Big breakthrough in nation’s oil ambitions

First production of fuel expected within just a few months

Cambodia is just months away from producing its first drop of oil after years of concern and uncertainty, Capital Cambodia can exclusively reveal.

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Singapore-based KrisEnergy, the only company actively involved in oil and gas exploration in Cambodia, despite its financial woes and restricted activities, is committed to delivering on its commitment to finally supply the country’s first barrels after many false starts and failed efforts.

It has been learned from highly informed industry sources that KrisEnergy, “The development of Block A – or Apsara – is making progress and we [KrisEnergy]  will soon be awarding critical contracts for equipment, facilities and logistics support to further the development.

“We are in regular contact with the Royal Government of Cambodia on the tender process and the development plan, which we are confident will allow us to produce Cambodia’s first oil in the coming months.

“The exact timing of first oil depends on many factors, including potential weather, operational and logistics issues,” KrisEnergy said in information released to Capital Cambodia.

In July, the company announced that 1,200 square kilometres (sq km) of a three-dimensional (3D) seismic survey in Cambodia’s Block A concession had been completed on time, without any health, safety or environmental incidents.

The seismic work was conducted by Shearwater Geoservices Singapore Pte Ltd, which carried out the work on the turnkey broadband seismic contract by deploying the SW Vespucci, a specialised seismic survey ship.

The SW Vespucci is a 7,000-tonne gross weight research vessel built in 2010 and currently sailing under the flag of Cyprus.

KrisEnery said that about 200 sq km of the 3D programme executed by Geoservices Singapore will be acquired over the Apsara development area to improve imaging of geological faults and sand bodies to facilitate the design of well trajectories which needs to be done before embarking on drilling works for the first oil.

Aerial View of Tender Drilling Oil Rig (Barge Oil Rig) in The Middle of The Ocean at Sunrise Time

The company added that approximately 1,000 sq km was acquired over a large prospective area in the southwest portion of the concession area, which has been sparsely explored by old 2D seismic lines, to improve data quality over the prospective trend in the western section of Cambodia Block A.

Cambodia Block A is located in the Khmer Basin in Cambodian waters in the Gulf of Thailand. A typical oil or gas field in the Gulf of Thailand has multiple fault blocks with hydrocarbons trapped in multiple reservoirs.

KrisEnergy made a final investment decision (FID) to proceed with the first phase of development for the Apsara oil field, the first hydrocarbon development project in Cambodia in 2017 and since then has undergone many challenges to get to this current stage of awarding contracts to move equipment into place by end of this year at the earliest.

Located in Cambodia Block A in the Gulf of Thailand, Phase 1A of the Apsara development envisages a single unmanned minimum facility 24-slot wellhead platform linked to a moored production barge capable of processing up to 30,000 barrels of fluid per day with gas, oil and water separation facilities on the vessel.

Furthermore, according to KrisEnergy’s statement, the oil will be sent via a 1.5km pipeline for storage to a permanently moored floating, storage and offloading vessel.

KrisEnergy is the operator of Cambodia Block A and holds 95% working interest in it. The General Department of State Property and Non-Tax Revenue of the Ministry of Economy and Finance holds the remaining 5% on behalf of the Royal Government of Cambodia.

The Cambodia Block A contract area covers 3,083 sq km over the Khmer Basin in the Gulf of Thailand where water depths range between 50 and 80 metres.

The individual oil accumulations in Cambodia Block A are small in size and spread over a large geographic area, requiring significant funds and time to fully develop. Additionally, reservoir production performance in the Khmer Basin has yet to be proven.

KrisEnergy said that, for these reasons, among others, there is some uncertainty regarding long-term production rates, reserves and commercial viability and therefore a phased development approach has been “prudently” adopted.

Once the initial Phase 1A platform is on stream, there will be a period to monitor reservoir performance before starting Phase 1B, which envisages up to three additional platforms producing to the Phase 1A facilities. A Phase 1C will potentially add up to six additional platforms for the full 10-platform Apsara development.

Despite its financial woes, KrisEnergy, in November 2018, awarded Keppel a contract for the modification and upgrading of a production barge for SJ Production Barge Ltd, a wholly-owned subsidiary of KrisEnergy.

Keppel is currently constructing a S$30 million (about 22 million US dollars) production barge for KrisEnergy’s Cambodia Block A with delivery set for the last quarter of 2019.

Keppel Shipyard’s scope of work on the production barge for KrisEnergy includes installation of a power generation module, electrical house, new accommodation units and other refurbishment works.

When completed, the production barge will be capable of processing up to 30,000 barrels of fluid per day and is equipped with gas, oil and water separation facilities. It will be deployed in the Apsara oil field, which lies in Block A of the Khmer Basin in the Gulf of Thailand. The field is Cambodia’s first hydrocarbon development.

