East and West eying off Myanmar oil wealth

East and West eying off Myanmar oil wealth  

By Victoria Bruce

20 August 2012

The Myanmar Times

Western energy heavyweight are eying opportunities, watching their step in post-sanction Myanmar. Photo: Internet

Western oil and gas firms are tipped to dominate Myanmar’s upcoming bidding war for on- shore and offshore petroleum blocks, industry experts said.

“There is a forthcoming bid round for a series of on and off shore concessions, to be launched by the Ministry of energy in early September,” said Christopher Drew, country manager of Australian exploration firm Twinza Oil. 

“We expect it to be highly competitive, with a strong showing by the Americans,” he said.

Chevron, Exxon Mobil and Conoco Phillips were part of a delegation of some 40 US firms to visit Myanmar last month and the latter signed a deal in June to explore for gas in two controversial sections of the Bay of Bengal claimed by Myanmar and India.

However, stringent reporting requirements and compliance issues imposed by their home government mean incoming US firms will be watching their step so they don’t fall foul of American sanctions, said U Ken Tun, president and CEO of Parami Energy, a privately owned oil and gas firm. 

“They are coming, but they are being very cautious,” U Ken Tun said.

He said American firms could develop investment vehicles outside of the US, such as forming official partnership companies registered in Singapore, to circumspect potential compliance issues. 

“That’s how  they can ensure a safe entry,” he said.

Other first-tier European players showing interest include Italian energy firm ENI and Dutch-British multinational Shell, the latter tipped to be scoping out opportunities to explore Myanmar’s deep water blocks, sources said.

Currently, the sector is dominated by Asian companies with names such as Korean Daewoo and KMDC, Thailand’s PPTEP, China’s SINOPEC and Malaysia’s Petronas, as well as some lesser known firms.

The Ministry of Energy reported eight foreign firms are currently working on 10 onshore blocks while 12 more have invested in 27 offshore blocks.  

According to state media, South Korean company Daewoo’s blocks A1 and A3 contain 5.353 trillion cubic feet of gas, reportedly one of the largest gas reserves in Southeast Asia, and Thailand petroleum giant PPTEP recently confirmed a new investment of US$2 billion in Myanmar over the next four years for exploration and production operations at its Zawtika natural gas field in the Gulf of Martaban.

PTTEP already has seven projects including operating four exploration blocks in Myanmar.

US energy giant Chevron has been operational in Myanmar since acquiring and expanding upon Unocal’s existing projects in the Yadana gas field in 2005, operated by French multinational Total.

The project generated US$4.83  billion dollars for the Myanmar government between 2000-2008, environmental group earth rights International stated in a recent report, adding Total and Chevron are two of the biggest Western companies in Myanmar, both escaping wide-ranging EU and US sanctions imposed on the former regime.

Chevron declined to confirm if the company will participate in the upcoming international tender. “Chevron continues to assess US government actions with regards to Myanmar and will continue to comply with all US laws and regulations,” a Chevron spokeswoman said in an email.

The Ministry of Energy said 23 lucrative offshore blocks will be offered alongside 30 onshore blocks in the next bidding round, and industry insiders say Myanmar’s untapped offshore oil and gas reserves are certain to lure in big name Western energy firms.

“US firms are interested in offshore, not onshore,” U Ken Tun said. “These guys want to play big and the big games are all offshore.”

 

Myanmar already hosts a small European presence, including France’s Total and Switzerland’s GeoPetrol, and sources say representatives from BHP Petroleum visited the resource-rich country in June.

“BHP have been revisiting the previous onshore opportunities in the oil and gas sector and no doubt eyeing off the lucrative offshore market,” said a foreign consultant who spoke on condition of anonymity. 

An Australian investor, Robert Mclennan, said his company Dagon Oil Limited, was keen to get hold of four offshore blocks in the next bidding round.

“I’m preparing the letters of intent as we speak,” he said during a phone interview, adding his company had made “great inroads” with the Ministry of Energy in the past months.

But while Western energy companies are expected to make their presence felt, they won’t be tipping the balance against eastern firms just said, said Jared Bissinger, a PhD student from Australia’s Macquarie University who is studying Myanmar’s economy.

“Myanmar’s oil and gas sector has many more firms from Asia than the West, and it will stay that way for quite a while,” Mr Bissinger said. 
 

“Part of the reason for this is simply geography - Myanmar’s location, comparatively far from the West makes it more economical to export oil and gas to Asian countries. Remaining sanctions like the import ban play a role too, as does the SDN list,” Mr Bissinger said.

All foreign firms investing in the oil and gas sector are required to enter into a production sharing contract and partnership with the Myanmar Oil and Gas Enterprise (MOGE), the government entity which oversees licencing and holds a majority stake in all onshore and offshore blocks.

Under new rules, foreign oil and gas firms starting up in Myanmar must take on a local partner however concerns over lack of capacity and industry expertise mean Myanmar’s few legitimate local energy firms will be highly sought after.

Parami energy recently signed a profit-sharing joint venture agreement with Indian firm  Jubilant energy and MOGE to explore for onshore oil and gas  in the PSC-I block in Areyarwady region in Southern Myanmar and are teaming up with Vietnamese-Russian oil venture VietsovPetro to bid for blocks in the upcoming round. 

But not all local firms will have the necessary experience or capacity required to appear attractive potential partners to incoming foreign firms, particularly big name multinationals, experts said, pointing out local firms must be approved by the Ministry of Energy. 

“I believe there are now up to 60 local companies recognised by the Energy Ministry to satisfy the new local content requirement,” Mr Drew from Twinza oil said. 

“These local partners don’t have to do anything too much they basically get a free carry of anywhere from 3 per cent to 8 per  cent up to the development stage,” Mr Drew said.

He said this arrangement might not be so well-received from American energy firms, which have to abide by strict post-sanction reporting requirements, including disclosing details of any deals with MOGE, if their investment is more than US$500,000.

“I expect the Yanks may kick up a fuss about this, and we may not be surprised if they get some sort of exemption – let’s see,” Mr Drew said. 

Myanmar’s lucrative oil and gas industry has received over 90 per  cent of foreign direct investment in past decades, mostly from Thailand and China, as its neighbours seek solutions to their growing energy demands, however much of its offshore reserves remains largely unexplored.

“Myanmar has the potential to contribute to satisfying the energy shortage in India and China, but needs a lot of exploration work,” Mr Drew said, adding the large gas potential was in the offshore Rakhine deep water areas. 

“The problem is that there is such little hard data on the area, therefore it’s very difficult to justify a high bid in a competitive process,” he said.

Although Myanmar’s untapped oil and gas industry will no doubt attract substantial interest from foreign investors, Western firms may be reluctant to enter a country Transparency International (Germany-based non-profit organisation) ranks as one of the world’s most corrupt, despite its recent political and economic reforms.

This article first appeared in the Myanmar Times “Energy Spotlight” supplement on 20 August 2012: http://www.mmtimes.com/2012/feature/640/energy2012.pdf