At present, the Cambodian oil and gas sector remains relatively undeveloped, however, there has been interest in the country’s potential reserves since the 1950s. Cambodia’s first drilling operation was conducted during the 1970s by Elf and Esso, but was cut short by the onset of civil war.1 Exploration re-commenced in the early 1990s, but as world oil prices slumped, all license holders relinquished their blocks by the end of 1998.
In recent years interest has been re-ignited and, a number of licenses have been granted for petroleum exploration. Exploration in some areas has yielded positive results, and the country is expected to commence exploration in the near future.
The Royal Government of Cambodia has sought to promote investment the country’s oil and gas resources in order to enhance economic growth, provide employment opportunities and generate revenue. In 1998, the government established the Cambodian National Petroleum Authority (CNPA) in order to further develop the sector. According to the CNPA, the development of these resources “is expected to generate significant revenue and allow the country to continue to develop its infrastructure to form the basis of future economic growth.”2
Cambodian territory is divided into six Offshore Blocks (A to F) and nineteen Onshore Blocks (I to XIX). There are also a further four areas in the overlapping claims area (OCA) that are currently contested with Thailand. Maps of Cambodia’s exploration blocks can be viewed here.
Offshore Blocks
All offshore blocks are currently at various stages of exploration. Block A is the most advanced, whereas B-F are still in the early stages of exploration:3
• Block A: Covering 6,278 km2, awarded to Chevron Overseas Petroleum (Cambodia) and Moeco Cambodia in 2002. The operator is Chevron, who announced in 2005 that oil had been found in four wells and gas in one, commercial discoveries were announced in 2010. The Cambodian government has stated that it hopes to commence production in 2012.4
• Block B: Awarded in 2005 to PTT Exploration and Production, Singapore Petroleum and Resourceful Petroleum, and covering 6,551km2. The operator is PTTEP, which has drilled one exploration well so far, with a second still pending. Findings so far have only revealed non-recoverable oil deposits.
• Block C: Licensed to Polytec Petroleum Hong Kong. At the stage of acquiring seismic data.
• Block D: Covering 5,506km2, granted to China Petrotech Holdings. Yet to record recoverable hydrocarbon resources, plans are underway for an exploration well.
• Block E: Licensed to Medco Energi, Kuwait Energy and JHL Petroleum – Medco is the operator. Plans are underway for an exploration well within the 5,559km2 block.
• Block F: Granted to Chinese National Offshore Oil Corporation – At the stage of acquiring seismic data.
Onshore Blocks
Contracts have so far been granted for three of Cambodia’s nineteen Onshore Blocks5:
• Block XII: Located west of the Tonle Sap Lake, awarded to Medco Energi and JHL Petroleum.
• Block XV: PetroVietnam has been awarded the contract for exploration in Block XV, located east of the Tonle Sap Lake in Kampong Thom province.
• Block XVII: Block XVII covers 6,500km2 in Preah Vihear, Siem Reap and Kampong Thom Provinces. Awarded to Japan Oil, Gas and Metals National Corporation (JOGMEC).
At present, extensive exploration has not yet been conducted in Cambodia’s onshore blocks, although it was reported in November 2011 that Japan Oil, Gas and Metals National Corporation has started preliminary surveying in Block 17. Seismic studies have been conducted in other onshore blocks, and further exploration may soon begin.6
Overlapping Claims Area (OCA)
There are also a number of blocks located in the overlapping claims area (OCA) between Cambodia and Thailand, which measures 27,000km2, and has been estimated as containing up to 11 trillion cubic feet of natural gas and an underdetermined quantity of oil.7 A Memorandum of Understanding (MOU) was signed between the two countries in 2001, which set a joint-development regime over certain areas of the OCA, and attempted to define a maritime border between others.8 Negotiations were disrupted by the change in Thai leadership in 2006, and in 2009 the MOU was suspended by Thailand. However, hopes have been expressed that an agreement is closer to being reached since the re-election of the Pheu Thai Party in Thailand.9 Despite this uncertainty, a number of companies have expressed an interest in exploration in the OCA, and subject to resolution of the claims, Cambodia has granted conditional licences to Idemitsu and Conocco Phillips for Areas I and II, and Total for Area III.10
The Cambodian Constitution states that all mineral resources are the property of the State, and that the management of such resources shall be set out by law.11 To date there is no law covering oil and gas in Cambodia, and the sector is currently governed by the amended Petroleum Regulations from 1991.
