Investment opportunities may emerge from restructuring of oil and gas

Opportunities to invest in Myanmar oil and gas are emerging on the back of a string of changes and restructuring efforts now taking place in the sector.

The Ministry of Electricity and Energy (MOEE) is currently reviewing the terms and conditions of Myanmar’s existing oil and gas Production Sharing Contracts (PSCs) to draw new investments into the sector, said U Kyaw Thura, a Myanma Oil and Gas Enterprise (MOGE) geologist. The MOGE falls under the remit of the MOEE.

“Discussions are underway to revise the existing terms and conditions of the PSCs to create a win-win result for the government and investors in oil and gas exploration and production in Myanmar,” said U Kyaw Thura.

The PSCs are being reviewed ahead of potential tenders for up to 31 Myanmar oil and gas blocks, which will be open to both local and foreign investors “in the near future,” officials from the MOGE said during a recent energy expo in Yangon.

Although the exact time for the tenders cannot be confirmed, the ministry has commenced preparation for fresh rounds of bidding, which will be conducted “as early as possible”, the MOGE said.

If it takes place within the next two years, it will be the first time a bidding round is held under the current government and bring much needed investments into the country. The last tender for work at Myanmar’s oil and gas fields was conducted in 2014 under U Thein Sein’s former administration.

New PSCs

The MOEE is ramping up efforts to draw investments after a handful of oil and gas firms, including Shell and India’s Reliance Industries, gave back their stakes in several gas blocks to the government.

“The firms relinquished their stakes for various reasons. Some firms relinquished the blocks after conducting seismic studies for two years. We need to avoid this in the future by closely reviewing the experience and financial background of the companies that bid for the upcoming tenders,” an official from the MOGE said.

But U Win Khaing, Union Minister of the MOEE, recently conceded that the current PSCs should be redrawn if Myanmar is to attract and retain investors in the oil and gas sector.

“We can’t afford to be rigid with the PSCs. Our existing contracts are very old. They were based on the situation in the market 25 years ago. If we still stick to the current terms, investors will find it very hard to invest in Myanmar. We need to be flexible and more in tune with current oil prices and market conditions so that investors will return,” he said in Thilawa recently.

U Kyaw Kyaw Hlaing, chair of Myanmar offshore services provider Smart Group, told The Myanmar Times in a previous interview that the government’s take under the current PSCs should be revised to make investments more attractive to the private sector.

Based on his estimates, provided at the end of last year, Myanmar’s average share of the revenue generated under each contract is as high as 77 percent. In comparison, Australia keeps just around half the revenue generated at its fields.

To be sure, Myanmar’s take is similar to countries like Malaysia and Norway. The difference is Malaysian oil and gas fields are much larger and easier to work with. And while Norway’s fields are typically deepwater fields, the country provides a good environment and system which is favourable to investors, U Kyaw Kyaw Hlaing said.

Myanmar, on the other hand, has so far only been successful in producing from four fields – Yadana, Shwe, Zawtika and Yetagon. Meanwhile, the remaining onshore fields are too small. “There are many smaller fields both onshore and offshore that are unoccupied because the big boys are not interested and the smaller firms cannot afford the work under the current PSCs,” he said.

“To let more investors in, we have to be more accommodating with our contracts.”

Right time to invest

Despite this, U Ken Tun, CEO of Parami Energy Group of Companies, told The Myanmar Times in April that now could be the right time to invest in Myanmar oil and gas, which holds an abundance of opportunities in the offshore sector.

“Around 70pc of Myanmar’s offshore blocks are unexplored. There is big potential there. If oil or gas is discovered here it will be big for the region,” he said.

The way he sees it, “investments in the offshore space have been declining for three straight years as a result of falling oil prices. But this has also led to a shortage of new infrastructure in a world where oil will remain the primary source of energy,” he said.

“We believe that from 2018 onwards there will be a recovery in oil prices which will lead to a spike in offshore sector investments. Myanmar will be one of the highlighted investment destinations,” he added.

Myanmar currently produces close to 20,000 barrels of oil and 1.7 billion cubic feet of gas per day from its onshore and offshore fields.

Currently, there are 53 onshore oil and gas blocks in Myanmar. Of these, production work is being carried out in 25 by the government in cooperation with foreign companies. Meanwhile, the MOGE is producing from another 11 blocks. The remaining18 blocks are unoccupied.

The country has also designated a total of 51 offshore blocks, 38 in which foreign companies like Thailand’s PTTEP, France’s Total and South Korea’s Daewoo hold stakes. The remaining 13 blocks are unoccupied and available. In total, there are 32 companies from 20 countries active in the Myanmar oil and gas sector, according to the MOGE.

That leaves a total of 31 onshore and offshore blocks that could be included in the upcoming tenders. This excludes up to 16 onshore and offshore blocks that have been handed back to the government by retreating firms which could also be included in future tenders, said U Kyaw Thura.

Source: Myanmar Times

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