Myanmar’s offshore petroleum opportunities a “new era” for the industry

Drilling Deep

Myanmar’s offshore petroleum opportunities a “new era” for the industry

By Victoria Bruce

Myanmar’s lucrative upstream oil and gas industry represents a “new era” for incoming firms as its government gears up to release offshore and deep water blocks as part of an upcoming international tender.
Vice President of Dutch multinational Shell’s exploration arm, Marc Gerrits said Myanmar’s unexplored deep water fields held untapped potential for companies wielding the latest exploration technology.
“The truth be told, we could be on the cusp of a new ultra deep water era,” Gerrits told a conference of industry representatives at the 2nd Myanmar Oil, Gas and Power Summit in Yangon held in early September.

A Shell offshore platform

Breaking new records?

“The industry could be breaking new records right here in Myanmar,” he said. Gerrits said Shell, a leader in deep water exploration and production, currently operates the Gumusut deep water development project in Malaysia in water depth of up to 1,200 metres alongside ConocoPhillips Sabah, Petronas Carigali and Murphy Sabah Oil.
Myanmar Union Minister Than Htay told a crowd of more than 300 conference attendees that a barrage of big name energy firms were looking at opportunities in the country’s upstream industry.
“Many multinational petroleum companies including Shell, BP, BG ConocoPhillips, Chevron and many others have shown great enthusiasm to invest and keen interest to conduct upstream petroleum exploration in Myanmar’s petroleum sector,” Than Htay said.
Representatives from Dutch-British multinational Shell are in negotiations with the Myanmar government for at least one offshore block, said an industry insider, although the company declined to confirm these reports.

Total takes stake

France's Total, which operates the Yadana gas field, announced plans on September 3 to join forces with Thai operator PTT EP [PTT Exploration and Production] and take on a 40 percent stake in the M11 offshore block, subject to Myanmar government approval.
Despite many international energy giants knocking on its door, the Myanmar government is yet to release dates for the much-anticipated international tender, although industry insiders said it could be announced later in September.
“The blocks for this bidding round are under consideration and assessment and hope to be finalized in due course,” Than Htay said.
Myanmar has around 29 lucrative offshore blocks and 34 onshore blocks, around 30 (15 of each) of which are expected to be offered in the next bidding round, and the country’s untapped offshore and deep water oil and gas reserves are tipped as  being certain to lure in big name Western energy firms.

Concerns over data

However the lack of current geological data on Myanmar’s unexplored energy reserves means foreign exploration firms interested in the next international tender will need to hedge their bets and have a strong appetite for risk.
The Myanmar government is keeping existing data close to its chest ahead of the upcoming bidding round and Than Min, chief geologist with the government entity the Myanmar Oil and Gas Enterprise (MOGE), said government policy determined how much data should be shown to the bidders.
“I hope we can show more data than last time,” he said in response to questions from conference attendees, referring to the 2011 bidding round where nine onshore blocks were awarded to seven international companies.
“When you are awarded, we will transfer all the data we have,” Than Lwin said.

Edwin Vanderbruggen, partner of specialized tax and accounting firm VDB Loi said Western energy companies were ramping up their interest in post-sanction Myanmar. “Western companies are looking at the opportunities with interest, gathering information and doing feasibility studies,” Vanderbruggen said.
“For many of them, this is the first time they’ve actually studied a Myanmar deal, so there is a learning curve,” he said.

Post-sanctions rush

Previously, strict Western sanctions imposed on the former military government meant Myanmar was off the map for many European and American firms.
Since the country’s transition following elections in November 2010, embarking on a series of political and economic reforms, the international community has responded by easing sanctions and ramping up aid commitments, and energy giants are eying opportunities in what has been dubbed as Southeast Asia’s final frontier market.
“Whether this interest will translate into actual deals by the biggest players does not only depend on Myanmar itself, but also on the opportunities and returns the investors have elsewhere,” Vanderbruggen said.
The Myanmar government is offering fiscal incentives to encourage deep water exploration, such as more favourable terms for its deep water blocks, said Nopporn Wongsatitporn, associate director of gas and power at leading strategic and financial advisory services firm AWR Lloyd.

Risks to be weighed

However a myriad of legal, political and financial risks still exist in post-sanction Myanmar, and incoming U.S. firms will need to adhere to stringent reporting requirements and compliance issues imposed by their home government so as not to fall foul of American sanctions.
“Many multinational executives say they want regulatory clarity in a market dominated for decades by tycoons with ties to well-connected generals – a tightly knit circle of cronies who face competitive threats as the government seeks to free up the economy and introduce
greater transparency,” he said.
Nopporn said a major challenge faced by Western oil companies investing in Myanmar lay in identifying an experienced local partner free of ties to officials blacklisted in the U.S.
“Around 60 Myanmar firms, such as MPRL E&P and Parami Energy, are authorized to bid for oil blocks with foreign partners but few have much experience in energy exploration,” he said.

Local partner a must

All foreign firms investing in the oil and gas sector are required to take on a local partner and enter into a production sharing contract and partnership with the government entity MOGE which oversees licensing and holds a majority stake in all onshore and offshore blocks.
Nopporn recommended foreign firms do their homework and engage in thorough due diligence to minimize any reputational or legal risk.
Major players that attended the 2nd Myanmar Oil, Gas and Power Summit, organized by Singaporean events company CMT, included Shell, Unocal, ConocoPhillips, BG Group and Chevron.

This article was first published in business journal M-ZINE+ on 24 September 2012