Petroleum resources in Cambodia

The Royal Government of Cambodia has been actively seeking to promote and facilitate the development of the country's petroleum resources with the objective of enhancing economic growth and providing opportunities for employment and participation in petroleum operations for Cambodian nationals and companies. The development and production of petroleum resources could be expected to generate significant revenue for Cambodia and allow the country to continue to develop its infrastructure to form the basis of future economic growth.

In recent years, significant exploration activity has been undertaken in Cambodia's petroleum sector, with the most substantial operations being undertaken by ChevronTexaco in Block A, offshore Cambodia. However, currently Cambodia has no oil and gas production or any oil and gas project that is at the development stage.

Current petroleum regulatory regime
The Cambodian National Petroleum Authority (the CNPA) was formed in 1998 as the key governmental agency to oversee upstream and downstream petroleum activities in Cambodia. The principal law that applies to the upstream oil and gas industry in Cambodia is the Petroleum Regulations 1991, as amended in 1998 and 1999.

The Petroleum Regulations prescribe a process for the award of concessions in the form of petroleum agreements which are entered into by the CNPA and a relevant petroleum company and its partners. A Petroleum Agreement must be signed in substantially the form of the model agreement scheduled to the Petroleum Regulations, subject to any additions or deletions as may be approved by the Government.

Under the Petroleum Regulations 1991, some key points of note in respect of the terms of such concessions are:- exploration periods are granted for a period of 4 years, and may be extended twice for a period of two years each time. The CNPA may further extend the duration of the exploration period for such time as may be reasonably necessary to complete certain matters (e.g. drilling, logging, testing or plugging of any well, completion of appraisal and evaluation of any discoveries);

- the Contractor must relinquish prescribed percentages of the allocated Contract Area at the end of each phase of the exploration period - at least 30 per cent of the original Contract Area by the end of the initial exploration period, a further 25 per cent of the original Contract Area by the end of first extension of the exploration period and any remaining areas of the original Contract Area, in each case excluding areas falling under a production area;

- the production period expires 30 years after the effective date of the production sharing agreement, although the CNPA may extend the production period by up to 5 years if commercial production from the relevant field after the expiry of the 30 year period is possible;

- royalty payable to the Government will be at least 12.5 per cent of the value of petroleum sold;
the Contractor will be entitled to cost recovery in accordance with the terms of its Petroleum Agreement; and

- the balance of petroleum produced within a Contract Area (after retention of Royalty by the Government and recovery of Petroleum Costs by the Contractor) will be allocated to the Government and the Contractor in accordance with the provisions of the Petroleum Agreement.

The Petroleum Regulations also contain other provisions that would commonly be expected in an international-standard regulatory regime for upstream petroleum operations, including in relation to approval of work programmes and budgets, obligations in relation to the conduct of petroleum operations and reporting to the Government.

The proposed new petroleum regulatory regime
The Royal Government of Cambodia and the CNPA are actively working to further develop and enhance the regulatory framework for the exploration and exploitation of petroleum, having regard to the current stage of development of Cambodia’s petroleum industry and other regulatory developments that have occurred since the initial introduction of the Petroleum Regulations in 1991. The centrepiece of the new regulatory framework is expected to be a Petroleum Law, supported by appropriate implementing regulations.

Given that a number of Petroleum Agreements have been entered into under the Petroleum Regulations (offshore and onshore), one of the key issues for existing petroleum contractors will of course be the extent to which the Petroleum Law provides for the 'grandfathering' of the terms of the existing production sharing contracts.
Petroleum investment in Cambodia
In 2002, the CNPA entered into a production sharing agreement with ChevronTexaco in Block A, with ChevronTexaco announcing in January 2005 that it had discovered oil in four exploration wells and gas in one well in Block A (although to date no commercial discovery has been declared). Concessions to other Blocks (have been granted to other petroleum companies including the Singapore Petroleum Company, PTT Exploration and Production Public Company Limited, Medco International Petroleum and Chinese National Offshore Oil Corporation.

The area of overlapping maritime claims by Cambodia and Thailand in the Gulf of Thailand (the OCA) is generally considered to be highly prospective for petroleum resources. The approximately 27,000 sq km area of the OCA is estimated to contain up to 11 trillion cubic feet of natural gas and underdetermined quantities of condensate and oil.

On 18 June 2001, Cambodia and Thailand signed a Memorandum of Understanding regarding the OCA to lay the foundation for ongoing cooperation in relation to joint development of the petroleum resources located in the OCA. The MOU recorded the intention of the countries to divide the OCA in to two zones and to attempt, through accelerated negotiation, to simultaneously agree upon:
- a treaty for the joint development of the hydrocarbon resources located within the Areas II, III and IV of the OCA (the Joint Development Area); and

- a defined maritime border for the northern Area I of the OCA (the Area to be Delimited).

Discussions in relation to development of the treaty regime for the Joint Development Area and delimitation of the Area to be Delimited, have continued regularly since the signing of the MOU and are ongoing.

The Royal Government of Cambodia is also endeavouring to promote domestic refining of any commercial quantities of oil that may be discovered in Cambodia, and has publicly stated its desire for the development of an oil refinery in Sihanoukville once oil production commences.

Roll out the barrels
Cambodia might be sitting on as much as two billion barrels of oil and up to 11 trillion cubic feet of gas, according to recent reports by the World Bank and the United Nations Development Programme (UNDP).

“Depending upon the world price of oil, Cambodian reserves may be contributing annual revenues of $2 billion, several times the current level of domestic revenue and ODA (overseas development aid) combined - within perhaps five to ten years,” says a World Bank report.