The tendering process at the commercial division of PetroVietnam Exploration Production Corporation

With the desire to have a better understanding of the mode of tenderingand tender appraisal, on the basis of the knowledge learned at the university andpractical experience gained throug

Table of Contents

Table of Contents 1

I.Overview about PetroVietnam: 3

II.Overview about PetroVietnam Exploration Production: 4

1/ History and Development process: 4

2/ Organization chart: 5

3/ Fields of operation: 6

I Commercial activities in general and Tendering activities in particular at PVEP: 12

II The tendering process at PVEP: 13

III Operation Assessment 19

Until recently, tendering and tender appraisal have been a necessary, butseldom celebrated, component of multinational corporations Tender or procurementactivities within companies, especially in the field of petroleum exploration andproduction these days are playing pivotal roles in the success of giant firms in waysthat old-fashioned purchasing managers could never have imagined

The decision of the 6th Party Congress in 1986 to undertake a comprehensiverestructuring and renovation process is often seen as the main point of departure forVietnam’s economic reforms Since then, our country has been following therenovation path of industrialization and modernization; which means investmentprojects especially in power-related fields are an important part of economicdevelopment Therefore, at the present stage we can confirm that all investmentactivities have proved to play a vital role in the process of developing and perfectingproduction systems in order to enhance the efficiency of investment projects

To best meet the demands of quality, implementation schedule, cost saving andlimitation on the level disputes which can cause physical damage or harm to thereputation of stakeholders, the use of tendering and procurement method inpurchasing goods and services has proved to have increasingly complex technicalrequirements, especially to projects of companies which have multiple owners,projects in the state sector, or projects sponsored by the international financialinstitutions In addition to that, tendering activities not only takes place within onesingle country but it also extends internationally, as the product being procured hasspecific characteristics which attract domestic and foreign customers Therefore,research and studies relating to the knowledge of tendering activities is becomingincreasingly necessary for students as well as those who are working, studying in

related fields With the desire to have a better understanding of the mode of tenderingand tender appraisal, on the basis of the knowledge learned at the university andpractical experience gained through an internship at the Commercial division ofPetroVietnam Exploration Production, I have studied in depth and chosen thefollowing subject: “The tendering process at the commercial division ofPetroVietnam Exploration Production Corporation”

I sincerely thank lecturer Vu Thanh Toan for being my dedicated instructor,and hope that this internship report can help us understand PetroVietnam ExplorationProduction Corporation and its tendering activities better

Chapter 1

Overview about PetroVietnam

Exploration Production Corporation

(PVEP)

I Overview about PetroVietnam:

PetroVietnam is the trading name of Vietnam Oil and Gas Group (PVN) (in

Vietnamese: Tập đoàn Dầu khí Quốc gia Việt Nam) PetroVietnam has developed

rapidly since it was established in 1977, and its activities, through its variouscompanies and wholly owned subsidiaries, now cover all the operations from oil andgas exploration and production to storage, processing, transportation, distribution andservices Wholly owned by the Vietnamese central government, it is responsible forall oil and gas resources in the country and has become its country's largest oilproducer and second-largest power producer

PetroVietnam operates in many fields and has the main functions and taskssuch as: Invest in subsidiaries and affiliates; control the subsidiaries following thepercent of holding registered charter capital of PetroVietnam It implementspetroleum activities and sign the petroleum contracts with the organizations,individuals operating in petroleum fields based on Petroleum Law; manage andsupervise the petroleum/hydrocarbon exploration and production activities followingcontracts with petroleum contractors and subsidiaries, organizations and otherindividuals PetroVietnam also directly does business in accordance with theVietnamese related laws for profit targets Economic relations between PetroVietnamand its subsidiaries, affiliates and are stipulated in economic contracts It implements

rights and obligations of the owner at the subsidiaries and affiliates and organizes theimplementation of business plans among PetroVietnam Oil and Gas Group.

