The Challenge of Extracting Oil from Cambodia

SUSIE GHARIB: China is the world's second largest oil consumer and until the recession hit, its appetite for fuel was driving economies around the globe, including Cambodia. As Rian Maelzer reports, the global slowdown has raised doubts about Cambodia's plans to tap recent finds of oil and gas.

RIAN MAELZER, NIGHTLY BUSINESS REPORT CORRESPONDENT: strong demand from the U.S. and EU had been keeping Cambodia's sewing machines working at full tilt. But in the past year, garment exports to those markets have slumped, costing thousands of workers their jobs. Arjun Goswami of the Asian Development Bank says it's a huge blow for a country that still relies on foreign aid for close to half the government's budget.

ARJUN GOSWAMI, COUNTRY DIRECTOR, ASIAN DEVELOPMENT BANK: This is an open economy, it's a small economy and it's not very diversified, so there have been serious impacts.

MAELZER: With tourism also hit hard, Cambodia had hoped it would start to see revenues this year from the country's first ever oil and gas finds. The waters off Cambodia's coast are estimated to contain about two billion barrels of oil -- small by global standards, but significant for one of the world's least developed countries. Subbu Bettadapura of consultancy Frost and Sullivan warns that extracting Cambodia's reserves will be challenging.

SUBBU BETTADAPURA, ENERGY ANALYST, FROST AND SULLIVAN: They are not in a big reservoir where you can go in and tap them. They are in various pools, so there is a technical challenge for the oil companies to go in and try to monetize these reserves.

MAELZER: Chevron has been the most active company in exploring Cambodia's oil potential. Chevron isn't saying how much oil it thinks might be in its offshore block or when it might start commercial operations. A company spokesman said Chevron still has to hammer out legal and financial frameworks with the Cambodian government and those are serious shortcomings cited by multilateral agencies and aide donors working in what is one of the most corrupt countries in Asia. Eleanor Nichol of the watchdog group Global Witness has studied Cambodia's nascent energy and mineral sectors.

ELEANOR NICHOL, RESEARCHER, GLOBAL WITNESS: What you have is two sectors operating in what is effectively a regulatory vacuum with no public or parliamentary oversight. Also, what we've seen happen previously in the forestry sector is that money generated from logging and extraction of that resource never reached the state coffers and we want to try and avoid is a duplication of the same patterns occurring in the oil and mineral sectors.

MAELZER: Commerce Minister Cham Prasidh rejects those concerns.

CHAM PRASIDH, CAMBODIAN MINISTER OF COMMERCE: We are not going to use this money to pump corruption or to encourage corruption, but the money properly managed, properly monitored and properly spent in the right places.

MAELZER: Cambodia is still hoping the oil will start flowing by 2012. Analyst Bettadapura says the timing could end up being a blessing.

BETTADAPURA: If they wait for a little while longer until oil prices pick up, then they are going to get much higher returns and you need to consider the fact that the lifespan of this field is only 10 years.

MAELZER: The government estimates it should reap at least half a billion dollars a year from oil and gas, a huge boost to its revenues, which barely topped $1 billion last year. Rian Maelzer, Cambodia.