There is oil off the coast of Cambodia, but no one will say exactly how much there is, how much it’s worth and when it might start to flow.
What is clear is that if oil were cheaper, companies such as Chevron might not be looking for it in Cambodia.
“Ten years ago, Cambodia-type projects wouldn’t have gotten the go-ahead. At low oil prices, it’s not promising,” said David Moffat, Chevron’s exploration manager for southern Asia, speaking at a UN Development Program conference on poverty reduction and oil revenues Wednesday in Phnom Penh.
As oil prices have skyrocketed and extraction from known deposits has begun to plateau, it has become financially feasible for companies to assume more risk, drilling further afield and tapping deeper, more difficult deposits.
“At $100 a barrel, you’d go almost anywhere, wouldn’t you?” said Michael McWalter, an adviser to Cambodia’s National Petroleum Authority, who has also worked with the governments of Papua New Guinea and Sao Tome e Principe.
Global energy demand is expected to increase by more than half in the next two decades, said Arne Walther, a senior adviser to Norway’s Ministry of Foreign Affairs.
“There is a substantial deficit to fill, an amount that exceeds current supply from Saudi Arabia,” Walther said.
To meet that projected demand will require $20 trillion in investment, half of it in the developing world, he added.
Thursday, “frontier acreage,” “marginal fields,” “enhanced recovery projects,” “oil sands” and “stranded gas” have started to look appealing.
“Anything that will burn,” said David Johnston, managing director of Daniel Johnston and Co, a US oil industry consulting firm.
But that doesn’t necessarily mean frontier countries have the upper hand when negotiating with oil companies. As oil supply has tightened, so too has the competitive landscape for oil exploration dollars.
In the last decade, the number of countries trying to attract oil exploration has doubled to about 100, Johnston said.
And though oil looks rich these days, Johnston said production costs have risen too, which tempers exploration budgets.
“Profitability hasn’t changed much,” he said.
Chevron’s Moffat said that the company is still evaluating results from the 15 test wells it has drilled in Cambodia’s offshore Block A.
“It is still too early to comment on resource size and potential start-up date,” said Moffat, adding: “There has been so much speculation, we don’t want to add to that. We’ve never made any declaration of resource size.”
Moffat added that while there are similarities with other oil deposits in the Gulf of Thailand, Cambodia’s reserves present some unique challenges, which make drilling more hazardous and more expensive.
Even in less complex deposits elsewhere in the Gulf, the region’s geology means just 15 to 20 percent of reserves can be extracted, McWalter said.
Te Duong Tara, director-general of the CNPA, said the Petroleum Authority had made its own, preliminary assessment of exploration data, but he too declined to say how much oil Cambodia might possess.
“People jump up too fast to talk about revenue. We must know what we have first,” he said.
Other companies are even further behind Chevron. Lateef Dada-Bashua, a consultant for Hong Kong’s Polytec, which controls Block C exploration, said the company hasn’t even set a date for test drilling.
Politically, said McWalter, Chevron could “potentially get credit for delivering Cambodia’s first oil.”
“I suspect they have pride in making it work,” he said.
Chevron’s Moffat said the company is now working with the government to develop a legislative framework for oil and gas extraction.
Chevron signed a revenue sharing contract with the government in 2003, when it began exploration. But, Moffat added, the terms of that deal are “somewhat loose.”
“Those need to be ironed out,” he said.
Speakers at the conference emphasized that the interests of governments and oil companies are not always aligned.
“We know that countries in the initial stages of developing their non-renewable resources can be at a disadvantage when engaging with the private sector,” UNDP Country Director Jo Scheuer said.
Te Duong Tara told conference participants that Cambodia’s take on oil profits would be about 70 percent, in line with global norms.
The better its geology, the more negotiating power a country has.
Johnston said Indonesia keeps 85 percent of its oil profits.
“They could do that because they had good geology. Most governments can’t,” he said.
McWalter said the CNPA has done good due diligence, bringing on top-notch advisers, such as Rose and Associates, a petroleum risk assessment firm based in Texas, and Wikborg Rein and Co, a Norwegian law firm.
Petroleum Geo-Services, a Norwegian geophysical data collection and analysis firm, has also been training CNPA staff, said Suvimol Maingarm, the company’s principal reservoir geoscientist for the Asia Pacific region.
But McWalter says the best way to help CNPA might be by increasing staff salaries. “You can’t have people paid peanuts in dealing with a multibillion-dollar industry,” he said, adding: “They’re not incentivized.”
While tough to increase government salaries in one body and not another, McWalter said such a move would not be unprecedented.
The United Kingdom in the 1970s gave department of energy employees sizeable bonuses to staunch brain drain to the private sector, he said.
Te Doung Tara declined to speak with a reporter Wednesday night.