Long-term outlook in oil & gas exploration is intact despite global oil price woes
Some players in Myanmar’s oil and gas industry are optimistic that oil and gas exploration and production activities in the country would continue as expected, despite oil prices slumping to five-year lows.
The local industry will thrive due to low output against increasing domestic demand, they believed.
Saw Sein, project manager (oil and gas services) of Myanma Precious Resources Group, foresaw no obstacles given that Myanmar is a net oil importer.
“We can produce very little oil and gas. We have to import crude oil, diesel, and petrol from other countries,” he said, adding that the current low prices are beneficial to Myanmar, but further exploration of its resources was necessary.
“A large amount of oil and gas and crude oil have yet to be found in both onshore and offshore new blocks. Our production just covers about one-third of the domestic consumption. We need to import the balance from other countries. Now the government has invited foreign participation in onshore and offshore blocks. We’re still at an infant stage,” he said on the sidelines of the “Offshore E&P Summit Myanmar 2014” last week.
He believed that demand would spike up in the near future, while currently, Myanmar’s finances are not yet affected by the jitters in the world market. Myanmar is among the top 10 gas-exporting countries.
Dubai oil prices fell below US$60 per barrel last week. Global stock markets tumbled last week on expectation that oil and gas companies would slash their investment heavily.
The latest signs of retrenchment in the petroleum industry, following the nearly 50-per-cent decline in oil prices since June, was Chevron’s decision to suspend its exploration plans in Canada. It told regulators the suspension was due in part to uncertainty following the drop in oil prices.
Chevron is one of the companies awarded an exploration licence by Myanmar, following an international bidding initiated in 2013.
Short-term advantage
Amid this scenario, some experts said Myanmar stands to reap short-term benefits.
“It is not such a bad thing [the fall in prices] because Myanmar not only exports but also imports a lot of oil and gas,” said Govinder Singh Chopra, managing director of SeaTech Solutions International.
“As the domestic demand is increasing in Myanmar, it needs to import more at a very low price. How to reduce the costs in power generation is also very important. Low fuel prices will reduce costs. At this stage, Myanmar should import a lot of oil and gas,” said Chopra.
Jason Waldie, associate director of Douglas Westwood, agreed.
“Contracts in the oil and gas industry are usually long-term ones. So it does not really change that much. Basically, the oil and gas from the current projects in Myanmar go to China and Thailand, perhaps under 10- or 15-year contracts. So Myanmar will get money from the purchasing countries every month. I think it won’t have a huge impact on Myanmar for the time being,” he said.
But not all are convinced of the bright prospects in the long term.
A former senior official of the Myanma Oil and Gas Enterprise, who is currently working for a big local firm, said on condition of anonymity that some negative impact is imminent, mostly to the new contracts that are yet to be signed.
He referred to the signature bonus, which is used to determine the licensing fees.
“In calculating the signature bonus, discrepancy may occur and the data being used was acquired before oil prices slumped. There may be many differences between the two periods, regarding the calculation of signature bonus. So there may be ambiguities whether they should go ahead as calculated or calculate again. They need to take into account how long this trend [falling prices] continues, as there may be daily costs,” he explained.
Domestic demand
According to the US Energy Information Agency, Myanmar’s total liquid fuel production has gradually increased over the past decade from 13,000 barrels per day (bbd) in 2000 to 21,000bbd in 2013. However, its limited production and refining capacity are insufficient to meet domestic demand for crude oil and petroleum products, making the country a net oil importer.
Its natural gas production has increased substantially over the past decade, rising from 61 billion cubic feet (bcf) in 1999 to 416bcf in 2012. Natural gas exports to Thailand, which began in 1999, now account for roughly 70 per cent of the country’s natural gas output.
Thailand’s PTT Exploration and Production is not among the winners in this round. The company started operations on the Zawtika gas field this year. PTT Group, meanwhile, plans to invest an additional US$3.3 billion in oil and natural gas development in the country by 2020, including the retail oil business.
