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Logo of Phnom Penh Post newspaper Phnom Penh Post - High hopes, risks for public bids on oil blocks

Southeast Asia’s biggest offshore oil platform, weighing in at 16,800 tonnes
Southeast Asia’s biggest offshore oil platform, weighing in at 16,800 tonnes,in Indonesia’s island of Batam. AFP

High hopes, risks for public bids on oil blocks

Cambodia is following in the footsteps of Thailand, Indonesia and Myanmar in its recent decision to offer up its onshore and offshore oil blocks up to the highest bidder. But, with little known about the blocks’ potential, analysts say the government should be prudent about whom they grant the contracts to.

This week, two high-ranking members of the Kingdom’s Ministry of Mines and Energy (MME) confirmed the government’s intentions to open the country’s petroleum blocks to a public bidding process amid concerns over investor interest in the Kingdom’s natural resources.

“There is not so much competition or interest in them right now,” Meng Saktheara, Secretary of State at the MME, said Tuesday, referring to five of the six Cambodian offshore oil exploration blocks in the Gulf of Thailand. “We have had a number of contractors interested, but some of them lately have terminated their interest due to the foreseen performance [of the blocks].”

Saketheara said the government hoped the public bidding process would increase competition, transparency between the private and public sector, and help gauge investor demand for Cambodia’s natural resources.

He added that development partners are being asked to prepare official tender documents for the public bidding round, expected to take place in early 2015.

Also this week, during a visit to Thailand, Diep Sareiviseth, deputy director at the MME, told journalists that all 19 onshore oil and gas exploration blocks will also be included in a pilot public bidding process.

But it’s Cambodia’s six offshore blocks, the majority of which have already been contracted out to large-scale international firms, where analysts believe the most hope lies.

Cambodia’s offshore blocks all remain in the exploration phase. Block A, which Singaporean oil and gas firm KrisEnergy owns a 55 per cent stake in after buying out Chevron’s 30 per cent share, is considered to be the Kingdom’s best chance at production. It has been estimated that the 4,709-square-kilometre Block A site has up to 700 million barrels of oil and some 3 trillion to 5 trillion cubic feet of natural gas, and is capable of yielding 10,000 barrels per day when in production.

“The thickest portion of the basin appears to be within Block A, however, this is a frontier terrain and all of this offshore acreage is prospective,” Richard Stanger, president of the Cambodia Association for Mining and Exploration Companies (CAMEC) said. “[But] there is no public seismic data available … It needs a considerable and high-risk investment in seismic [research] and possibly drilling.”

Stanger says as competition and investor interest ramps up, companies that have already been granted contracts by the MME for oil and gas exploration could be forced to surrender a portion, in square kilometers, of their existing permits.

Cambodia has six offshore blocks and 19 onshore.
Cambodia has six offshore blocks and 19 onshore.

Jamie Taylor, principal upstream analyst with global consulting firm Wood Mackenzie said it was difficult to gauge how much oil or gas – and money – is in Cambodia’s six offshore blocks.

“I think – once we get into the production and can see the capacities of the reservoir – we will see clearer the potential of these Cambodian oil fields,” he said.

But whether the MME’s plan to open the offshore blocks to a public bidding process will be a success depends on Cambodia’s ability to remain transparent, flexible and selective of contractors, according to Taylor.

He compared the move to the opening up of a public bidding process in April 2013 for 40 of Myanmar’s 80 off-shore blocks. The successful bidders included oil-giants Chevron, Shell, Eni, Statoil and Total. The country will release a further 15 offshore blocks for exploration sometime next year.

“The way that Myanmar did it was that there was no favouritism towards any company,” said Taylor. “And by all accounts, it was very, very well handled.”

The Thai government on October 22 also announced a similar bidding process for 29 of that country’s onshore and offshore exploration sites. Hopeful investors have been granted until February 18 to submit their proposals to Thailand’s Ministry of Energy, according to a report in the Bangkok Post.

According to Taylor, the challenges facing Cambodia include scrutinizing the bid applications, only awarding the blocks to qualified companies and subsequently coming to mutually beneficial fiscal terms for the contractors. The Kingdom has no petroleum law in place, and deliberations on amendments to the taxation rate for oil and gas exploration operations and profits are currently under way.

“Take, for example, Indonesia, where it is very easy for small-scale operators to pick up acreage. The danger there is that you could end up contracting companies that do not have expertise in exploration,” Taylor said.

But Cambodia’s lack of regulation might just be the sweetener that lures investors to submit proposals to the MME’s bidding process, according to Prasanth Kakaraparthi,Wood Mackenzie’s South Eastern Asia LNG specialist.

“It’s again an issue of the chicken or the egg,” he said.

“In Myanmar, for example, they didn’t have a very strong regulations structure, but what was good about the process is that it was very open to feedback. As a result, they received very strong feedback from the operators, and then they incorporated that and used that to sort out the issues in the regulatory environment.

“It is all about having that flexibility in your democratic processes.”

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