Exploring opportunities: New oil and gas blocks continue to attract international companies

Among the most important economic developments in Myanmar since political reforms began in 2010 is the new administration’s effort to accelerate oil and gas exploration. Almost the entire offshore shelf that is not already under contract is being offered by the government, setting aside only the Mergui Archipelago region, a natural preserve and green tourism destination.

Rising Demand

Although it will be many years before any of the blocks being offered yield oil or gas, the rise in licensing activity is expected to produce a surge of exploration and demand for oilfield services over the next several years. It has already made an impact on business tourism, as delegations from hundreds of international companies have come through to identify what is on offer, promote their businesses and network at industry events. The strong interest being shown by some of the world’s largest oil and gas companies has given investors in all segments of the economy a much-needed confidence boost.

The government moved first with onshore blocks, awarding eight out of 18 offered in the first licensing round in 2011-12, before the lifting of international sanctions. The Ministry of Energy (MoE) awarded production-sharing contracts (PSCs) for two blocks each to the Petroleum Authority of Thailand (PTT) and Petronas of Malaysia, which both already operate large offshore gas fields in Myanmar. Five smaller firms took one block each: Indonesia’s Istech Resources, Hong Kong’s EPI Holdings, India’s Jubilant Energy, Swiss-French Geopetrol and Chinese-Russian Nobel Oil. Geopetrol had previously been involved in Myanmar as a minority partner in an onshore oil field, and Nobel Oil had previously explored onshore blocks.

Opening Up

In 2013 the MoE offered another 48 blocks – 18 onshore and 30 offshore – in separate licensing rounds, with the government adding two conditions to its PSCs. Contractors are obliged to deliver 25% of their share of produced gas or 20% of their share of produced oil to the domestic market at a 10% discount to “fair market value”. That is on top of the share of oil or gas allocated to the MoE under the PSC, which depends on production levels and project costs. Also, contractors for onshore and shallow-water offshore blocks are required to have a domestic joint-venture partner chosen from a list of companies pre-approved by the ministry. The list is not highly restrictive and included 154 companies as of September 2013. The published PSC terms did not specify a minimum share in the project that must be held by a domestic partner.

In the first of the 2013 rounds, announced on January 18, several onshore blocks were offered, including five repeat offers from the 2011-12 round. This round drew a total of 53 bids from 31 companies, according to the MoE. The most important licensing round, including 30 offshore blocks, was announced in April 2013, after Myanmar and Bangladesh settled a long-running dispute over their international maritime border. The offshore round included 11 shallow-water blocks and 19 deepwater blocks. In July 2013 the ministry announced that 61 companies had pre-qualified.

Key Players

Among the firms that prequalified to bid for offshore blocks were Total, Chevron, PTT, Petronas, Daewoo International, India’s ONGC Videsh and GAIL, PetroVietnam, China National Petroleum Corporation, Australia’s Woodside Petroleum, JX Nippon Oil & Energy, Shell and UK independent Premier Oil. The licensing rounds also attracted newcomers to Myanmar, including Exxon, ConocoPhillips, Anadarko, British Gas, Repsol, Statoil, ENI, Reliance Industries, Oil India, Korea Gas, Korea National Oil, Lundin Petroleum and Bashneft. U Chan Mya, chief geophysicist at Parami Energy, told OBG that large US and European companies would likely dominate bidding for deepwater blocks.

“US and European companies are very interested in investment in Myanmar’s deepwater blocks. Most Asian companies do not have enough technical expertise for exploring in deepwater blocks,” he said. Parami currently holds a 22.5% stake in Jubilant’s onshore block awarded in 2012 and was partnered with a bidder it could not name in the 2013 licensing rounds.