"There are particular basins in deeper water offshore Vietnam that we think have very significant potential and could change the production decline rate,” Story said. "Some of them are in the claim areas,” he said, referring to parts of the South China Sea claimed by both Vietnam and China. A possible agreement that the London-based company may sign within the next year to explore offshore may ultimately help reverse a decline in Vietnamese production, Chief Executive Officer Ed Story said in a September 22 interview in Bangkok. After reaching a peak of 427,000 barrels a day in 2004, Vietnamese output has slipped by almost a quarter, last year averaging about 328,000 barrels a day, according to figures from BP Plc. (BP/)

China’s increased assertiveness in the resource-rich waters has strained ties with countries including the Philippines and Vietnam, while a standoff with Japan over ownership of islands in the East China Sea sparked protests and attacks on Japanese businesses in China, harming a $340 billion trade relationship between Asia’s two biggest economies.

In 2009, China issued a map claiming sovereignty over areas that "cut deeply” into exclusive economic zones claimed by Brunei, Malaysia, the Philippines and Vietnam, according to a note this month by Carlyle Thayer, an emeritus professor at the Australian Defense Force Academy in Canberra.

In June of this year, Vietnam Oil & Gas Corp. said it would ask China National Offshore Oil Corp. to cancel an invitation for foreign companies to explore blocks in areas that Vietnam had already awarded.

‘Measures of Risk’

Soco is in a better position than many other companies to target prospects in disputed Southeast Asian areas because it has "no interest” in going to China, said Story.

"Of the open areas, you’re talking deeper water and you’re talking claim issues vis-a-vis China,” said Story. "We’re willing to take measures of risk.”

The company is already producing about 60,000 barrels of crude oil a day from two fields in Vietnam in which Thailand’s PTT Exploration & Production Pcl (PTTEP) also has stakes, and has exploration ventures in the Democratic Republic of Congo and the Republic of Congo.

Soco is "looking increasingly cash-rich and opportunity- poor,” RBC Capital Markets said, in a research note last month.

The company tends to look for projects that are "off radar for others and have lower entry costs,” said Al Stanton, an Edinburgh, Scotland-based analyst at RBC, in e-mailed comments. "Management needs to seek out a competitive advantage.”

Increased Tension

A 2009 US Congressional Research Service report said that China told international oil companies that they would be excluded from the Chinese market if they fulfilled contracts to participate in Vietnamese exploration projects in or near disputed waters.

The move toward oil and gas exploration in deep-water areas and an increasing appetite in Asia for energy resources has driven increased tension "in the past few years” between Vietnam and China, the US Energy Information Administration said in a report this year.

"US pressure made China step back and for the last two years, there have been no signs of direct Chinese state pressure at least on American oil companies,” said Thayer, in a telephone interview on September 23. "But that’s always a risk. China wants that calculated ambiguity.”

Vietnamese oil exports in the first eight months of the year were valued at $5.54 billion, or about 8 percent of total national exports.

"If they want to keep what is a very, very significant and current and historical contributor to the balance of payments and the economy, they’re going to have to step out, with people who can take the heat,” Story said. "It’s that simple.”