Chevron Oil Investment Facing Delay

Chevron Corp’s oil project off the coast of Cambodia is being hindered due to difficulties in reaching an agreement with the government over how revenues from the venture will be shared, according to sources with knowledge of the negotiations.

In March, Chevron announced that a final investment decision on the project inside the 6,278-square-km Block A would be made be­fore the end of the year. But with little more than two weeks left in 2011, a decision has yet to be made. It is also unclear whether or not the Cam­­bodian National Pe­troleum Au­­th­ority (CNPA) has ap­proved Chev­ron’s project, a pro­cess that must be completed be­fore any decision on the investment goes through.

In a statement to the stock market in March, Chevron said that a final investment decision for construction of a wellhead platform and a floating storage and offloading vessel was expected in 2011.

When asked whether the 2011 deadline would be met, a Chevron spokesman yesterday held back from attaching any specific date to when Chevron would finally make its final investment decision.

“We are continuing to work   with the Royal Government of Cambodia to move the Block A project towards a final investment decision,” Gareth Johnstone, spokesman for Chevron in the Asia Pacific region, said in an e-mail yesterday.

Mr. Johnstone added that projects in the oil and gas sector typically take years to develop due to “the planning involved, the infrastructure that needs to be built, and the regulatory processes that govern energy projects.”

Several sources with knowledge of the negotiations with the government said that lower-than-expected oil reserves in Block A meant Chevron was seeking more favorable conditions on the amount of revenue that will be paid to the government on any oil extracted.

“Chevron has submitted production permission to CNPA since [the] early [part] of the year, and they have long discussions and negotiations on fiscal terms,” said one source with knowledge of the negotiations. “Through expert recommendations, oil reserves in Block A are not big and require high-tech and capital investment. That [is what] led Chevron to negotiate better terms so that they can develop marginal oil fields.”

Ever since Chevron started drilling three exploration wells in 2010, senior ministers including Cabinet Minister Sok An, who heads the CNPA, have publicly called on Chevron to start extracting oil by the end of 2012.

CNPA spokesperson Diep Sarei Viseth said that the government was working closely with Chevron in pushing forward with its offshore project.

“CNPA and Chevron have no problem over the production sharing at all, we are simply working over the fiscal term which will come to term soon,” he said in an e-mail.

Ek Tha, a spokesman for the Council of Ministers, said the target of extracting oil in Cambodia by the end of 2012 was still realistic.

“If everything goes well as planned we expect to have the first block of oil by 2012,” Mr. Tha said.

Mr. Tha added that the Ministry of Finance was currently working alongside Chevron to discuss many matters, including some related to revenue sharing and tax.

“”The Ministry of Finance is working with Chevron about the general calculation and about the revenues,” he said.

This is not the first time that negotiations with the government over the terms and conditions of an oil project have suffered setbacks.

In July 2009 the government announced that it had awarded exploration rights to the French oil giant Total for 2,430-square-km within the 27,000-square-km “overlapping claims area” in the Gulf of Thailand. The following month, however, Total revealed that the government had pulled out of what the company believed was a done deal, and had asked for numerous changes within the contract. The Total deal was eventually signed in 2010.



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