After years of delay, Cambodia began extracting oil for the first time in December 2020, signaling a new era for the country’s economy.
By Natasha Teja
On December 18 2020 Cambodian Prime Minister Hun Sen announced the country had extracted its first drop of oil from an offshore oil field known as Block A. The long-awaited milestone signals a significant shift for the country, which had aspired to extract oil since the deposits were first discovered 15 years ago.
As Hun Sen announced in a Facebook post, “The year 2021 is coming…and we have received a huge gift for our nation—the first oil production in our territory”.
In 2017, the Cambodian government entered into a joint venture with Singapore’s KrisEnergy to develop oil wells in the Aspara oil fields—an area known as block A, off the coast of Preah Sihanouk province. KrisEnergy currently holds a 95% stake in the block.
“It has been three years since we signed with the government the petroleum agreement to launch this project and there has been a steep learning curve for all involved,” said KrisEnergy CEO and Cambodian operations president Kelvin Tang in a press release.
“Our task now is to complete drilling of the four remaining wells, stabilize production and monitor performance so that we may assess the best path forward to optimize Cambodia’s oil production,” Tang added.
Cambodia faced difficult to road to its first oil extraction
Cambodia’s dream of drawing oil has faced delays and uncertainty for years. In the 1990s, the government split Cambodia’s territorial waters into six offshore oil blocks for gas and oil exploration but oil was found in only one of them.
The first oil deposits were discovered in Block A by US oil giant Chevron in 2005 but operations stalled as the company failed to reach a revenue-sharing agreement with the Cambodian government.
In 2014, KrisEnergy bought Chevron’s stake in the 3,083 square-kilometer block. Following the oil slump in 2014, few companies were willing to invest in developing oil fields. The pandemic has caused further delays and Tang stressed that the project has faced challenges due to “the cross-border logistics of mobilizing personnel and equipment to execute this development safely during this time of COVID-19”.
Oil brings new hopes for the economy
KrisEnergy estimates that Block A could produce 7,500 barrels of oil per day. While a modest amount compared to Cambodia’s oil-producing neighbors of Thailand and Vietnam, this could mean significant revenue for the government. Further estimates show that Block A may hold 30 million barrels of recoverable oil reserves.
The government estimated that it could generate US$500 million in the first phase of the project. However, the discovery has raised concerns over how the government will manage its newfound wealth, as critics of Hun Sen have long accused his government of corruption and repression.
Potential mismanagement of funds
In 2019, Transparency International ranked Cambodia 162 out of 180 countries in its transparency perception index. According to the Basel Anti-Money Laundering Index, Cambodia is also one of the worst countries for money laundering. Attempts to crack down on corruption have had few results.
Anti-corruption groups and senior officials from the country’s banned opposition, the Cambodia National Rescue party, were quick to raise concerns of potential mismanagement of revenues. Civil society groups demanded the government release detailed figures from the project.
However, Hun Sen has insisted that Cambodia will break from its reputation for corruption and that the revenues from the project will not go to line the pockets of the country’s business tycoons and politicians. He has stated that revenues from oil production will go towards improving education and healthcare.
Oil will also allow the country to be less reliant on foreign aid. Over the last decade, Western aid to Cambodia has been dwarfed by investment coming from China. While China will continue to remain a key diplomatic and economic ally for Cambodia, the kingdom’s new source of wealth will ease dependency on Chinese investments.
The project will likely prove to be a significant turning point for Cambodia’s economic development if funds are managed appropriately. It is left to the government to decide whether revenues will be used further entrench corruption within the state or to lift communities out of poverty.