As Chevron hands over its controlling stake in the Kingdom’s most developed oil field to a new player, industry experts say extraction may still take time

Industry insiders urged patience this week after news broke that energy giant Chevron had sold its controlling stake in the Kingdom’s most developed oil field to Singaporean firm KrisEnergy.

Hopes are now pegged on KrisEnergy to bring about a windfall it is hoped will reduce the nation’s dependency on energy imports and bring much-needed state revenues.

But there is still a long way to go, according to experts, who say that while long-awaited reforms to clean up the industry could yield progress, extraction may still be far off.

After years of negotiations between Chevron and the government over profit-sharing and taxation failed, KrisEnergy announced on Monday that they had acquired Chevron Cambodia’s 30 per cent stake in Block A, a 4,709-square-kilometre site in the Gulf of Thailand.

The expense of extraction weighed against the potential oil yield left Chevron unwilling to agree to government terms and willing to sell, according to Michael McWalter, former oil and gas adviser to the Cambodian National Petroleum Authority.

“Perhaps, KrisEnergy may be nimble and innovative enough, and perhaps the government might examine its terms and conditions to make them commensurate with the petroleum prospects of the area,” he said.

Since Chevron announced the discovery of oil and gas reserves in Cambodia in 2004, speculation on the size and potential value of the natural resources has been rife.

“There have been far too many inaccurate and unqualified statements about there being hundreds of millions of barrels of oil and trillions of standard cubic feet of natural gas reserves being available in Block A for development,” McWalter said.

“The risked probabilistic outcome is considerably less, but may yet be very valuable to Cambodia one day,” he added.

Newcomers from Indonesia, Hong Kong, Singapore, Sweden, Thailand, China and Vietnam have bought up stakes in five other offshore blocks – while licenses are held for at least three of more than a dozen onshore blocks.

Of the onshore blocks, Block 17 is said to be the most advanced, but the licensee, the Japan Oil, Gas and Metals National Corporation, has said it may be another six years before they begin extraction.

In response to calls from NGOs, businesses and foreign governments for more transparency about where the money is going, the government last month slowed down the approval of any new licenses in the extractive industry, which covers mining as well as oil and gas, while it introduces sweeping reforms.

According to Meng Saktheara, secretary of state at the Ministry of Mines and Energy, these include adding new chapters to Cambodia’s tax law that deal specifically with the treatment of petroleum and another with the treatment of minerals – while a publicly available database will track license applications and their approvals as well as industry revenues.

“The reform we are trying to do will make it no longer a black box; people will know where it comes from and where it goes. If it stops somewhere, then that place will be responsible to the country (Cambodia),” he said.

Extraction has become an important political issue, he added.

“As the member of the government, we have our [elected] term. As of the next term, I don’t know if I will be sitting in this chair or not, so it is really better to deliver it in this term,” he said.

KrisEnergy say that Block A has the capacity to yield 10,000 barrels per day when production begins.

Citing potential hurdles even after negotiating a government agreement – from the availability of equipment to unpredictable weather – the company was cautious not to attach a timeline to oil extraction.

“Once we are are in a position with our partners and the government to begin development, we would aim to fast track the Apsara development efficiently and cost effectively while maintaining international standards for health, safety and the environment,” said Richard Lorentz, director of business development at KrisEnergy.

Time needs to be taken to ensure the industry makes the most of the finite resources, argued Chris Eijkemans, country director at Oxfam, which works closely with communities affected by the sector.

“On the one hand, it would be unfortunate if people started thinking that the sector alone was going to generate huge revenues and that these revenues would provide all the answers to Cambodia’s development challenges,” he said.

“On the other hand, it would be equally unfortunate if people didn’t realize that proper development of the sector requires responsible and accountable investment and that responsibility and accountability actually extends to the community being informed and engaged,” he added.