Despite a slew of global investment banks slashing their oil price forecasts this week, KrisEnergy —the Singaporean oil and gas firm with a controlling stake in Cambodia’s most promising offshore oil reserve, Block A—remains committed to helping Cambodia produce its first drop of oil, a company official said this week.
Kelvin Tang, KrisEnergy’s president in Cambodia, said that in spite of prevailing low oil prices, Block A partners were in the process of finalizing transaction documents with the government for operating the offshore field, but that actual production was unlikely before the start of 2018.
“Once the transaction documents are signed and any pre-conditions satisfied, the Block A partners will commence the development of Block A,” Mr. Tang said in an email on Tuesday. “The development works are expected to take around 24 months and oil production will commence thereafter.”
On Wednesday, the Brent crude oil spot rate—the global oil price benchmark—was about $30 per barrel, less than half of the $70 threshold that analysts from policy research firm Resources for Development Consulting say would make production from Block A economically viable.
Amid rising tension between Saudi Arabia and Iran in the Middle East, slowing demand in China and the potential return of Iranian oil into global markets, all cited by investment banks in oil outlooks released this week, Reuters reported on Wednesday that Brent crude would likely average $40 a barrel next year and $50 a barrel in 2017.
Despite the risks, Mr. Tang said he was confident that KrisEnergy would maintain its interest in developing Block A over the coming years, and that he expected prices to recover.
“For the schedule, the profitability of the project will depend on the prevailing crude oil price environment when production starts,” Mr. Tang said. “Currently crude oil price estimates, gleaned from the public domain, all indicate higher prices in future years.”
Block A is a 6,278-square-km area situated about 120 km off the Cambodian coast in the Gulf of Thailand, one of the country’s six offshore oil and gas exploration blocks. It has the potential to produce up to 25.8 million barrels of oil, according to KrisEnergy, which bought out Chevron’s stake in the block in August 2014.
“The other offshore blocks have either terminated or are still in the exploration phase,” said Natacha Kim, executive director of Cambodians for Resource Revenue Transparency, on Wednesday. “Block A is most advanced in terms of development, and deemed commercially viable.”
Though KrisEnergy appears committed to the block, current trends in oil prices are likely to delay production beyond the best-case scenario of 2018, said Don Hubert, president of Resources for Development Consulting.
“Low oil prices are creating major challenges for all new oil projects,” Mr. Hubert said on Tuesday. “I think that further delays on Block A are to be expected.”