Cambodia’s Slow Road to Become an Oil Producing Nation

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After years of delay, the Cambodian government and KrisEnergy get pen to paper, signalling a wealth of future opportunities for Cambodia.

By Oliver Ward

The Cambodian government and Singaporean energy giant, KrisEnergy have penned a long awaited deal to begin the development of an offshore oil field. Delays have hampered the deal over the last six-years, but KrisEnergy can now begin the development of 3,083 square kilometres in the Khmer basin. The project will earn the Cambodian government around US$500 million over its life.

The KrisEnergy Chief Operating Officer Kelvin Tang outlined the group’s aim of delivering the first barrel in 2019. “Shortly after signing, we will declare a final investment decision and proceed to deliver first oil in 24 -months”, he said. Cambodian Finance Minister, Aun Pornmoniroth disclosed that the development would produce around 30 million barrels of oil for Cambodia over a nine-year period.

Why has the deal taken so long to come to fruition?

Cambodia has struggled to find a partner willing to help them develop oil production facilities in the Khmer basin. The global drop in the price of oil caused many companies to limit investment in the development of new oil fields.

Unhelpful business laws in Cambodia also made the country a difficult place to do business. But this deal is an indication of Cambodia’s progress in this regard. Hun Sen’s government implemented 45 business reforms nationwide in 2016, including allowing the credit bureau to provide credit scores to banks and financial institutions, giving more access to credit information. There is still some way to go as company registration is still a time-consuming process, but this deal shows headway in promoting Cambodia as a more welcoming and accessible business environment.

The deal still has to wait for the approval of the draft petroleum bill

The Cambodian government now needs to draw up a draft petroleum bill and submit it to the Council of Ministers for approval. This process will likely last until the end of 2017 or the beginning of 2018, but once it is approved, work on the Khmer basin can begin in earnest.

The weight of KrisEnergy behind the deal is also a valuable asset. The company is well established in the industry and already hold oil field acreages of more than 43,000 square metres in Bangladesh, Cambodia, Indonesia, Thailand and Vietnam.

Singapore also has the largest refining centre in the region, and their delivery prices set the benchmark throughout the industry, making the country the perfect business partners for the Cambodian government.

The benefits for Cambodia could go further than purely financial gain

Despite the handsome sum of US$500 million and the savings Cambodia will make by producing their own oil rather than relying on oil imports, the deal could also represent a new era for Cambodian business.

Cambodia needs to get tough on corruption and stamp out corporate graft; this needs to come from all levels of business, not just top down. Major cooperation with a large company from Singapore, where there is a zero-tolerance approach to corporate graft, could fuel modernisation and anti-corruption efforts in Hun Sen’s Cambodia.

This opens the door to more opportunities

It is a landmark deal for Cambodia. Not only does it put them further on the road to becoming an oil producing nation, but it opens the door for plenty of new business opportunities. If the agreement yields results for KrisEnergy, we can expect to see more investors looking to Cambodia for oil and gas investment.

Petroleum Authority of Thailand (PTT)  and the Cambodian Ministry of Mines and Energy quickly signed a deal in early August. According to the deal, Thai energy giant will share technical knowledge and technology for the oil and gas industry with the Cambodian government.

Secretary of State for the Ministry of Mines and Energy, Meng Saktheara said: “Cambodia also expects to attract more investment from Thailand in its fledgeling oil and gas sector”.

Thai companies will undoubtedly want to assess the capabilities of Cambodia’s oil and gas reserves in the wake of the agreement with KrisEnergy, and PTT will probably be at the head of the pack. The company will increase the number of petrol stations in Cambodia from 35 to 90.

KrisEnergy is already eying future developments. The current plans only apply to Apsara block A, but according to Kelvin Tang, “there remains further potential in other geological trends within the contract area for future investigation”.

The agreement pushes Cambodia into unchartered territory, it will pave the way for the growth of the oil and gas industry and could drive a gradual cleansing of Cambodian business practices. With more doors opening, we can expect the bright lights and traffic and Phnom Penh to run on Cambodian oil in the not so distant future.