ONGC Videsh Ltd, the overseas arm of state explorer Oil and Natural Gas Corp, has decided not to exit a Vietnam oil block in the contested waters of the South China Sea despite poor hydrocarbon prospectivity.

OVL has decided to seek a third extension of exploration licence for Block 128 to maintain India's strategic interest in the South China Sea, a top official said.

The block lies in the part of South China Sea over which China claims sovereignty. In 2011, Beijing had warned OVL that its exploration activities off the Vietnam coast were illegal and violated China's sovereignty, but the company continued exploring for oil and gas.

"OVL has not found any hydrocarbons in the block but will continue operations in line with India's strategic and diplomatic interest in the region," he said.

The extended exploration licence for Block 128 is due expire this month and the company is seeking an extension.

OVL reckons that if it was to exit the block, it would have to pay $15-20 million penalty for not drilling a committed exploration well. By continuing with the block, it is not just saving on the penalty but also helping New Delhi maintain its strategic interest in the region, he said.
 
The renewal is being seen as India's attempt to assert its presence in the region. OVL forayed into Vietnam as early as 1988, when it bagged the exploration licence for Block 06.1.

The company got two exploration blocks - Block 127 and Block 128, in 2006. However, Block 127 was relinquished after completing the work programme, but the other Block 128 continued to be retained.

It first took a two year extension of the exploration period till June 2014 and then another one year. The official said the first extension followed China putting the area under Block 128 for global bidding. OVL holds 100 per cent interest in Block 128 and has so far invested $46 million in the block.

The official said like in case of Block 127, OVL had wanted to exit the adjacent Block 128 because of poor prospectivity. But decided to stay put because of India's strategic interests in the region.

China claims sovereignty over most of the South China Sea where Block 127 and 128 are located and had warned the Indian arm from drilling in the region.
 
OVL continues to own 45 per cent in Vietnam's offshore block 6.1 and its share of production was 2.023 billion cubic metres of gas and 0.036 million tonnes of condensate.