Petroleum contracts and fiscal terms: the production sharing contract and other contract forms, the model PSC, contractor selection, approval and the IRC, contract term and exploration periods, cost recovery caps, profit petroleum, corporate income tax of 25% to 50%, natural resources tax, export duty and fees, incentivised blocks, transfers of participating interests and Petrovietnam's rights, with an illustrative profit-oil computation

Contract forms

Article 29 of Law No. 12/2022/QH15 makes the production sharing contract (PSC; hợp đồng chia sản phẩm dầu khí) the standard form and permits other types of petroleum contract whose main terms the Prime Minister decides. Under a PSC the contractors fund and carry out exploration, development and production at their own risk; if there is production, they recover their costs from a capped share of it and divide the remainder, the profit petroleum, with the State party, Petrovietnam, in the agreed proportions. If there is no commercial discovery, the contractors bear the loss (FAQ 111).

Under the 1993 Petroleum Law, contracts were also concluded as joint ventures and as joint operating agreements in which Petrovietnam's subsidiaries took participating interests alongside foreign contractors, and some early arrangements took the form of business cooperation contracts. Several large producing fields are still governed by such contracts, which continue on their own terms under the transitional provisions of the 2022 law. A new contract is in practice a PSC on the model terms, with Petrovietnam or its exploration and production subsidiary often joining as a contractor party after a commercial discovery under Article 39.

The model PSC

Decree No. 45/2023/ND-CP annexes a model production sharing contract and, as Appendix B, its accounting procedure. Article 30 of the law lists the main contents every contract must have, including the parties, the contract area and its relinquishment, the work programme and minimum financial commitments, the term and its phases, cost recovery and the sharing of profit petroleum, the rights and obligations of the parties, the commitments on training, a research fund and the priority use of Vietnamese labour and services (FAQ 114), decommissioning, dispute resolution and the governing law, which is Vietnamese law. Article 34 makes the contract language Vietnamese and an agreed foreign language, normally English, of equal validity.

The model is a starting point rather than a fixed text. Bidders compete on the variables the bid package leaves open, typically the work programme, the profit-petroleum split, bonuses where the bid package provides for them and the training and research commitments, and the negotiated contract may depart from the model within the law. Because Article 4 allows international petroleum industry practice to fill gaps where Vietnamese law is silent and not contrary to it, the contract's own provisions on joint operations, accounting and sole risk are of real importance.

Selection of contractors

Chapter III of the law and Chapter III of Decree No. 45/2023/ND-CP govern selection. Article 15 provides four methods. Open bidding is the default for open blocks. Restricted bidding invites a limited number of qualified companies in the cases Article 19 allows. Competitive offer (chào thầu cạnh tranh) is used where a block is not in the current contractor selection plan and at least two qualified companies propose to contract for it (Article 20). Direct appointment is reserved by Article 21 for three cases: a block related to national defence or security; a block for which only one qualified company proposes a contract after a 30-day public notice draws no other interest; and an existing contractor's proposal for additional investment in its contract area under a new contract to follow the expiry of the current one. Open and restricted bidding follow a contractor selection plan approved for the block (Article 17).

Bidders must have the financial capacity, technical capacity and experience in petroleum operations required by the bid package, or bid in a consortium that together meets them (Article 16), and must lodge bid security (Article 25). Bids are evaluated on the criteria and methods in Article 22, and the selection result is approved under Article 23. Vietnamese and foreign companies bid on the same terms. The winning bidder then negotiates the contract with Petrovietnam on the basis of its bid and the model.

Approval, the IRC and amendments

Once negotiated, the contract is appraised by MOIT and approved by the Prime Minister under Article 26; approval of the contract stands in place of investment policy approval under the investment law. The contract is signed after approval, and MOIT then issues the Investment Registration Certificate to the contractors under Article 27. Changes to the contract or to the contractor group are made by amendment, approved in the same way where the law requires, and reflected in an adjusted IRC (Article 28). Disputes are resolved by negotiation and then by the arbitration or court named in the contract (Article 37), which for contracts with foreign parties is commonly international arbitration (Foreign arbitration and enforcement of awards).

Term, exploration periods and relinquishment

Article 31 sets the maximum term of a petroleum contract at 30 years, of which the exploration period may not exceed five years; for blocks on the Prime Minister's list of incentivised and specially incentivised blocks the limits are 35 years and ten years. With MOIT's approval the contract and the exploration period may each be extended by up to five years, and the Prime Minister may allow more in special cases such as defence requirements or complex geology. A gas discovery that cannot be developed because there is no market or pipeline may be retained for up to five years, with a further two years possible, before it must be developed or released (FAQ 112).

Article 32 governs the contract area: the contractor relinquishes acreage at the end of each exploration phase as the contract provides, may expand the area in defined cases, and may combine discoveries and fields that straddle blocks. At least two years before the contract expires, the contractor may propose additional investment and a new contract for the area (Article 40); if no new contract is agreed, Petrovietnam or another designated entity takes over the fields at expiry (Article 41).

Cost recovery and profit petroleum

Each year's production is applied first to the State's royalty-type charges, then to cost recovery, and the remainder is profit petroleum. Article 33 caps the share of annual production available to recover costs at 50% for ordinary blocks, 70% for incentivised blocks and 80% for specially incentivised blocks (FAQ 113). Costs that exceed the cap in a year are carried forward under the contract's accounting procedure. Which costs are recoverable, how they are allocated between exploration, development and production, and how they are audited are set by the contract, the accounting procedure in Appendix B of Decree No. 45/2023/ND-CP and the cost settlement rules in Articles 56 and 57 of the law and Article 62 of the decree; Petrovietnam audits and settles the costs.

