Indebted Oil Company Reports Lower-Than-Expected Oil at Cambodian Block

4 min read
Prime Minister Hun Sen points on a map to Cambodia’s Block A offshore oil concession, where KrisEnergy has extracted the nation’s first drops of oil, in a photo posted to his Facebook page on December 29, 2020.

KrisEnergy has warned that its current production rate at Cambodia’s Apsara offshore oil block has yielded only around half the company’s projected peak rate, and it has extended debt repayment deadlines and brought in an engineering firm to assess the situation amid “material uncertainty … to continue as a going concern.”

In a shareholder announcement on March 31, the company said that the Apsara block will not be able to reach the peak production rate the company had predicted of 7,500 barrels of oil per day in its first phase of development. Average gross production rate from late February through March reached 2,883 barrels a day — less than half the predicted peak rate.

The company brought all five wells into production for its “mini” first phase of development through January and February, but the “ultimate recovery,” or total oil extracted from the wells, will most likely fall “significantly lower” than what it expected, KrisEnergy said in the disclosure. 

The company said it found “smaller reservoirs with limited continuity, which are also less productive compared with the appraisal flow tests” compared to what it had predicted through models in line with industry standards. KrisEnergy added that it hired Netherland, Sewell & Associates, a petroleum engineering consultant, to reevaluate the block, with results expected in April. 

Cheap Sour, the Mines and Energy Ministry’s general director of petroleum, said KrisEnergy had informed the government of its low production rates in the “initial stage” at the end of last month, and that officials were waiting to hear more from the company.

“KE will come back and explain [to] us at the end of this month or next month as they are working with their independent expert now,” he said in a message.

When asked whether this could impact Cambodia’s plans to build an oil refinery, he said the projects were separate and the government was still looking for investors.

KrisEnergy extracted Cambodia’s first drops of oil on December 29, with Prime Minister Hun Sen describing the drops at the time as “a blessing for the Cambodian people in the new period as it is a new source of income.”

Finance Ministry spokesperson Meas Soksensan said he was not concerned whether the resulting oil revenue would be lower than expected. 

“The oil production does have a very small impact on the national growth rate,” he said.

KrisEnergy had turned its focus toward developing the Apsara block amid mounting debt. The company received a loan from the Singaporean-based DBS Bank, but was obliged to restructure the company’s debts as one of the terms of the financing. KrisEnergy farmed out an oil block in Vietnam to invest the company’s remaining resources into production at its only remaining development territory, the Apsara.

Production in Cambodia was supposed to inject cash into the ailing company, but with low actual production rates, “material uncertainty exists over the Group’s ability to complete the Restructuring Exercise and to continue as a going concern,” KrisEnergy said in last week’s disclosure.

The loan from DBS was supposed to reach its due date at the end of June, but the bank extended the maturity date to June 30, 2024, KrisEnergy said. The company also received a 16-day extension to complete its restructuring, which was supposed to be done by March 30.

When KrisEnergy received a six-month extension on the DBS loan in July, the company still owed $177 million under it, according to a report from Straits Times.

In response to a reporter’s questions about the future of Apsara block production and the company itself, KrisEnergy said through a spokesperson: “The company will release any material information to all stakeholders as and when appropriate.”

A report from Oxfam America in 2015 suggested that Cambodia’s plans for oil had not changed dramatically since U.S.-based oil company Chevron controlled the offshore block, and that government’s revenue would be “very modest” even if prices reached up to $70 per barrel. Crude oil prices are hovering around $60 per barrel as of Monday.

The Oxfam report also noted that the government would take a smaller piece in its production share agreement as long as the company was producing 10,000 barrels a day — with 58 percent of profit going to the company and 42 percent to the government. The government’s share would increase to 52 percent if production rose to 25,000 barrels, and rise further to 68 percent if the block was producing 50,000 barrels a day.

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