After sinking tens of millions of dollars into oil and gas exploration in Cambodian off-shore waters, Japan’s largest oil company is relinquishing the licenses for its wells following disappointing survey results.
Idemitsu will hand back the wells to the government in January, Men Den, deputy director for the Industry Ministry’s petroleum sector, said Thursday.
The company’s Phnom Penh office will close officially on Nov 30, he added.
Idemitsu took over Blocks 3 and 4—where the once-promising Koh Tang 1 well is located—in January 1997 after its partner, Britain’s Premier Oil, decided to halt exploration because the wells were not promising.
Idemitsu and Premier spent more than $60 million on exploration, the Industry Ministry said.
Idemitsu representative Korn Huot declined to comment on the company’s decision to return the licenses or results of the well surveys. He did confirm the company was closing its office.
Men Den said the low international price of oil, now about $12 per barrel, has hurt the company’s profits, leaving it without enough cash to continue exploration.
According to a report in the Asian Wall Street Journal earlier this month, Idemitsu’s pretax profit in September was $9.4 million, a 55 percent decrease from a year earlier.
Idemitsu attributed the sharp drop in profit to a fall in prices and sluggish demand for oil products. The report also cited an Idemitsu official as saying that its cost cutting efforts will help save $124 million in the second half of the company’s fiscal year.
Coupled with financial problems is the decreasing likelihood of a resolution to the dispute between Cambodia and Thailand over a zone in the Gulf of Thailand, where Idemitsu holds a conditional agreement to explore. This is in addition to the licenses it holds for undisputed waters. “There was little expectation of exploration for the concession areas they had,” a Japanese Embassy official said last week.
Idemitsu is the second company to return licenses for blocks in the undisputed area off the coast. Britain’s Enterprise Oil capped its wells in Blocks 1 and 2 at the end of 1996 and handed back the licenses in March of this year after spending about $55 million on exploration, Enterprise General Manager Hugh Mackay said in an interview last week.
Mackay is scheduled to leave Cambodia at the end of the year. Enterprise will keep its office open but another permanent general manager will not be appointed, he said.
Although the companies have returned the licenses, the survey information will be made available to other companies for future bidding. Of the nine wells drilled in the blocks, three were found to be somewhat promising, one each in blocks 2, 3, and 4. Men Den said he wants to combine the four blocks into one to make the area more attractive for oil companies. He added that several have already expressed interest.
Mackay said it is possible that other companies may have more luck in the area, even though Enterprise and Idemitsu decided the zones were not worth further exploration.
Australia’s Woodside Petroleum is surveying Blocks 5 and 6 of the undisputed area. It is the last company doing active exploring in Cambodia.
Although the undisputed area has so far yielded little, Enterprise, Idemitsu and three other companies have high hopes for the nearby Overlapping Claims Area where they got conditional agreements last November.
But little has happened in the past year to sort out the dispute between Thailand and Cambodia.
A Thai Embassy official said Thursday that the two countries have not met to discuss the issue for two years. The last meeting was hosted by Bangkok and now it is Phnom Penh’s turn, he said, but the meeting has been delayed because of political instability. He called the issue a priority for both governments.
Cambodian Foreign Ministry officials could not be reached for comment Thursday
The five companies—Enterprise, Idemitsu, Indonesia’s Inpex, Australia’s Broken Hill Petroleum and US-based Conoco—have formed an association to assist the government prepare for negotiations, Mackay said.
He declined to discuss details of the preparations.
Mackay said the group expects negotiations to take another two to three years before an agreement is reached.