Cambodia Aims for Offshore Production Next Year

September 26, 2012, 

The Wall Street Journal

By JACOB GRONHOLT-PEDERSEN

The Cambodian government expects U.S. oil major Chevron Corp. CVX -0.73% to begin developing the country's first offshore oil field early next year, and hopes the nation will become a regional hot spot for oil and gas investment, a government official said Wednesday.

Cambodia has vast untapped oil and gas resources both on land and offshore, but development has been slow as the country has emerged from the genocidal rule of the Khmer Rouge and decades of war.

Chevron discovered commercial resources at Block A off Cambodia's coast, raising hopes that oil revenue would soon flow into the coffers of one of the world's poorest countries. The company has drilled 18 wells at the block, but reaching terms for developing the field has been slow.

"Cambodia does not yet have all the relevant laws and regulations in place," Sok Khavan, acting director-general of the Cambodian National Petroleum Authority, said in an interview. "We are very close to finalizing this discussion and hope to have an agreement by the end of the year, so that development can start [next year]."

Under a production-sharing agreement, the government will likely receive most of the revenue from the project, though the exact percentage varies with factors including the price of oil and production and development costs, he said.

"From our analysis, the government's share should not go much below 70% and will be close to 80% in case of high oil prices," he said.

Chevron has said it expects to make a final investment decision on the project this year, but is awaiting the government production permit. Chevron holds a 30% stake in the block—its partners are Mitsui 8031.TO -4.46% & Co., KrisEnergy Ltd. and GS Caltex Corp.—and acts as operator of the project.

"We continue to work with the government of Cambodia to obtain project approvals to achieve a final investment decision at the earliest possible date," a Chevron spokesman said.

Onshore, Cambodia has licensed blocks to state-run Vietnam Oil and Gas Group, or PetroVietnam, and Japan Oil, Gas and Metals National Corp., or Jogmec, but despite abundant resources, the government is unlikely to conduct a big licensing round until it develops existing projects and the necessary

infrastructure, Mr. Khavan said.

"At the moment we are trying not to bite off more than we can chew," he said. Cambodia has yet to resolve a maritime territorial dispute with Thailand. The area in question covers 26,000 square kilometers and holds potential reserves of 12 trillion to 14 trillion cubic feet of natural gas and an unspecified amount of oil, Mr. Khavan said.

The two governments were close to a deal in 2000 but domestic political issues in each country disrupted the process, he said.

"Only recently, the two governments have been optimistic that the issue can be resolved," said Mr. Khavan. "But the big issue is how revenues should be split."