Sunday, 1 June 2008

Getting a feel for power

TANG CHHIN SOTHY/ AFP A man prepares to refuel a motorbike with blackmarket petrol on a street in Phnom Penh. Cambodia expects to begin oil production in 2011, government officials have said amid warnings that new-found petroleum reserves did not guarantee instant prosperity for the country.

Courtesy of Phnom Penh Post

Written by Susan Postlewaite
Thursday, 29 May 2008

Massive hydrocarbon reserves are believed to lie off the Cambodian coast, but just how much there is and when it may be tapped remain the subject of much debate, writes Susan Postlewaite

Record high oil prices of $135 a barrel have added a sense of urgency to Cambodia's efforts to tap into a potentially huge hydrocarbon bounty lying under the sea off the country's southern coast.

But uncertainty still clouds the nascent petroleum sector, dulling those first twinges of excitement felt more than three years ago when energy giant Chevron and its partners announced that they had struck oil in four test wells about 150 kilometers (93 miles) off the coast from Sihanoukville.

Since then, predictions over the size and value of Cambodia's oil and gas fields have varied amid increasingly cautious statements from government officials tasked with guiding the country's expected petroleum boom, while production appears to be at least a few years off.

While the clock ticks, the prospects for an oil bonanza may be fading slightly.

After the early discovery of oil in Block A - one of six offshore blocks where exploration licenses have been granted by the government - economists optimistically estimated revenues in the billions of dollars based on projected reserves of as much as two billion barrels of oil and 10 trillion cubic feet of natural gas.

But it appears now that there may be less oil under the sea than Chevron, the government and a host of other speculators had hoped.

In its last public statement on the issue, Chevron - which must come up with an approved development plan by early 2009 or renew its exploration license with the government - said that the undersea reservoir has a complex design and contains "small dispersed fields, rather than one core field," making recovery more difficult and costly.

Further dampening the mood, Te Duong Tara, director general of the Cambodian National Petroleum Authority, told reporters at an oil and gas conference sponsored by the UN Development Program in March that the recovery rate for the estimated 500 million barrels of oil in Block A was "as low as 10 percent."

"We don't know yet [how much oil exists].... We have a schedule with Chevron. We still are working together," he said, adding that there is no data for the five other blocks.

"These reserve numbers will change," he said.

Adding yet another layer of concern over Cambodia's petroleum prospects, an independent geologist told the Post that undersea reservoirs in the Khmer trough are rife with fault lines that may have allowed oil and gas that was once there to escape, lowering estimated oil reserves to fewer than 50 million barrels.

To compare, Vietnam has 600 million barrels of proven oil reserves, while Thailand has 290 million, according to the US-based Energy Information Administration.

Activity continues in Cambodia's offshore blocks - nearly a dozen companies granted exploration licenses are shooting seismic surveys, and one, Petrotech of Hong Kong, says it hopes to drill its first well by the end of the year.

But industry analysts say all eyes are on Chevron, which appears to be preparing this year to begin developing an initial small-scale production plan as it further considers its prospects for profit in these untested fields.

One option, said an analyst who did not want to be named, would be to use the small military base on Poulo Wai island, near the maritime border with Vietnam, to construct the facilities for offshore drilling and production.

Another option would be to lease a floating production and storage vehicle - much like a converted tanker with a plant for separating oil and gas on deck - to be moored in the waters over the field in lieu of larger, more expensive traditional drilling platforms.

In another setting, analysts said, the relatively small pockets of oil discovered so far might not be enough to attract the interests of an energy giant like Chevron - which recently reported $65 billion in sales during the first quarter of 2008.

Administrative obstacles are also complicating the situation: Chevron and its partners Mitsui Oil Exploration (Moeco) and GS Caltex have yet to resolve how the government will tax their potentially substantial oil revenues in what one analyst called a "show stopper." Another analyst said a compromise is expected to be reached.

However, even without the participation of giants like Chevron, Cambodia's hydrocarbon fields might offer up enough promise to lure smaller producers keen to cash in on rising global oil prices, some observers said.

Under the current concession rules, oil companies have six years for exploration and industry experts say it would not be surprising to see some licenses being traded to new players in the field.

"They have the data from the 15 new wells and from the old wells in the 1990s," said one petroleum consultant. "As oil prices go up, more and more of these oil fields will be viable to produce."

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