The government estimates that US oil giant Chevron will be able to recover 15 to 20 percent of the estimated 500 million barrels of oil in its offshore exploration block, starting in 2011, Te Duong Tara, secretary-general of Cambodia’s National Petroleum Authority, said Thursday.
In addition to ironing out the details of Chevron’s commercial terms, Te Duong Tara said engineering plans for how to extract the oil and get it to shore are still being worked out.
Chevron, which along with minority partners Mitsubishi and GS Caltex controls off-shore Block A, has remained mum about the size of its find and when—and if—it will commence commercial exploitation.
Chevron signed a revenue-sharing agreement with the government in 2003, the terms of which are now under renewed negotiation.
“We are not lucky like the Arabs: Drill one well and get the oil out. We have to drill 100 wells,” Te Duong Tara said during a break at a UNDP conference on oil revenue management in Phnom Penh.
“We have to find a win-win solution,” Te Duong Tara said of negotiations with Chevron. “Hopefully by June we’ll have everything clear.”
David Moffat, Chevron’s exploration manager for southern Asia, said Wednesday it was still too early to comment on resource size and extraction, but he did acknowledge that contractual negotiations are under way with the Cambodian government. Moffat also said Cambodia’s petro-geology presents unique challenges, which would raise extraction costs.
There has been much speculation about the size of Cambodia’s oil reserves, how much money they might generate and how well that revenue will be managed.
Hang Chuon Naron, secretary-general of the Ministry of Economy and Finance, told the conference Thursday that the government had yet to decide whether to route a portion of future oil revenues to a trust fund.
Many countries have created such funds to minimize corruption, preserve oil wealth for future generations and control the disruptive macroeconomic effects of a rapid, large infusion of cash into a small economy. In 2005, $323 billion was in oil trust funds globally, up from $69 billion in 2000, according to Ian Gary, senior policy adviser on extractive industries to Oxfam America.
“The Cambodian government thinks oil revenue should go to a government account, as part of the budget system,” Hang Chuon Naron said. That money, he said, will be allocated in line with the government’s existing spending priorities, which include improving infrastructure, agriculture, health and education, as well as private sector and human resource development.
But, he added, the government has not ruled out the possibility of setting up an oil trust fund.
“Whether we have a fund or not, that will be decided by the government in the future,” Hang Chuon Naron said.
Joseph Bell, a senior partner at Hogan & Harston, a Washington law firm, told the conference Thursday that it is crucial to separate budgetary decisions, which are necessarily political and often opaque, from oil fund money, which is meant to be held in a kind of sanctified trust.
Robert Glofcheski, UNDP’s chief resident economist for Cambodia, Laos and Vietnam, said preliminary estimates suggest Cambodia’s economy could absorb up to an additional $300 million a year. “Beyond that, Dutch Disease begins to develop,” he said, referring to the pattern of economic decline suffered by countries that do not manage their oil wealth well.
Quick spending of oil money can cause currency values to spike, crippling a country’s broader economy by decimating non-oil exports, such as agriculture and garment manufacturing.
Trust funds aren’t necessarily a cure-all for the oil curse. The government of Chad raided its trust fund, overriding agreements with the World Bank, and some argue that Azerbaijan’s trust fund—which Hang Chuon Naron referred to as a potential model for Cambodia—does not go far enough to control oil revenues.
Thomas Stephens, an economist specializing in international petroleum project management who has worked in Azerbaijan, said only about $2 billion of Azerbaijan’s estimated $12 billion in oil revenues has been routed to its trust fund since oil began flowing in 2006.
“An oil fund that has only $2 billion is not an oil fund,” he said. “They might avoid macroeconomic problems, but it doesn’t say what they did with the $10 billion.”
Several speakers at the UNDP conference emphasized that transparency, including publishing contracts with oil companies, boosts the competitive advantage of small oil-producing states.
CNPA has said it has signed exploration deals for its six offshore blocks.
Cabinet Minister Sok An told the conference Wednesday that negotiations were under way for onshore exploration deals with companies including Total, Moeco, Jogmec, GS Caltex, Pan Orient and INPEX.
Chevron’s Moffat said Wednesday that Chevron could not, as a matter of corporate policy, release details of its revenue-sharing agreement with Cambodia, saying it was up to the government whether to make the contract available.
Te Duong Tara also said Thursday that the government could not release any of the contracts it has signed with oil companies.
“We cannot put it in the newspaper,” Te Duong Tara said. “Contracts are based on the principle of confidentiality.”
Many international experts point to East Timor as a country that has been taking promising steps to ensure that its new oil wealth helps its citizens instead of hurting them, as happens all too often.
“We want to make sure as a newly independent country we know what we are doing and we get it right from the start to avoid the oil curse,” Manuel de Lemos, the director of the state secretariat for national resources for East Timor, told Thursday’s conference.
East Timor became a candidate for membership to the Extractive Industries Transparency Initiative last month. EITI is a global consortium of oil companies, oil producing states and civil society groups that works to ensure good management of oil revenues.
“This is the beauty of EITI: It’s a forum for government, companies and civil society groups to talk. Joining EITI, you have a lot of access,” de Lemos said.
“In this industry, at the end of the day, you can’t hide. You can hide for a little while, but you can’t hide forever. People will know,” he added.
Hang Chuon Naron said the Cambodian government has “endorsed the principle of EITI,” but that no decision has yet been made on whether and how Cambodia might go about pursuing EITI membership.