Since the early 1990s, the public and private sectors have touted Cambodia’s off-shore territory as a potentially lucrative new frontier for oil. But although many investors have come here, none have gotten beyond the first stages of exploration.
With negotiations for a major contract looming between the government and an Australian oil company, some in the industry are asking what has gone wrong.
Officials say the problem has been low oil prices in the last few years and a lack of expertise on the part of investors. Prime Minister Hun Sen returned this week from his first-ever visit to Brunei with assurances the oil-rich nation would help jump-start Cambodia’s oil business.
But some in the oil industry still point their fingers at the government, saying officials haven’t done enough to attract investors and keep them here.
“I have been hearing about Cambodia for the last 10 years,” said Moiffak Hassan, a World Bank consultant with 25 years’ experience in the oil industry. “But no one wants to come.”
The problem is that very little is known about the country’s potential, Hassan said. Almost no exploration has been done in Cambodia, and it’s up to oil companies “to start practically from scratch”—a risky and expensive enterprise.
“There has not been any clear discovery [of oil or gas] so far,” Hassan added.
Oil companies face the added problem of dealing with a government that drags its feet in negotiations, oil experts say.
One issue that vexes many in the industry is the failure of the government to resolve a 29-year dispute with Thailand over oil territory off Cambodia’s coast. The area hasn’t yet been extensively surveyed, but the Cambodian National Petroleum Authority estimates it could yield more than $500 million.
In January the government sent Thai authorities a proposal that includes an agreement to split the development area 50-50. Thailand has yet to respond.
The dispute has already gone on far too long, and the government hasn’t done enough to push a resolution through, said Michiaki Takahashi, spokesman for Japan’s Marubeni company, which has distribution rights for two of five companies that have signed up to drill the area once the issue is settled.
“[No constructive measures] have been taken by either side for years,” he said. “We haven’t been given any report about their [recent] discussions…We are rather pessimistic.”
But he added he’s pleased the negotiations are now in the hands of Cambodia’s petroleum authority.
“If the Ministry of Foreign Affairs of the Cambodian government starts to discuss it, it will take more than 100 years,” Takahashi said.
CNPA Director Te Duong Tara said streamlining operations is precisely why the authority was set up a year ago. Rather than negotiating with several different ministries, investors can go straight to the authority for all their needs.
The move was an indication of how serious about exploration the government is, he said.
“For me, energy is the key point for [developing] the economy,” he said.
Furthest advanced in realizing some of Cambodia’s energy potential is the Australian company Woodside.
Four companies signed up with the government to survey potential oil and gas fields off Sihanoukville in 1991. They drilled a total of nine wells but found only small deposits of natural gas. In 1998, when oil prices dropped to $12 a barrel, the companies withdrew.
Woodside, which made its name drilling abandoned oil fields in Australia, took up the other companies’ options in hopes of repeating its success here. It’s currently the only company actively exploring Cambodia’s waters.
The company, which has invested $8 million in exploring the area, has just finished a two-year survey of the area. If Woodside is to drill, it’s obliged to sign a new contract by the end of October, Te Duong Tara said.
But early survey results suggest the area is more likely to produce gas than oil, said Woodside’s international exploration manager. Peter Grant, by e-mail from Perth.
At the moment, there is no domestic market for natural gas in Cambodia. Grant hopes though that once the energy is available, gas-powered industry will grow, and the market for gas will grow along with it.
Hassan said it’s in the government’s interests to make a contract favorable to Woodside.
Previous draft contracts for drilling have included elements such as a flat tax and a “signature bonus” —a multi-million-dollar up-front payment to the government.
Hassan said these kinds of requirements will drive investors like Woodside away.
But with oil prices high—at $25-$30 a barrel—Cambodia is in a position to drive a hard bargain, Te Duong Tara said. He said the signature bonus is a conventional requirement in the developing world.
“It’s just an incentive to make the country sign the contract…we need the money up front to help the country,” he said.
Other elements of the contract, such as a flat income tax rate of 40 percent and royalties of 15 percent, are required by law and can’t be changed, he said.
But others say Cambodia has to be more flexible; companies need a chance to make a profit before making high cash payments to the government.
Te Duong Tara disagrees. Companies have failed in the past because they used the wrong techniques for exploration, he said. New investors will learn from past mistakes.
“If one company declines, others will step in,” he said, adding that three companies have already expressed interest in the territory.
None of the companies—US-based Anardako, Russian-based Yukos, and the Norwegian company Aker Geo—have representatives in Cambodia, so they could not be reached for comment.
However, one industry insider said it would be reckless of the government to jeopardize a contract with a committed company like Woodside in the hope of signing up new, untested investors.
“We’ve got to be flexible,” said the insider who asked not to be named. “We can’t miss the boat this time.”
