of 12 chapters and 62 articles, taking effect from March 1, 2027.

Vietnam’s Minister of Industry and Trade Le Manh Hung stated that the law was developed on the basis of inheriting provisions from the 2022 Petroleum Law and concretizing five major policy groups: simplifying procedures and strengthening decentralization; improving regulations on petroleum contracts and operations; investment incentive policies; developing the petroleum value chain, high-tech services, and offshore energy; and establishing a legal framework for greenhouse gas emission reduction, carbon capture and storage.

Petrovietnam granted expanded authority

The most notable aspect of this law is the push for greater decentralization and delegation of authority in petroleum operations management. Petrovietnam, in its role as the host country representative, has been granted increased authority in several important areas.

Specifically, the group is now authorized to formulate and approve contractor selection plans for signing petroleum contracts, instead of having to report to Vietnam’s Ministry of Industry and Trade for review and approval as under current law. Petrovietnam is also authorized to approve contractor selection results, negotiate and finalize petroleum contracts. Subsequently, the state petroleum management agency conducts appraisal and approval of contract contents, rather than the Prime Minister approving as before.

In addition, Petrovietnam has the right to extend ordinary petroleum contract terms, extend exploration phases, conduct petroleum operations in the role of investor, sign agreements to conduct basic surveys, monitor operations, and hold preemptive purchase rights over part or all of a contractor’s interests in petroleum contracts.

Notably, Petrovietnam’s Members’ Council will be authorized to approve the use of capital when exercising participation rights in petroleum contracts and preemptive purchase rights; conduct petroleum operations according to contract phases; approve the termination of failed investment projects and report to the owner’s representative agency on approved matters.

Handling failed investment costs through after-tax profits

One of the notable new provisions relates to the handling of Petrovietnam’s costs. Accordingly, failed investment costs at petroleum projects, after the Members’ Council issues a decision on project termination and cost settlement, will not be deductible when determining taxable income and will be offset from the group’s annual after-tax profits.

For costs in basic petroleum surveys, amounts outside the budget allocation will be paid from Petrovietnam’s after-tax profits.

The group is also permitted to use proceeds from the sale of the host country’s share of oil and gas products under petroleum contracts before determining the host country’s profit payable to the state budget to offset and pay costs and obligations, including costs related to product sales and consumption; financial obligations and outstanding costs; and contract management, supervision, and maintenance costs.

Investment incentives for marginal fields and deep-water areas

The amended Petroleum Law also provides a series of incentive policies to attract investment into challenging extraction areas. For petroleum blocks located in deep-water, offshore areas with difficult geographical conditions and complex geology, contractors will receive specific incentives.

For marginal fields — those that still contain oil and gas but are difficult to extract due to deep-water offshore locations and complex geology — contractors applying high technology are entitled to propose an additional maximum cost recovery of no more than 10% above the level stipulated in existing contracts.

For marginal fields within specially incentivized investment blocks or projects with very low economic efficiency, contractors may also apply certain special mechanisms. Specifically, contractors may recover costs using the entire remaining oil and gas portion (after paying resource tax and export tax) from the time the Field Development Plan (FDP) is approved. After recovering all incurred costs, contractors continue to receive the entire remaining oil and gas portion.

At the same time, contractors applying enhanced oil recovery (EOR) solutions or technologies are entitled to propose an additional cost recovery of no more than 10% above existing petroleum contracts.

First-ever legal framework for CCS and offshore energy

The law for the first time establishes policies for carbon capture and storage (CCS) activities and offshore energy linked to petroleum operations. Revenue from the sale of carbon credits is accounted for as a reduction of the recoverable cost portion of petroleum contracts. CCS implementation costs are also included in the recoverable costs of petroleum contracts.

Minister Le Manh Hung previously noted that carbon storage could become a service industry worth $40 billion. He also affirmed that the Vietnamese government will direct the development of a decree providing detailed implementation guidance for the law, ensuring a complete legal basis, feasibility, and synchronized effectiveness with the law. At the same time, the government will continue researching and refining the legal framework for CCS activities, standalone CCS projects, and standalone offshore energy projects, ensuring comprehensiveness, consistency, long-term viability, and feasibility.

Context and impact

The enactment of the amended Petroleum Law comes as Vietnam’s petroleum projects increasingly move into deeper, offshore, and remote areas with more difficult implementation conditions and more complex geology. According to Vietnam’s Minister of Industry and Trade, these projects require larger capital investment and longer capital recovery periods. With many small, marginal fields, applying only ordinary incentive mechanisms would not be sufficient for investors to proceed with project implementation.

In terms of state management, the new law clearly delineates roles: the Vietnamese government decides strategic, macro-level matters such as petroleum block allocation, investment incentives, and issues related to national defense and security. Vietnam’s Ministry of Industry and Trade serves as the focal point for tasks such as approving petroleum contracts, issuing investment registration certificates, managing resources and reserves, and inspecting and supervising petroleum operations.

With the granting of greater autonomy to Petrovietnam in contractor selection, contract negotiation, and cost handling, the decision-making process is expected to be significantly shortened, helping petroleum projects move forward more quickly. However, allowing the use of after-tax profits to offset failed investment costs also raises the need for strict oversight mechanisms to ensure efficient use of state resources.

The law takes effect from March 1, 2027, creating a long-term legal framework for Vietnam’s petroleum industry during the energy transition period, with the first-ever integration of CCS and offshore energy provisions into the petroleum legal system.