As part of the bidding round launched in 2013, it awarded 10 deepwater and 10 shallow-water offshore blocks to several foreign and domestic companies. The winners are expected to sign 14 Production Sharing Contracts (PSC) for offshore exploration and 20 for offshore exploration.
Thirty PSC and 2 IPR contracts are in progress, Aung Kyaw Htoo, deputy director of the Energy Planning Department, told the energy summit.
He also highlighted that in opening the country for exploration, the Ministry of Energy vows to put emphasis on domestic supply. Its priority is to discover new oil and gas blocks in offshore areas and increase the domestic supply.
“Domestic supply is our priority. How to have international practices in local areas is really important,” he said.
When asked about how much Myanmar will need for domestic consumption, the Myanmar official said, “For the time being, we have no reliable figures to estimate how much we will need for domestic use because the government cannot go alone. We need the support of the private sector. How much we need for domestic use depends on private sector development such as how many industries are developed in special economic zones, and which projects are initiated, etc.”
“Our country is still in the transitional period. We are not ready for everything yet. It will depend on how much development the private sector will achieve by 2025,” he added.
Aung Kyaw Htoo noted that his ministry has been undertaking a series of reforms to satisfy domestic demand.
“We are undertaking a transitional change of state-owned enterprises to semi-state-owned economic ones. We are trying to ratify perfect codes of conducts for all investors. For example, 2014 contracts are not the same as 2013 contracts,” he said.
New investment
The Ministry of Energy estimated that it would receive US$226.1 million as a “signature bonus” from the winners of the 2013 bidding round, once exploration begins on the 10 shallow-water and 10 deep-water blocks. Of the total, $91 million will come from shallow-water exploration blocks and US$ 135 million from deep-water exploration blocks.
It seems that the situation is going as planned.
According to Aung Kyaw Htoo, for onshore blocks, all companies have to submit environmental impact assessment/social impact assessment reports within six months. After submitting the report, with the approval of the Myanmar Investment Commission, the firms can do a seismic survey in 2015. After signing the product-sharing contracts, the firms can undertake a drilling campaign for six years from 2015 to 2021 with possible extension from the authorities. For offshore blocks, all the processes are the same but the firms can undertake a drilling campaign for eight years from 2015 to 2023 with a possible extension.
All draft contracts must be reviewed and approved by five concerned bodies – the Attorney-General’s Office, Auditor-General’s Office, Ministry of National Planning and Economic Development, Ministry of Finance, and the Central Bank of Myanmar. Then, they will be forwarded to the President Office, Economic Committee, and the union government for approval. At the end, Myanmar Investment Commission will issue the licences, which will pave the way for contract signing.
The official noted that the geological risk in deep-water exploration is high although Myanmar can be often described as the last frontier basin. The ministry has prioritised upstream exploration and production (E&P), and new infrastructures, downstream and value-change process and improvement on E&P are inevitably required.
He said insufficient infrastructure and lack of information might deter the nation’s bright outlook. In an effort to create a level playing ground for all international firms, the ministry has been following the joint-venture system for existing refineries and plants.
“We are undergoing joint venture processes in E&P, upstream services, and commencing joint venture structures in midstream sector. Likewise, in trading and marketing of petroleum products, we are privatising the ventures,” he said.
Technology transfer
“All foreign companies should coordinate with local firms. Today, there are very few local firms in the oil and gas sector. Foreign investors need to set up infrastructure. Their experience and technology are very much welcome.”
On the joint-venture scheme, the ministry has invited expression of interest in three main sectors – seismic processing, drilling rigs, and onshore pipeline laying. But the official admitted that the processes were not fully independent yet.
“Even though we do not have enough experience in joint ventures, all the three state-owned enterprises under the ministry have been easing restrictions. We are still ratifying what kind of conditions are required between investors and the state enterprises,” he said.
“If we go with the joint venture system, our country will benefit from new structures, new investments not only in the existing areas but also in the new areas. We are trying to discuss the issue with our consulting team to be in line with regional and international practices.”
Source: The Nation
