What future for Cambodia’s oil dream after the collapse of KrisEnergy?
PHNOM PENH – Enclosed in a glass teardrop attached to a richly decorated gold-colored pedestal, Cambodia’s first oil drops were commemorated in a ceremony Wednesday, six months after being pulled from the depths of the Gulf of Thailand.
Chaired by Cambodia’s energy and defense ministers, the long-planned event praised Prime Minister Hun Sen, who was given ultimate credit for fulfilling the country’s ambitions to pump oil for decades.
The timing could hardly have been worse. Less than a week earlier, KrisEnergy, the company operating the first and only operating oil field in Cambodia, announced that it could not pay its debts and would be liquidated.
Tactfully omitted from ministers’ speeches on Wednesday, the collapse of the Singapore-based company leaves Cambodia facing an uphill battle to make its oil dreams come true. The major challenge will be to find another operator ready to step in, according to Andrew Harwood, research director at energy consultancy Wood Mackenzie, especially given the uncertain price outlook for oil and the “nascent nature” of oil. regulatory environment of the country.
“Cambodia still has the potential to become an oil producer, but will need to attract new explorers and investment at a time when international oil companies are rationalizing their portfolios and reallocating their capital to renewables and other low-emission opportunities. carbon, ”said Harwood.
Cambodia’s Ministry of Mines and Energy said it was “too early” to discuss the government’s next steps. For now, authorities “will follow the terms and conditions” of its production agreement with KrisEnergy, ministry spokesman Cheap Sour told Nikkei Asia, without giving further details. A secretary of state in the same ministry, Meng Saktheara, said on Facebook that KrisEnergy’s operations in Cambodia would likely be suspended until the liquidation process is completed and an agreement is reached. At this point, any operator that acquires the assets and concessions from KrisEnergy will have to enter into discussions with the government to continue production, Saktheara wrote.
KrisEnergy declined to comment.
The company, whose main shareholder is Keppel of Singapore, an infrastructure manager, has struggled to stay afloat for years. Although it holds interests in several gas and oil permits in Southeast Asia, only three of them are in production: the Cambodian Block A concession, also known as the Apsara field; an oil and gas field in Thailand; and an onshore gas field in Bangladesh.
And all three encountered problems. Production from its Thai oil concession was suspended last year, while in Bangladesh last year the government ordered gas cuts to the grid. Then, in April, it was revealed that the project’s output in Cambodia would be significantly lower than pre-development forecasts.
This latest development was the last straw. KrisEnergy had been under court creditor protection since 2019 as it attempted to restructure over $ 500 million in debt, a process that depended on expected revenues from Cambodia. When it became clear that this money would not materialize, the restructuring collapsed and KrisEnergy lost its creditor protection.
This month, the company filed for liquidation with the Grand Court of the Cayman Islands, and three members of Borrelli Walsh, a restructuring, insolvency and forensic accounting services firm, were appointed receiver of the shares and of the company’s assets. Keppel said last week that he would bear a loss of S $ 318 million from his exposure to the company.
KrisEnergy directed Nikkei Asia’s questions about its assets to the designated receiver. Patrick Bance, one of Borrelli Walsh’s receivers, declined to comment.
The company had been Cambodia’s main hope of pumping oil since 2014, when it bought a controlling stake in the Block A concession from Chevron for $ 65 million. The US energy giant had held the rights since 2002, but withdrew after setbacks, including disagreements with authorities over tax and revenue sharing.
Industry expert Mick McWalter, who worked as a consultant for Chevron in Cambodia in the 2000s and then led efforts to reform the country’s regulators, said the government had set the bar high for fiscal conditions and commercial oil development. The fate of KrisEnergy could prompt rethinking, he said. “It could be an opportunity for the royal government to consider modifying its development conditions slightly and starting with a new entrepreneur, so that at least some value can be obtained for the people of the nation,” he said. -he declares.
Reserves in the Block A concession, initially estimated at between 400 million and 500 million barrels, were once seen as potentially generating billions of dollars in revenue. But revaluations over the years have seen their value significantly depreciated, due to poor recoverability and the high cost of extraction.
This trend has continued. An independent study commissioned by KrisEnergy and published in April found that the final recovery was likely a “small fraction” of forecast, mainly because there was a volume of oil significantly below the range of the wells. The study also cited the “geological complexity” of the area, which had resulted in smaller accumulations of oil.
Jay Cohen, Cambodian partner and director of regional law firm Tilleke & Gibbins, said the results did not bode well for relaunching production. They would also reduce the sale price of KrisEnergy’s Cambodian assets in the event of a liquidation, he said. “It wasn’t a huge find, but they have oil,” Cohen said. “What’s more worrying when you look at Cambodia’s energy ambitions is that KrisEnergy said there doesn’t appear to be as many as they thought.
McWalter said any new operator would need “deep pockets and access to [the] latest technology “to exploit Cambodia’s offshore oil reserves, which he says are” plentiful [but] quite difficult and expensive to recover. “
“For Cambodia, they still have oil, and one day it could be worth a lot more, as crude prices are tight during the energy transition,” he said, referring to the shift from energy-based forms. from carbon to renewable forms of energy, such as solar and wind.
That window would not stay open forever, he said. “A long-term fear could be that oil production will go out of fashion as we get closer and closer to the energy transition. Khmer Trough’s oil accumulations may no longer be of value as a resource. “
Wood Mackenzie’s McWalter and Harwood said the best chance of attracting operators was the Overlapping Claims Zone, a 27,000 km² strip of water claimed by Thailand and Cambodia that is said to be rich in oil and gas. .
A 2008 US diplomatic cable published by WikiLeaks indicated that while Chevron doubted the profitability of Block A, it was keen to strike a deal in the OCA if the dispute was resolved. However, progress on this front has stalled since 2009, when Thailand suspended an agreement to jointly explore the region.
Speaking to the Nikkei in 2019, Sour, the spokesperson for the Department of Energy, said energy ministers from both countries had spoken and wanted to move forward on the matter. When asked last week if there had been any progress, he replied: “Not yet”.