Cambodia Seeks to Rekindle Petroleum Investors’ Interests

By: Cheang Chee Yew

Cambodia, despite not possessing any petroleum producing asset due to a protracted delay in developing the offshore Block A, is trying to rekindle fading investors’ interest in its upstream oil and gas sector.

A lack of investment interests from petroleum firms has prompted Cambodia to announce its intention to invite bids for 19 onshore oil and gas exploration blocks, Reuters said Nov. 5, quoting Diep Sareiviseth, deputy director general in charge of international petroleum affairs at the Ministry of Mines and Energy. So far, no timeline has been set by the government for the onshore exploration block bidding exercise, which will be “available for any interested companies.”

The kingdom is also planning to drum up interest in its offshore blocks located in the Gulf of Thailand. The first round of a pilot public bidding process – with firms submitting applications to the authorities with an outline of their proposed project and financial commitment – could commence as early as 2015, Meng Saktheara, secretary of state at Cambodia’s Ministry of Mines and Energy, told The Phnom Penh Post Nov. 5.

Cambodia was previously viewed as a potentially new oil and gas frontier in Southeast Asia and foreign energy companies got excited after Chevron made the country’s first petroleum discovery in Block A in 2004. The U.S. oil major submitted a production permit application (PPA) in 2010 for the Apsara oil discovery, but failed to get approval from the authorities.

Disagreement between the Cambodian government and Chevron, which by then, had already spent over a decade in exploration and development work on Block A, eventually led the company to dispose of its 30 percent share in the permit to a fellow joint venture, Singapore-based KrisEnergy Ltd., for $65 million in August.

Following Cambodia’s formal approval of the Chevron’s Block A sale, new operator KrisEnergy and joint venture partners hope to take a final investment decision (FID) for the Apsara development after agreeing terms and conditions, including fiscal terms, of the PPA with the government. First oil from the project, expected to produce 10,000 barrels per day in the first phase, could flow as early as 34 months after FID.

“We hope … we will be able to steer the Apsara development plans forward to first production as quickly and cost effectively as possible,”  Richard Lorentz, KrisEnergy’s director Business Development, said in an Aug. 11 press release.

Of the other onshore and offshore exploration blocks awarded by the government earlier, Mirach Energy Ltd. – a Singapore-based firm – said its subsidiary CPHL (Cambodia) Co. Ltd. had just received approval from Cambodia’s Ministry of Environment for an Initial Environmental Social Impact Assessment Report for offshore Block D, which is located near Block A. The firm is now working on an environmental impact assessment report before getting permission to conduct drilling in Block D.

“Our length and timeliness of our review process depends greatly on the quality of the company’s study,” Sao Sopheap, spokesman for Ministry of Environment said, as quoted in Phnom Penh Post.

Perhaps the snail pace in developing petroleum projects in the country lies with an unattractive investment regime in Cambodia, rather than its oil and gas potential. Such a view appeared to have resonated with the government, finally.

“The perceptions of investors at the moment suggest that we still have a lot to do in regards to developing legal frameworks for the petroleum law, and make amendments to the tax law. So they are waiting,” Saktheara said.

The public bidding process “will hopefully prove to us how competitive the market is out there for our remaining blocks. We would like to try this as a pilot only – it is where real transparency will come,” he added.

More clarity about the Cambodian petroleum industry is being planned by the state. This may include a full oil and gas extraction law as well as regulations that deal with worker safety, social responsibility and biodiversity, possibly drafted by the end of 2015, Saktheara said, adding that the government is also considering higher tax rates for oil and gas mining operations.

Cambodia is being nudged into action as it has little option if the kingdom wants to draw investment dollars into its upstream petroleum sector. After all, there is finite capital available due to competition from potential oil and gas projects in the region, such as new hotspots like Myanmar as well as neighboring producers such as Indonesia, Vietnam and Thailand.

How far the kingdom succeeds in rekindling investor interests in the upstream petroleum sector will hinge on the government’s desire to remove obstacles in the development of Cambodia’s oil and gas assets.

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