PetroVietnam has 7 subsidiaries:

• Petrovietnam Exploration Production Corporation (PVEP)

• Petrovietnam Gas Corporation (PV Gas)

• Vietnam Gas Pipeline Joint-Stock Corporation (PV Pipe)

• Petrovietnam Oil Corporation (PV Oil)

• Petrovietnam Power Corporation (PV Power)

• Binh Son Refinery Ltd (BSR)

• Petec Trading and Investment Corporation

II Overview about PetroVietnam Exploration

Production:

1/ History and Development process:

PetroVietnam Exploration Production Corporation (PVEP) is one of Vietnam’smost established entities It is the major force driving Vietnam National Oil and GasGroup’s (PetroVietnam) core operational fields of oil and gas exploration andproduction

The establishment and development of PVEP is closely linked to the history ofVietnam's oil and gas industry over the last half century Starting as PetroVietnam II(PV-II, established on 5/1988) and PetroVietnam I (PV-I, established on 11/1988),PVEP has undergone multiple name changes and restructuring over its growthphases In 1993, PetroVietnam I and II were reorganized and PetroVietnam PSCSupervising Company (PVSC) and PetroVietnam Exploration Production Company

(PVEP) were established This marked an important step in the national oil and gasindustry, as operations now became more effectively managed and, at the same time,participation begun as a contractor in domestic and international oil and gascontracts.

The establishment of the PetroVietnam Investment Development Company(PIDC) in 2000 out of PVSC was a turning point in PVEP’s history, with PIDCincreasing its own investment in domestic projects and gained success in solelymanaging important production projects as well It began to deploy investment for oiland gas exploration in foreign countries and the first projects executed were in Iraq,Algeria, Malaysia and Indonesia

The current version of PVEP was established on 04/5/2007 through theconsolidation of the former PVEP and PIDC corporations in order to unify theirbusiness operations both nationally and overseas

Division, Reservoir Engineering The 4 companies include PVEP Overseas, PVEPPOC, PVEP Song Hong, PVEP Venezuela

3/ Fields of operation:

PVEP produce oil and gas for domestic consumption and export in an efficientand environmentally safe manner, substantially benefiting the community and allemployees at the company In addition to that, its main functions are acceleratingexploration both in domestic and overseas, increasing oil reserves for futureexploitation, developing exploiting in deep water areas, off coastal, overlapping anddisputed areas, expanding the investment area and proactively conducting petroleumexploration and production operations overseas

Oil and Gas exploration and production

With a view to increasing oil and gas reserve and discovering new fields tomeet domestic demand and export, PVEP has been carrying out effective explorationand production of oil and gas both at home and abroad through PSC, JOC, JOA, BCCcontracts, self-investment and self-management in exploration, making importantpetroleum discoveries, quickly bringing the discovered fields into production phasewith the application of state-of-the-art technologies to increase production as well asoil and gas recovery rate, thus protecting the environment and natural resources

Domestic exploration and production activities: PVEP has recently signed sixnew petroleum contracts of blocks 05- 2/10 (with Talisman), 148-149, 135-136/03(with Talisman/Pearl), 45 (with Mitra), 102/10 and 13/03 (with Santos), increasingthe number of effective contracts to 60

During the last year, PVEP conducted survey and acquisition of over 12,500

km 2D and 5,600 km2 3D seismic in accordance with the signed contracts andgeneral exploration program for exploration and appraisal of oil and gas potential instructures PVEP drilled 82wells, among them 11 for exploration, 10 for appraisal, 61for production and some others for water injection and well-to-well connection withthe total drilling length of 222,000m at the expense of about 1.160 billion USDollars As a results of such exploration – appraisal drilling campaign, severalsignificant oil and gas discoveries were made in wells GT-1X,MT-1X (Block 09-1,VietsovPetro), CVX-2X (Block 117-119, ExxonMobil) and others, leading to thetotal recoverable reserve increase by 15 million t.o.e in2011, thus ensures thereserves increase by 110 to115 million t.o.e for the period 2011-2015

Overseas exploration and production activities: Implementing the Decision

No 386/QD-TTg dated 9 of March 2006 by the Prime Minister of Vietnam in regards

to the vision and primary targets in-overseas investment strategy, during the last yearPVEP engaged in new petroleum contracts, increasing the total number of effective

exploration and production projects to 20 in 14 countries, including the RussianFederation, SNG countries, Middle East, Northern and Central Africa In addition tothat, Latin America and ASEAN countries also play pivotal roles in explorationprojects of PVEP.