Profit petroleum is shared between the contractors and Petrovietnam in the proportions the contract sets. Splits are commonly expressed on a sliding scale that gives the State a larger share as daily production rises, and the percentages are a principal bid variable. The law sets no statutory split. Petrovietnam's share accrues to the State party; the contractors' share, together with their cost oil, is their entitlement, which they lift and sell or, when the Government so requires, sell in Vietnam (Article 59(8)).

The State's fiscal take

The contractors' entitlement then bears tax. Corporate income tax on the search for, exploration and exploitation of oil and gas is charged at 25% to 50% under Article 10(4)(a) of Law No. 67/2025/QH15, with the Prime Minister deciding the specific rate for each contract according to location, conditions and reserves (FAQ 21). Each contract is taxed separately, so losses on one contract cannot be set against profits on another. Natural resources tax is levied on production at progressive rates by average daily output under Resolution No. 1084/2015/UBTVQH13: for crude, 10% up to 20,000 barrels a day rising through 12%, 14%, 19% and 24% to 29% above 150,000 barrels a day, and for encouraged projects 7% rising to 23%; for natural gas, 2% up to 5 million cubic metres a day, 5% to 10 million and 10% above, or 1%, 3% and 6% for encouraged projects. In practice natural resources tax is commonly taken in kind from production before cost recovery.

Export duty is charged on exported crude under the export tariff in Decree No. 26/2023/ND-CP as amended, at 10% for incentivised blocks and 5% for specially incentivised blocks under Article 54 of the Petroleum Law. An environmental protection fee of VND 100,000 per tonne of crude and VND 50 per cubic metre of gas applies under Decree No. 27/2023/ND-CP. Bonuses and other payments to Petrovietnam, such as signature, discovery or production bonuses and data fees, are payable where the bid package and contract provide for them. Payments to foreign subcontractors bear foreign contractor tax (Foreign contractor tax and tax treaties).

Incentivised blocks

Article 53 sets the criteria for the two incentive tiers and Article 54 the terms. A block or field qualifies for investment incentives if, among other things, it lies in deep water, far offshore or in areas of particularly difficult geography or complex geology; it was offered on ordinary PSC terms without bids; it is formed from relinquished acreage; it is a marginal field; it cannot reach minimum efficiency at the end of an ordinary contract; or it targets new, unexplored petroleum objectives. It qualifies for special investment incentives if it was offered on incentivised terms without bids, is formed from acreage relinquished under an incentivised contract, is a marginal field in an incentivised block, cannot reach minimum efficiency at the end of an incentivised contract, or targets unconventional petroleum. The Prime Minister issues the list (Article 53(3)).

Incentivised blocks pay CIT at 32%, crude export duty at 10% and may recover costs up to 70% of annual production; specially incentivised blocks pay CIT at 25%, crude export duty at 5% and may recover up to 80% (Article 54). They also enjoy the longer 35-year term and ten-year exploration period in Article 31. Articles 56 and 57 of Decree No. 45/2023/ND-CP implement the incentives, and Article 55 of the law and Articles 58 to 61 of the decree add a separate regime for the tail-end production of fields, clusters and blocks at the end of their contracts.

Assignments, change of control and Petrovietnam's rights

Under Article 36 a contractor may transfer all or part of its participating interest and its rights and obligations under the contract, provided the transferee undertakes to assume the transferor's rights and obligations, both parties meet the requirements of the law, and the transferor pays the taxes, fees and charges arising on the transfer. The transfer is approved by the Prime Minister on MOIT's appraisal and takes effect through an adjusted IRC. Petrovietnam has a pre-emption right on the transfer under Article 39, and its right to participate after a commercial discovery may already have been exercised (FAQ 110). Article 59(5) requires the contractor to report to the authorities and PVN when a transfer of interests changes its ownership, which brings indirect changes of control within the reporting regime.

A farm-in agreement should therefore be conditional on the Prime Minister's approval, the waiver or lapse of PVN's pre-emption right and the issue of the adjusted IRC, and should allocate the tax on the transfer. Gains of a foreign transferor are taxed under the CIT rules for capital and project-right transfers, and the declaration and payment mechanics should be settled in the agreement (Tax on share transfers and dividends).

From bid to signed PSC

1. Review the block and the bid packageData room, the block's incentive status, the selection method and the variables open for bidding.
2. Form the consortiumAgree a bidding agreement and joint operating principles; confirm that the consortium meets the capacity and experience criteria (Article 16).
3. Submit the bid with bid securityWork programme, profit-petroleum split, bonuses where applicable, training and research commitments; bid security under Article 25.
4. Obtain approval of the selection resultEvaluation under Article 22; approval of the result under Article 23.
5. Negotiate the contract with PetrovietnamOn the model PSC and accounting procedure in Decree No. 45/2023/ND-CP; agree dispute resolution and governing-law provisions.
6. Appraisal and Prime Ministerial approvalMOIT appraises; the Prime Minister approves the contract, replacing investment policy approval (Article 26), and fixes the CIT rate within 25% to 50% for an ordinary block.
7. Sign, obtain the IRC and set upSign with PVN; MOIT issues the IRC (Article 27); the operator registers its operating office and opens the joint account (Article 38).