Capital Cambodia was informed that officials from the Cambodian petroleum authority have visited Keppel shipyard to see firsthand the progress on the modification works on the production barge and are preparing to present their case to the National Assembly in the coming weeks, most likely before the end of November.

“At the National Assembly session, officials from the petroleum authority are expected to present full details on KrisEnergy and its commitment to indeed deliver Cambodia’s first drop of crude by the first quarter of 2020 at the earliest.

“The presentation at the legislature will also put to rest much speculation on the future of Cambodia’s oil and gas extraction industry as well as misgivings or misconceived perceptions of what the first barrel of crude will actually look like,” industry sources say.

They added that this “shock and awe” session with a mock barrel is necessary as a lot is riding on KrisEnergy’s ability to produce oil. This will decide the fate of Cambodia’s hydrocarbon extractive industry, offshore within territorial waters as well as onshore.

The Apsara area in the Khmer Basin will be the first geological trend out of a potential seven to be

developed in Cambodia Block A. Given the Khmer Basin is a new petroleum source to be developed in the Gulf of Thailand, it is considered to be prudent to develop the oil accumulations in phases in order to gauge reserve performance, among other risks.

The initial development, Phase 1A, consists of a single unmanned minimum facility 24-slot wellhead platform producing to a moored production barge capable of processing up to 30,000 barrels of fluid per day with gas, oil and water separation facilities on the barge. The oil will be sent via a 1.5km pipeline for storage to a permanently moored floating, storage and offloading (“FSO”) vessel where sales offloading will take place.

Productivity and performance from Phase 1A will be monitored for an appropriate time period – up to six months – before the decision is taken to launch Phase 1B. Learning from early production will be leveraged for improvements in the later phases of development.

Design changes would be made to improve the efficiency of future platforms based on production behaviour observed in previous development phases. Phase 1B envisaged three additional platforms producing to the Phase 1A facilities.

A further potential stage, Phase 1C, adding six platforms will complete the full Apsara 10-platform development. The original FSO vessel will service all three development phases.

There are a further six geological trends within Cambodia Block A where there is potential that oil and/or gas may be trapped. These geological trends will provide future potential development opportunities for investigation and assessment.

Previously, although the countdown had begun for production, uncertainty remained on KrisEnergy’s  actual start date because there were several big ticket items such as the sub-sea drilling system and floating offloading vessels which needed to be organised and which were in doubt, given the company’s financial and liquidity woes.

These items, which are not only big investments but which also  needed considerable time to fabricate and mobilise, seem to have been resolved and contracts are being awarded or are in discussion.

Both KrisEnergy and the Government of Cambodia will derive revenues from the Block A project based on the sales price of Apsara crude oil when crude extraction starts, which is no longer in doubt.

In marketing Apsara oil, KrisEnergy and the government  have the objective of achieving the best possible sales price for the product. That sales price will be dependent on many factors including, among others, price levels in the global benchmark markets, the quality of Apsara crude oil and regional demand for crude oil and prevailing market conditions.

The sale of Apsara crude domestically in Cambodia will be beneficial to KrisEnergy because it will not be subject to export tax. But domestic sales will depend on the timing of any refinery going into production; whether the facility is able to refine Apsara crude oil (this is related to the chemical properties of the crude oil and the resultant petroleum products required for distribution) and the market price the refining company is offering. Apsara crude oil sales will be undertaken on a competitive basis.

However, industry sources cautioned that there is every likelihood of KrisEnergy scaling down their initial plans as stated earlier to be in line with its restructuring exercise as well as to be within its financial capacity, while hoping to snare a big player once the crude starts to flow.

“KrisEnergy is between a rock and a hard place because it is facing a crunch do or die mission in Cambodia, both literally and for the company’s survival. Failure to produce crude as expected by the first quarter of 2020 could hamper the company’s restricting plans and strategy, although Keppel of Singapore is a major stake holder.

“It is not just KrisEnergy but Cambodia’s entry into the oil production countries category which is at stake. Even though Cambodia may not see any immediate revenue because the industry practice is for suppliers to get back their returns from the initial crude production, the tag of ‘oil producing country’ will have a big impact on the gross domestic production growth of the company and its development plan as well as plans for electrification of the country.”

The officials concluded that extraction of crude, not discovery, is the key to unlocking the reserves in the overlapping claims area in the Gulf of Thailand as well as drawing in other players to embark on exploration works on the remaining oil concession blocks in the territorial waters of Cambodia.

The company currently has 14 contract areas: in Bangladesh, Cambodia, Indonesia, Thailand and Vietnam and it is an operator for nine of those areas.

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