While Myanmar prepares the ground to attract overseas investments to
its upstream energy sector, major international oil and gas (IOC)
companies are still weighing the merits of injecting funds into the
Southeast Asian state. The latest government tender - which closed
mid-June - offering offshore blocks for oil and gas exploration may
provide a clue on whether its standing as an investment destination has
improved in the eyes of these foreign firms.
The country’s economy has been in a shambles following half a century
of inept military rule, prompting the new government under Thein Sein -
who assumed the presidency in March 2011 - to actively pursue reforms
to revive Myanmar’s economic fortunes, including making it a more
attractive place for foreign investment.
So far, progress has been fairly slow as the government has yet to
fully address foreign investors’ concerns. But as these companies are
constantly seeking investment in upstream oil and gas resources around
the world, they may find it lucrative to help unlock potentially one of
the largest energy reserves in the region.
Potential Upstream Opportunities in Myanmar
Although Myanmar is one of the world’s oldest oil producers, having
sold its first barrel in 1853, its upstream sector is relatively
underdeveloped. The country’s proven oil and gas reserves are small
compared with its neighbors in Southeast Asia, including Malaysia and
ex-Organization of the Petroleum Exporting Countries (OPEC) member
Indonesia. Myanmar’s proven natural gas and crude oil reserves are at 10
trillion cubic feet of and 50 million barrels, respectively, according
to the United States Energy Information Administration (EIA).
With its long history as an energy producer, independent oil and gas
companies such as Australia’s Roc Oil Company Limited is optimistic
about Myanmar’s upstream potential. The country is a “world class
petroleum province … as fundamental geology (there) favors
hydrocarbons,” Roc Oil’s General Manager for Exploration, Geoscience
& Business Development Dr. Pierre Eliet said in a Feb. 4 Myanmar Oil
& Gas Summit presentation in Yangon. Moreover, the country’s
upstream sector is currently “underexplored (and has) significant
potential for offshore and onshore plays.”
Paving The Way to Boosting Foreign Upstream Investments
Efforts are being made by the government to improve Myanmar’s upstream investment environment.
“The energy sector will be a key enabler for wider economic
development,” The World Economic Forum (WEF) in a recent report “New
Energy Architecture: Myanmar Report” noted.
The energy resources will provide Myanmar with much needed revenue
and could help it meet a projected increase in domestic electricity
demand as the country develops its economy. Natural gas accounted for
around 40 percent of Myanmar’s total exports in recent years, according
to the WEF report.
Therefore, Myanmar needs foreign upstream energy investment urgently.
The EIA in its March country analysis report on Myanmar noted that
“sanctions, a lack of technical capacity, opaque regulatory policy, and
insufficient investment by foreign firms have significantly impeded the
country's efforts to realize its oil and gas production potential.”
Major Western countries have responded to the introduction of
political and economic reforms by the Thein Sein government. The United
States and the European Union have ease or suspended economic sanctions
since the beginning of 2012, around the same time that Myanmar started
to reform its foreign direct investment law to provide greater revenue
incentives for global companies.
Further steps have been taken to encourage global energy firms to
invest in Myanmar’s upstream energy sector. These include the
government’s plan to implement the Extractive Industries Transparency
Initiative (EITI), which is a global standard promoting revenue
transparency and accountability in the extraction of natural resources,
including energy. The United States is now working with the Myanmar
government to help it meet EITI's membership criteria.
Rising Interests in Bids for Exploration Blocks
With their attention constantly fixed on tapping oil and gas
resources worldwide, foreign energy companies have gradually began
taking notice of the improved investment climate in Myanmar. The opening
up of the Myanmar market has generated greater interest among foreign
firms participating in tenders offering onshore and offshore exploration
blocks.
So far, foreign investors in Myanmar have centered their oil and gas
interests on the physically and financially accessible onshore
exploration blocks. In 2011, Myanmar Oil and Gas Enterprise (MOGE) - a
state-owned enterprise responsible for the upstream petroleum sector -
said that a tender offering 18 onshore blocks for exploration drew 27
bids from 18 countries. Nine of these blocks were awarded to seven
companies.
The Ministry of Energy followed up with a second tender in January in
which 18 blocks were offered. The tender attracted over 75 letters of
interests, before the government shortlisted 59 bidders. Major industry
players such as Esso Exploration International Ltd., Total E&P
Myanmar, Eni International B.V. and China’s Sinopec unit Sinopec
International Petroleum Exploration and Production Corporation
participated in this tender. Other major regional energy companies,
including Australia’s Woodside Petroleum Ltd., India’s ONGC Videsh Ltd.,
Malaysia’s Petroliam Nasional Berhad (PETRONAS), Vietnam’s PetroVietnam
Exploration Production Corporation Limited and Thailand’s PTT
Exploration and Production Public Company Ltd. (PTTEP), were also among
the bidders.
Latest Offshore Tender
Given stronger investment interest in Myanmar’s upstream sector,
industry players are now tracking the latest tender in which the
Ministry of Energy has offered 30 blocks - 11 shallow water and 19
deepwater - for an indication of foreign investment interest, especially
from IOCs. The tender was originally planned for launch in September
2012 but - as the WEF pointed in its Myanmar report - was delayed by the
government as it wanted the tendering of exploration contracts to be
transparent and conform to international standards.
The latest tender attracted around 60 bids, with “British, American,
Australian and others” among the foreign bidders, an MOGE source told
Rigzone. The government is “now processing and evaluating the bids” and
“prequalification is expected to be completed early next month (July).”
The winning bids for these exploration blocks are expected to be announced at the end of the year.
Among these bidders are three state-owned firms in India - ONGC
Videsh, Indian Oil Corp. and GAIL (India) Ltd., said India’s Oil
Minister M. Veerappa Moilya in a Dow Jones Newswires report. These
Indian companies were expected to bid either jointly or separately for
eight of the offshore exploration blocks on offer in Myanmar. Meanwhile,
bids from traditional sources were also expected, including those from
Thailand and China. However, observers will be keenly watching whether
Myanmar succeed in attracting major Western oil and gas firms to invest
in Myanmar.
Investments in deepwater blocks are “quite risky … (and the)
investments required are quite high, infrastructure (to develop these
projects is also) quite a problem,” said Sugi Handoko, vice president of
Operations at Interra Resources Limited - a Singapore-incorporated
company listed on the Singapore Exchange with onshore exploration blocks
in Myanmar - to Rigzone.
The huge outlay needed to drill in deepwater - according to Rigzone’s
RigLogix Database shows a semisubmersible rig costing as much as
$428,000 - probably serves as a limitation in the participation of these
blocks to large IOCs. To further incentivize bidding for the deepwater
blocks, Myanmar has waived its requirement for the participation of a
local partner in such projects. In contrast, foreign firms bidding for
onshore and shallow water blocks require a local partner.
“U.S. companies might be there, maybe ExxonMobil, Chevron and
European majors like Total ... (but since) oil and gas reserves (around
the world) are getting smaller… new discovery (is still) needed … (and)
Myanmar may draw interest,” Handoko said.
Only time will tell whether Myanmar can realize its potential as a major
energy player in Southeast Asia and results of the latest tender for
offshore exploration blocks could serve as a reference point for the
upstream industry players.
source: RigZone
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