PHNOM PENH -- Block A -- Cambodia's most promising oil concession -- is the dream that refuses to die. The concession's Apsara field, if fully tapped, would help diversify an economy heavily reliant on garment exports -- and increasingly Chinese investment.
Like many of its neighbors in Southeast Asia, Cambodia has received billions in investments and loans linked to Beijing’s Belt and Road infrastructure push. Oil exports could go some way toward putting the country on stronger financial footing, including chipping away at a 12% current-account deficit. And once a long-delayed refinery is built, that may also ease imports of petroleum products.
It has been a long road. Cambodia's would-be oil sector has been beset by decades of setbacks as companies ranging from U.S. giant Chevron to Thailand's PTT, PetroVietnam and China National Offshore Oil Corp. (CNOOC) have come and gone.
But now the government is pinning its hopes on Singapore-based KrisEnergy, trusting that the company will have the country's first oil field on stream by the end of this year.
Although Block A's planned production will be initially modest, the government hopes it will be the first step in developing the sector. It has also restarted talks with Thailand over contested offshore fields thought to be rich in oil and gas, while a Canadian company is preparing to ramp up onshore exploration.
Yet there is a problem. KrisEnergy -- which in 2014 paid $65 million for Chevron's controlling stake in Block A -- is struggling to stay afloat, having recently been granted a three-month court protection to give it "breathing room" as it attempts to restructure its severe debt load.
On Oct. 29 a chink of light appeared after it announced the sale of an Indonesian oil asset. The company said the sale was part of its strategy "to focus its limited financial resources on optimising operations at its existing producing assets."
The country has been disappointed before. Back in February 2009, Cambodia's late Deputy Prime Minister Sok An was waiting impatiently for the oil to start flowing. Six years had passed since Chevron had acquired a controlling stake in Block A.
Sok An, who headed Cambodia's National Petroleum Agency, told U.S. emissaries that the country "does not want our money to sleep under the sea," according to a diplomatic cable later published by WikiLeaks.
"He half-jokingly requested that the [U.S. government] prod Chevron to start oil production soon."
Block A's reserves -- initially estimated at 400 million to 500 million barrels -- were once considered a potential source of billions in revenue, but reassessments saw their value downgraded significantly due to low recoverability and the high cost of extraction.
Prospects became dimmer still after oil prices crashed in 2014, and the country's opaque regulatory environment has also stifled the sector.
So to has Cambodia's reputation for graft. U.S. diplomatic cables, discussing the country's oil potential in the late 2000s, characterized the reduced forecasts as a blessing, noting a bonanza would likely worsen already "systemic and pervasive" corruption in a country often viewed as a Chinese client state.
Chevron, nevertheless, was "keen" to develop the Apsara field, at least initially, according to Mick McWalter, who worked as a consultant for Chevron in Cambodia in the 2000s and later led efforts to reform the CNPA.
But after repeated failure to agree on tax and revenue sharing with the government, the U.S. energy giant eventually "had enough [and] walked out."
"Chevron would have made it work, but the terms were just that bit too harsh," McWalter said.
After Chevon's exit, KrisEnergy entered the scene and reached a deal with authorities in 2017. The arrangement would see the government, which holds a 5% participation stake, earn at least $500 million from the first phase of the project, based on oil prices of $50 per barrel.
The company forecasts the first stage of the project will yield about 8,000 barrels per day of crude and some 8.5 million barrels over its lifetime. Additional phases would follow.
The attraction for Cambodia is obvious. Production from Block A's estimated 30 million barrels of oil reserves would help ease reliance on energy imports, especially once a Chinese-backed refinery is completed in 2022.
The country's imports of petroleum products rose 10% in 2018 to 2.5 million tons, official figures cited by local media show.
The question for now, however, is whether KrisEnergy will come close to meeting the 24-month time frame announced upon in its final investment decision in October 2017.
With total debt of $476.8 million and gearing at 110%, its cash position is "severely constrained," KrisEnergy told shareholders in a presentation in September.
"Management has exhausted all available options within its control and the business remains over leveraged and undercapitalised," the presentation stated. Trading of its shares has been suspended since August.
The company is funneling its remaining cash toward Cambodia in a bid to kick-start production.
Cheap Sour, spokesman for the Ministry of Mines and Energy, said the government is aware KrisEnergy's troubles and has not revised its anticipated timeline for production.
If Block A does work out, Cambodia has other potential oil sources.
Angkor Resources, formerly Angkor Gold, holds the only other active exploration license in Cambodia, according to Sour. The Canadian-listed company, which has mining interests in the country, was awarded the rights to explore one of Cambodia's 19 onshore blocks in August. But its prospects are not clear either.
"Our next step will be to negotiate our PSA with the Cambodian government," Angkor Resources CEO Stephen Burega told Nikkei, after which the company will conduct extensive survey work. "It is simply too early to say at this point whether or not there are hydrocarbons in place with significant enough size to be considered for production," Burega added.
Potentially more significant is the Overlapping Claims Area, a 27,000-sq.-km swath of waters in the Gulf of Thailand claimed by Thailand and Cambodia and believed to be rich in oil and gas.
A 2008 U.S. diplomatic cable indicated that while Chevron doubted the profitably of Block A, it was keen to secure a deal in the OCA should the dispute be resolved.
However, progress on that front has been stalled since 2009, when Thailand suspended an agreement to jointly explore the area. Sour told Nikkei that the countries' energy ministers had recently met and wanted to move forward.
"Both parties agreed to continue discussion on the OCA," he said.
In one step forward, the government this year promulgated its long-awaited petroleum law.
The 72-article bill sets out a 30-year limit for petroleum agreements with companies, which can request a 15 year extension. It also stipulates a seven-year deadline for exploration and a five-year window for contractors to complete development.
The law is a "step toward" clarifying the government's position on foreign involvement in the sector, according to Maxfield Brown, manager of the business intelligence unit for law firm Dezan Shira & Associates, who said the time frames are largely in line with common practices.
But Brown does see one cause for concern. Article 31 of the new law gives the government the right to request up to 25% of a contractor's share of production to meet domestic needs and the right to requisition 100% in the case of a "national supply emergency."
"At this time, both 'domestic need' and 'supply emergency' have yet to be defined and leave substantial room for interpretation in the interim period," Brown said.
For now Cambodia's oil dreams live on. But unless significant progress is made on the Overlapping Claims Area, attracting major players to share dreams will likely remain a challenge, according to Jean-Baptiste Berchoteau, a research analyst at WoodMackenzie.
"A lot of geological work can still be done" in the country, he said. "Although it is unlikely to attract the big players ... we believe Cambodia could be an interesting playground for smaller regional players with a suitable risk appetite."