KrisEnergy Produces First Oil Amid Debt, Oil Price Concerns

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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.
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UPDATED Dec. 31 11 a.m.—KrisEnergy extracted the first drops of oil from Cambodia’s Block A, Prime Minister Hun Sen announced on Tuesday, achieving a decades-old goal despite the company’s ongoing financial woes. 

In a speech Monday morning, Hun Sen announced the Singaporean company’s achievement, saying he had saved the announcement for Tuesday to coincide with the unofficial “Win-Win” holiday, recognizing the premier’s negotiations to end the civil war against the remaining Khmer Rouge factions in 1998.

The premier asked Defense Minister Tea Banh to bring the first drops of oil to Phnom Penh to keep at the Win-Win Monument on the capital’s outskirts, though he did not explain how it would be transferred or used.

Hun Sen added that he was “bored” by concerns from international development organizations — repeated over the three decades that Cambodia attempted to develop offshore oil resources — warning of the “resource curse” of corruption and exploitation experienced by developing countries such as Nigeria. 

“This is not a curse, but a blessing for the Cambodian people in the new period as it is a new source of income,” he said. 

Hun Sen continued by addressing unnamed critics of the Cambodian budget. “The Hun Sen government has enough experts,” he said. “[People with] doctorates just like you are so unskilled, [you] do not know how to manage the state yet.”

Finance Ministry spokesperson Meas Soksensan said production at Block A would “certainly” have an impact on Cambodia’s economy but falling oil prices could affect the gains.

Oil prices hit historical lows earlier this year amid the global Covid-19 pandemic.

In a press release, KrisEnergy CEO and president of Cambodian operations Kelvin Tang said the company would now complete drilling on the four other wells in the block — also called the Apsara block — stabilize production and monitor the results in order to eventually bring the block to its projected peak flow of 7,500 barrels of oil per day for the first phase of development.

“In the context of the COVID-19 pandemic in 2020, progressing Apsara to first oil has been a tremendous achievement and a testament to the determination of the KrisEnergy team and the strong cooperation of our contractors and suppliers,” he said in the press release. “The cross-border logistics of mobilising personnel and equipment to execute this development safely during this time of COVID-19 would not have been possible without the expeditious and engaged support of the Royal Government of Cambodia.” 

The CEO also thanked Keppel Corporation, a Singapore-based conglomerate that granted KrisEnergy some $150 million in loans as long as it restructures the company. 

KrisEnergy is in the midst of a court-supervised restructuring, though some bondholders are upset that their promised repayments in 2024 had been undercut, claiming KrisEnergy unfairly favored its financier, Keppel, in the restructuring. 

The company has attempted to sell other developments in order to focus on the Apsara block and the potential cash flow that could follow successful production. Responses to stakeholders’ questions published on December 23 indicate the company would not be able to pay all its obligations to lenders and bondholders. 

“[A]t current oil prices, CBA Mini Phase 1A is highly unlikely to generate sufficient cashflow to repay the in full principal and interest outstanding on the CBA Facility, the Revolving Credit Facility and for there to be sufficient cash available to repay the current face value of the Zero Coupon Notes in 2024,” the company said in response to shareholders.

On Wednesday, a spokesperson for KrisEnergy responded to VOD’s questions, saying this first phase of development at the five wells would not render enough revenue to repay the company’s debts.

“The Company does not anticipate any issues in payment of financial obligations to the Cambodian government,” the spokesperson wrote. “As the Apsara field is located over an unproduced geological basin, the Company will require a period of observation to assess the productivity of the field’s reservoirs and production performance before taking any decisions for the future.”

They added that the company aimed to complete the restructuring process in the first quarter of 2021, and this would occur before KrisEnergy and the Cambodian government — which holds a 5 percent stake in the project — would need to reach a decision about the next stage of development. The company will be observing Block A’s capacity for some time, they said.

Both Soksensan and Cheap Sour, the Energy Ministry’s director-general of petroleum, did not respond to questions about KrisEnergy’s financial position.

Cambodia’s Apsara block has been beleaguered both by production difficulties and red tape. Chevron first discovered oil in the area in 2005, but it sold its stake to KrisEnergy in 2014 after failing to come to a fiscal agreement with the government.

KrisEnergy took 95 percent control of the offshore block in 2017, launching a reduced-sized development project that was delayed multiple times.

KrisEnergy initially promised to produce oil in 2019, but delayed the goal as the company’s financial performance tanked and the balance sheet became “clearly unsustainable,” according to disclosures. Earlier this year, the Cambodian government threatened to penalize the company or revoke its concession completely if it did not produce oil by October, but then extended the deadline as far as April 2021, according to industry reports.

Much of the details of the Cambodian government’s deal with KrisEnergy are not publicly released. However, a report commissioned by Oxfam America in late 2015 suggests that Cambodia’s oil terms have not changed dramatically since Chevron originally signed a contract with the government in 2002, and that the government’s suggestions that oil would bring significant wealth to Cambodia are unlikely.

The report projects that given the conditions at the time, and KrisEnergy’s slow, risk-averse approach to production, especially in the first phase, government revenue would be “very modest,” at less than $100 million annually, if oil prices were at $70 per barrel. However, oil prices were negative in April and then hovered between $30 and just under $50 per barrel for the rest of the year.

Additional reporting by Ouch Sony

Updated on December 31 at 11 a.m. with response from a KrisEnergy spokesperson.

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