Under the Petroleum Regulations of 1991, the Ministry of Industry, Mines and Energy (MIME) was the administrative authority responsible for the management of petroleum resources. However, in 1998 this authority was transferred to the Cambodian National Petroleum Authority (CNPA). The CNPA is now responsible for evaluating bids and making recommendations to the government that Petroleum Agreements be granted to specific companies.12 According to the authority’s website:13
-The Cambodian National Petroleum Authority (CNPA) aims to manage the petroleum resources of Cambodia, supporting the development of a successful domestic oil and gas industry that will bring cheaper petroleum energy source for both industrial and domestic use, provide petroleum energy supply security, and contribute to sustaining economic growth.
The Petroleum Regulations set out the terms for invitations to bid and the criteria for evaluating, negotiating and approving subsequent bids.14 Exploration periods are granted for up to 4 years, after which they may be renewed twice for a period of two years each time.15 If exploration shows that resources can be commercially exploited, the company should apply for a production permit including a detailed work plan and budget for the proposed exploitation. No further development of operations should commence until a production permit is issued.16 According to the Regulations, the production period lasts for 30 years, after which it may be extended for a further 5 years if the field is still commercially productive. 17
Based on the regulations, as amended in 1998 and 1999, Cambodia uses a Petroleum Agreement (or Production Sharing Contract) for licensing companies to conduct exploration for petroleum. According to the CNPA website, the PSC include the following basic elements:18
• Duration: exploration 4 + 2 + 2 years; development 3 or 4 years
• Production: up to 30 + 5 years
• Exploration obligation: conduct 2-D seismic; conduct 3-D seismic; drilling 1-2 wells
• Royalty: 12.5%
• Signature bonus: negotiable
• Production bonus: negotiable
• Cost recovery: negotiable
• Profit oil split: according to sliding scale
• Profit gas split: according to sliding scale
• Income tax: 30 per cent
• Domestic market obligation: required to meet the domestic demand of Cambodia
• State participant: Government shall have the right to participate in petroleum operation under Petroleum Agreement
In addition, the Petroleum Regulations set out a special tax regime for companies with production permits and states that other charges, such as land surface rental, income tax, and other fees and charges should be negotiated in the Petroleum Agreement.19 Other standards for safety and security are set out in the Regulations, as is the requirement that the contractor to protect the local environment and the health and safety of workers.20 A full environmental impact assessment (EIA) is also required for all oil and gas operations21, and project implementers are required to abide by all relevant legal frameworks, including the environment laws and associated regulations. Operators are also required to submit a Safety management Plan, Emergency Response Plan, and an Oil Spill Contingency Plan.22
In terms of downstream activities, Cambodia currently has no refineries that have the capacity to deal with the significant amounts of oil and gas that may be extracted in the coming years. However, MOUs have been signed with a Chinese company and with the Cambodian Petroleum Company for conducting studies into refinery options and feasibility studies.23
Developing the legal framework for oil and gas and developing the regulatory and administrative capacities of the CNPA remain crucial to ensure competitiveness, transparency, and to adequately safeguard the interests of investors, consumers, the environment and local people. A number of international development agencies and international financial institutes have provided, or are providing, technical and financial support to the government in order to achieve this, and, as stated above, the Cambodian government is working on the development of a complete legal framework for the management of petroleum resources. This new law is still at the draft stage and awaiting approval. The CNPA envision the new law will “enhance Cambodia’s petroleum legislative framework for exploration, development and production operations to international standards.” The new Petroleum Law will be accompanied by an “extensive sub-decree” providing implementing regulations. At the time of writing there was no publicly available information on when this law is expected to be passed, however, the CNPA state that this is expected to happen soon.24
Cambodia’s petroleum industry is still young, and the first agreement for commercial extraction is yet to be signed, so it remains to be seen how the sector will develop and how profitable Cambodia’s deposits will prove to be. Nonetheless, the sector holds considerable promise for investors, and Cambodia, and if managed well could inject much needed revenue into the country’s economy. As stated by Prime Minister Hun Sen in 2007: “The revenues from the recently confirmed discovery of oil reserves will provide additional money for financing development projects in Cambodia. These revenues will be directed to productive investment and poverty reduction…We will make sure that oil is a blessing but not a curse.”25
