While as many as 50 oil and gas companies submitted expressions of interest on June 14 for 30 offshore blocks, industry insiders warn that poor infrastructure and the government’s new production sharing contract (PSC) regime are risky for foreign investors.
Eleven of the offshore blocks are shallow-water, and 19 are deepwater blocks. Government-owned Myanmar Oil & Gas Enterprise (MOGE) has agreed to allow 100% foreign ownership in deep-water blocks, an exception to the 80% cap set out in the Foreign Investment Law.
MOGE will announce the winners of the bids in November, based solely on the best offered terms and conditions to the state enterprise. Bidders can apply for up to three blocks — including a combination of shallow and deepwater blocks — on a block-by-block basis.
But with infrastructure, telecommunications and power supply still inadequate, it might be too early for bidders to find success in so-called brownfield opportunities.
“We have only one supply base in the country — that’s the MOGE base at Thaketa. Imagine in the next 30 or 40 years the problems we’ll have with logistics,” said Kyaw Kyaw Hlaing, a former employee at MOGE and now director of the STAR conglomerate of domestic companies.
“Human resources are a challenge,” he added. “Most of the experienced people are ex-MOGE people over 60.”
Another obstacle to the oil and gas contenders is data. Bids for new acreage are riskier than entering into an existing field amid a dangerous lack of data, said John McClenahan, a partner seconded to Myanmar from the Tokyo office of the international law firm Ashurst.
Kyaw Kyaw Hlaing put it more bluntly: “There is no data.”
A spokesman for Mitsui Oil Exploration Co based in Bangkok told Asia Focus in Yangon that Mitsui had yet to establish a Myanmar presence because “the process is too slow”, and it had few expectations for the bidding process.
Deals for the blocks will involve PSCs. Foreign companies must apply to MOGE under the 1989 State Owned Enterprise (SOE) Law while also receiving approval under the revised Foreign Investment Law.
The PSC regime gives MOGE wide latitude to decide ownership terms on a case-by-case basis. “Foreign companies pay royalty in whole or in part, in cash or in kind, at the option of the government,” said James Finch of the international law firm DFDL Mekong.
The royalty will be equal to 12.5% of the value of available petroleum, which MOGE defines as all production minus petroleum used by the operator free of charge for production operations.
Companies entering Myanmar on a bid will also be subject to signature bonuses decided on a case-by-case basis by MOGE. The production bonus owed to MOGE will, however, be on a sliding scale.
With MOGE allowing full foreign ownership of deepwater blocks, Finch told Asia Focus that the government was creating incentives for high-risk investment.
“Who’s going to come in and risk $200 million?” he asked rhetorically. “The idea is that it should be 100% owned by you. Also, this is a method to attract more bidders.”
Ashurst’s McClenahan said that while old PSCs presented a mechanism for dispute resolution under the UN Commission on International Trade Law (UNCITRAL) with a venue in Singapore, dispute resolution under new PSCs will take place in Yangon under the 1944 Myanmar Arbitration Act.
He added that under the new PSCs, the state participation right will increase from 15% to 20% or 25% depending on the company’s total reserves.
The expressions of interest for the 30 blocks came just before an international conference held in Yangon on upstream investment opportunities. Although Aung San Suu Kyi was billed to attend the Second Myanmar Oil & Gas Summit on June 17 and 18 as a participant — sponsored in part by MOGE — a sign at the door on the opening day read: “Unfortunately Aung San Suu Kyi will not be attending Myanmar Oil and Gas event due to another meeting which has had to take priority.”
The opposition leader told journalists just two weeks earlier that although “Myanmar is rich in extractive industries, extractive industries are not rich in job opportunities”, after calling for the urgent need to improve the country’s woeful unemployment rate.
The Nobel Peace Prize laureate also denied there was a “frenzy” of investment coming into the country, saying it had been more about investigations than investment.
“But it is a frenzy, and a frenzy is never attractive,” she said. “So let’s stop the frenzy a little bit.”
Fifty-nine companies were shortlisted for the second round of bids on 18 onshore blocks on June 15, after prequalifying on Jan 17. They will next be asked to submit technical presentations to MOGE, with the date yet to be specified.
Myanmar energy at a glance
Myanmar has a total of 101 oil and gas blocks — 53 onshore and 48 offshore — concentrated in the west under the ownership of state-run Myanmar Oil & Gas Enterprise (MOGE).
Out of the total, 10 onshore blocks are currently being explored by eight foreign companies and 27 offshore blocks by 12 foreign companies. Operating oil giants include Total E&P Myanmar, Daewoo, Sinopec and CNOOC.
Bidders for open offshore blocks submitted their expressions of interest to MOGE on June 14. Candidates for 18 available onshore blocks have already prequalified, and they include Thailand’s PTT Exploration and Production Plc, France’s largest oil producer Total SA, Italy’s biggest oil company Eni SpA, and Oil & Natural Gas Corp (ONGC) of India.
The bulk of the production from the fields now up for bid will be transported through the Myanmar-China gas pipeline, which is scheduled to begin its first phase in a few months, according to MOGE. This pipeline will pump an estimated US$45 million (1.38 billion baht) worth of oil and gas daily through shipments of 500 million cubic feet from Kyaukphyu in the Bay of Bengal. The project is operated by SEAGP in a joint venture with Daewoo, Kogas, OVL, GAIL and MOGE.
The Shwe project — operated by Daewoo in conjunction with MOGE under an agreement with China’s state-run CNPC — was also meant to export gas from Rakhine state to Yunnan province. However, continued protests in its origin point at Maday Island have made the current status of the project unclear.
The status of the Yadana and Yetagun pipeline projects, which run from southwestern Myanmar to Thailand, is also unclear, amid claims of extortion, land grabs and negative environmental impact. MOGE expects the projects to resume sometime this year.
A special economic zone is being set up at Kyaukphyu port in Rakhine State for energy transport and logistics. India has extended $150 million in credit for export projects in the Kyaukphyu SEZ, while Japan has expressed interest in supporting its infrastructure projects.
China has already won an international tender offered in November 2012 to construct and operate petrochemical plants for export back to the country.
The Kyaukphyu SEZ sits on half the land of Rakhine State’s Kyaukphyu Township on Yanbyae Island, comprising a total of 9,475 square kilometres. The government intends it as the endpoint for a Yunnan-Rakhine railway, and has announced plans to also build an airport on the island.
Myanmar is expected to become a member of the Extractive Industries Transparency Initiative (EITI) by December, MOGE says. The United States has pledged to help by providing “political support and technical assistance to help Myanmar implement international best practices in the oil, gas, and mining sectors”.