Govt, investors must give and take for more oil and gas profit: expert

Prospects in the Myanmar oil and gas sector are expected to improve this year, with the government planning to hold its first international exploration and production tender since 2015 next month.

On February 22, the Ministry of Electricity and Energy (MOEE) announced that it will be holding international tenders for 18 onshore and 15 offshore blocks across Myanmar this year.

The tenders have been scheduled at a time when domestic demand for oil and gas far outweighs production levels. Currently, Myanmar is only producing around 2000 million cubic feet of natural gas per day and around 6000 barrels of oil per day, according to U Than Tun (Oil), a former official of Myanmar Oil and Gas Enterprise (MOGE).

At that level, Myanmar is producing just around 10 percent of the oil it imports and that is driving up costs for basic necessities such as electricity in the country, said U Than Tun, who was a director and advisor to the MOGE for 35 years.

“Most of the oil and gas produced in Myanmar is currently onshore. But there have been no new onshore oil and gas fields discovered since the last finding in Maubin Mountain in 2007. Even though international oil companies signed offshore contracts during the last tender round in 2015, they are still in discovery stage. No exploration work has been done yet,” he told Myanmar Times in an exclusive interview recently.

Currently, foreign companies are working at 27 onshore block and 38 offshore blocks, according to MOEE. Discoveries have so far been made the A-6 block operated by MPRL E&P, Woodside Energy and Total E&P, AD-7 block operated by Posco Daewoo Corporation and Woodside Energy, and AD-1 block operated by CNPC International and Woodside Energy. These blocks are off Rakhine State.

“As such, the government will invite international companies to explore these areas for oil and gas offshore, which involves more sophisticated skills and technology and requires more money than before. If these companies can find oil or gas-rich reserves offshore, they can work with the MOGE to extract fresh supplies for the country,” he said.

But Myanmar must also execute reforms to draw foreign investors into the sector. One of the most pressing of those reforms involves the terms in the production sharing contracts (PSCs) between Myanmar and international oil companies, which states the proportion of production profits each party is entitled to. Currently, those terms are skewed in favour of the country.

“The companies want to renegotiate the PSC terms as they say Myanmar takes too high a percentage and that other countries do not ask for such a large amount,” U Than Tun said.

Against that background, U Than Tun shed light on the status of change to the PSC and delved deeper into the opportunities and challenges in the Myanmar oil and gas industry in the coming quarters. Here is an excerpt of our interview:

What are the disadvantages of the existing terms under Myanmar’s PSC? What will change?

Most international companies are demanding that the terms of the PSC be amended quickly. Currently, the MOGE receives most of the profits from production and it has agreed to reconsider those terms to attract more investments. Without amending the terms, investments will likely be delayed. We don’t know what the new terms will be yet as it has not been passed.

Some foreign oil companies withdrew from the Myanmar oil and gas sector in 2017-18. Why? Do you see this happening again?

It is not good that giant companies such as Shell, Statoil and Reliance left the offshore sector last year. Currently, Ophir, Chevron, Canadian Foresight Group, BG Group and ENI still remain. But they have yet to start exploration work and are just in the test and research period.

Actually, they signed contracts in 2015 but now it is 2019 and nobody has started drilling. These companies need to drill and explore so that newcomers to the market are able to gauge the situation and decide whether to invest or not. Now, nobody knows for sure if these blocks can produce oil or gas.

The MOGE has allowed extensions starting from one year for shallow-water blocks and from two years for deepwater blocks. Yet, none of the companies have started drilling because they must pay a signing bonus as soon as they do.

But now contracts have already expired and the government can no longer extend. In this case, I think it’s not MOGE but the companies that went too far. For one, they don’t let us know about their financials and test results. Some sites have good results and this must be reported to MOGE. But although some companies may have found something while measuring, the final result is known only when drilling starts. And so nobody knows for sure if oil or gas is present.

We have previous measurements that say there are deposits but nobody can tell the exact amount. The officials are also waiting for that as they want to declare an oil deposit has been found. But the companies themselves also have financial problems. It can cost up to US$100 million to drill a test well.

The international tender will be called in early April by the MOGE. What are the prospects for the Myanmar oil and gas sector?

More businesses will come if the current companies which operate on land, such as PTTEP and Petronas can find better opportunities for their businesses. But now there are more restrictions than before. In conducting Environment Impact Assessments and Social Impact Assessments, lengthy negotiations with the locals are required. In the past, there were no such restrictions.

Moreover, most of the local people and non-government organisations don’t have sufficient knowledge about the business of oil and natural gas exploration. So they are always demanding certain benefits from the businesses. According to the nature of these businesses, profits are not guaranteed. It is not like running a factory. Many oil and gas companies, with the exception of PTTEP and Petronas, have actually failed in Myanmar.

But current oil and gas prices are looking better. I think more investments will come. Nevertheless, it is crucial that proper negotiations between the local authorities, MOGE and local residents take place.

What is the government’s role and prerogative in the oil and gas sector?

The problem for the government is the supply of electricity. Myanmar cannot achieve its full growth potential without reliable supply or electricity. With demand rising and oil and gas supply declining, the government is now forced to import and bear all the costs of power generation. It is a loss-making business for the higher authorities. As such, MOGE’s efforts to find new oil and gas reserves in Myanmar must not wane.

However, it is getting more difficult for the government to find oil so we need private companies to provide the technology to drill offshore and in deeper waters. All this needs to be well-coordinated. With latest technologies, the best places can be chosen for drilling.

Now, things are moving slowly. The MOGE, which is responsible for drilling, is afraid of being blamed if it does not make any discoveries after spending state money. Based on test results, there are potential oil and gas reserves. But no one dares to guarantee this.

Source: Myanmar Times

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