Generally, in the period of 2011 – 2015, PVEP will expedite the explorationand production activities both in Vietnam and overseas, targeting on recoverableresource increase by 15-17 million t.o.e and sustainable production of 10-12 milliont.o.e a year

To achieve these goals, active promotional programs were carried out, thesignificant investment amounts were attracted for its in-country projects and anumber of petroleum contracts were signed, including ones in the deep water andremote offshore acreages which are proving to be increasingly important

For its overseas investment strategy, PVEP has gained positive achievements,thus being able to increase the oil and gas reserves and production, contributingconsiderably to the national energy security of Vietnam and gradually enhance theGroup's position and image in the regional and global arena

Petroleum services

PVEP offers a wide range of oil and gas products and services, and itspetroleum services have been expanded in scale and advanced technologies to serveoil and gas projects at home and abroad Several petroleum technical servicescompanies have been restructured or newly established for thus purpose Servicesprovided by PVEP are:

- Geo-physics survey, technical and drilling services for oil and gasproducing fields, provision of FPSO and FSO vessels, import-export and supply ofpetroleum materials and equipment

- Import-export and trading of crude oil and petroleum products

- Transportation, storage, supply and distribution of oil and gas products, drygas and LPG

- Operation and maintenance of oil and gas facilities (production platforms,oil tankers, crude oil storage vessels, oil and gas pipeline systems, gas processingplants, high buildings ), services for oil spill contingency

- Design and installation of oil and gas structures, power and civilconstruction

- Maritime transportation and logistics

- Provision of technical workers, tourism, hotels, catering for offshore oiland gas facilities

Power generation

Investment in power generation sustains the investment in energyinfrastructure, meeting the increasing electricity demand and energizing theeconomic development of the country PVEP is investing strongly into powergeneration and has become the second largest power producer in Vietnam Despite ofbeing the new business area, with high enthusiasm and responsibility, PVEP haswithin 10 years completed the construction of 4 high-efficiently combi-cycle gasturbine power plants, namely Ca Mau 1, Ca Mau 2, Nhon Trach 1 and Nhon Trach 2with total installation capacity of 2,000MW PVEP is proud with safety and efficientoperation of the said plants, delivering about 24 billion KWh to national power grid

The current generation capacity of PVEP accounts for around 3-5% of totaleffective installed capacity of the country PVEP continues strengthening the ProjectManagement Boards, enhancing the effective operation management, maintenance,repairing and marketing activities The company is currently undertaking theconstruction of several other power plants including 5 coal-fired plants of 1,200MW

each, namely Vung Ang 1, Long Phu 1, Thai Binh 2, Quang Trach 1 and Song Hau 1,two hydro-power plants of Hua Na and Dakring and Phu Quy wind power plant.PVEP targets on increasing its generation capacity of 7-8% of total national powergeneration by 2020, fuelling the economic development of the country.

Promoting its role as PetroVietnam’s main force in international integrationand foreign investment, PVEP is currently participating in dozens of oil and gasprojects in 14 countries, having gained production output from such fields as Cendorand D30 in Malaysia and is currently speeding up production activities in Algeria andPeru PVEP's achievements have contributed, together with its parent companyPetroVietnam, in helping ensure national energy security, assisting the Governmentregulate the economy and protecting Vietnam’s sea and island territory sovereignty

Chapter 2

Commercial activities in general and

Tendering activities in particular at

PVEP

I Commercial activities in general and Tendering activities

in particular at PVEP:

Commercial activities of the PVEP include 3 main fields which closely relate

to each other: Oil and Gas trading, Commercial Insurance, and Tender/ Procurementand Tender Evaluation

Oil and Gas trading is the main commercial activities of PVEP Trading

commodities include crude oil, heating oil, natural gas and gasoline Energycommodity trading is an essential business The might of corporations likePetroVietnam can be viewed as somewhat proportionate to their ability to create andmanage complex trading systems and facilitate energy trades, as these served as thewheels of the corporation’s development

Another activity of the commercial division includes Commercial Insurance,

which is closely related to Oil and Gas trading While trading commodities, insurance

is essential as it protects the corporation from running into risky situations Insurance

is classified into two groups The first is life insurance, which handles life insurance,annuities and pension products This group is characterized by its long-terminvestments The other group is known as non-life insurance, and it covers all othertypes of insurance, such as a commercial fleet policy for a PVEP’s trucks and othervehicles and the company building hazard policy, which covers fire, theft, vandals