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Oil firm ready to push ahead with offshore drilling

KrisEnergy employees attach a rock bit to a drilling shaft at an oil platform. Randolph Yost
KrisEnergy employees attach a rock bit to a drilling shaft at an oil platform. Randolph Yost

Oil firm ready to push ahead with offshore drilling

Singapore-listed oil and gas firm KrisEnergy Ltd is moving closer to finalising its deal with the Cambodian government that will pave the way for extraction from the Block A offshore oil field once negotiations over a technical strategy and fiscal regime have been finalised.

“Final versions of a suite of transaction documents for the Cambodia Block A oil development are ready for signature and will be followed by the enactment of supporting legislation,” the company announced yesterday in its half-year financial statement.

It said a “comprehensive review of the subsurface, facilities, schedule, cost, crude marketing and economics” had already been completed.

Tanya Pang, the company’s VP for investor relations and corporate communications, said KrisEnergy was looking to finalise the revised licence agreement “as soon as possible”. She added that the agreement would come before Cambodia officially adopts its long-awaited petroleum law.

“The timing of the signing of the documentation will depend on availability of the government personnel,” she said, adding that terms of the deal could not yet be disclosed to the public.

KrisEnergy farmed into Block A in 2010 and increased its stake in the 4,700-square metre offshore block to 55 per cent in August 2014 by purchasing the stake of departing Chevron. Its participating interest in Block A could fall slightly if the government exercises an option to acquire a 5 per cent interest in the block.

The company has previously stated that the site had the potential to pump out 10,000 barrels of oil per day.

Meng Saktheara, secretary of state at the Ministry of Mines and Energy (MME), said he expects the deal will be signed by next month.

“KrisEnergy has agreed on the tax law and the proposed amendments to the profit-sharing regime that is based on a cost recovery concept,” he said, adding that the other partners in the block – Japanese-backed MOECO Cambodia Co Ltd and South Korea’s GS Energy Corporation – still need to agree on the new framework.

The revised negotiations give the government fairer treatment on how it profits from the Kingdom’s natural resources through a new profit-sharing regime, he said, adding that he could not disclose specific details of the agreement until it has been signed.

“We have also provided KrisEnergy with more flexibility in the contract area of Block A,” he said, adding that once the company commences drilling, it can explore further around its licensed area.

While Saktheara said a dedicated timeline for extraction will be dependent on when both parties decide that the oil extraction will earn a profit, after the agreement is finalised, the company could begin a seven to eight month drilling campaign that would see production starting up after 24 months.

However, he said from the ministry’s point of view, production was not a high priority so long as future projections for global oil prices remain gloomy.

Nevertheless, he said the deal would bring greater confidence to Cambodia’s potential energy sector because it would show foreign investors that the Kingdom can negotiate fair and transparent deals.

“The deal will pave the way and stabilise the investment environment in Cambodia’s energy sector in terms of future investment,” he said, adding that the government has worked on providing better “clarity” for future negotiations.

Richard Stanger, president of the Cambodian Association of Mining and Exploration Companies (CAMEC), said that while the negotiations for a profit-sharing agreement have been dragged out, an internationally recognised agreement would be positive for the Kingdom’s undeveloped oil and gas sector.

“This would be a very important development for the government and KrisEnergy,” he said, noting that it could help future negotiations with investors even if exact details of the agreement remain confidential.

“It has taken surprisingly long for them to agree [on a plan], but I guess that means they are trying to do it correctly,” he said.

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