Wednesday, November 5, 2008

Many Challenges To Cambodia's Oil Upstream Hopes

(Recasts, adding details on technical, legal and diplomatic challenges the government faces in attempting to develop the sector)

SINGAPORE -(Dow Jones)- Cambodia is facing a wide range of challenges in developing its oil and gas upstream sector, even as it moves cautiously ahead with an offshore exploration project led by U.S. oil major Chevron Corp. (CVX), a senior government official said Tuesday.

The Cambodian National Petroleum Authority is also pushing for construction of the country's first oil refinery and mulling the establishment of a national oil company, but global interest in the country's hydrocarbons potential is lacking, progress on a petroleum law has been slow, and a long-running maritime acreage dispute with neighboring Thailand has yet to be settled.

"It's very difficult - when we opened (upstream blocks for) bidding in 1991 or 1992, nobody was interested," CNPA Vice-Chairman Ho Vichit said on the sidelines of the Asia Oil and Gas Investment Congress.

"So, we approached companies...to do direct negotiations," he said, attributing the poor investment interest to Cambodia's limited track record in terms of oil and gas reserves.

The country only started formal seismic surveys in January and has yet to finalize results, Ho said.

More than 10 foreign companies are drilling in Cambodia's six offshore blocks, including China National Offshore Oil Corp.

The government is optimistic that a consortium headed by Chevron remains on track to begin producing oil from offshore Block A next year, but the U.S. company has downplayed any firm timetables.

Ho said there are some technical challenges to overcome as reserves are spread over a wide are in small pools, but he said the project won't be shelved.

Earlier, Ho told the conference in Singapore that "it's premature to speculate" how much of the oil or gas discovered in 2005 can be pumped from offshore Block A, about 200 kilometers off the southern coast.

"It must be recognized that hydrocarbons shows (evidence) alone do not make...an oil or gas field, let alone an oil or gas field that might be viable for commercial development," he said.

The idea of a national oil company - the CNPA would play the role of regulator in such a scenario - remains at "a very preliminary stage," Ho said.

Cambodia's draft petroleum law, which would provide a legislative framework for extracting oil and gas, also remains "complicated" and is still some way from reaching the ministerial level, a step required before any approval by the national assembly. Ho also cited the need to translate the final document into languages suitable for potential investors as another factor contributing to the delay.

Meanwhile, the government is still negotiating with Thailand to jointly develop three offshore areas near Block A following a 2001 memorandum of understanding; a fourth area is claimed entirely by each side.

Ho wouldn't comment on whether the political upheavals in Bangkok have slowed progress in the talks.

For the downstream sector, Cambodia has contracted Japanese firm Toyo Engineering Corp. (6330.TO) to assist with a feasibility study to build a refinery.

A 50,000 barrel-a-day facility is being considered, tiny by international standards but perhaps an important first step to ease pressures from high petroleum import prices.

Cambodia, which doesn't subsidize domestic fuel prices, imports about 1 million metric tons a year of refined oil products, Ho said, pegging the country's economic growth around 7% a year.

-By Yee Kai Pin, Dow Jones Newswires; kai-pin.yee@dowjones.com; +65-6415-4062

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