More op­por­tu­ni­ties rise with new oil and gas ten­der

The oil and gas sec­tor is in for an in­ter­est­ing year with op­por­tu­ni­ties ris­ing from an in­ter­na­tional ten­der sched­uled early this year, the first since 2013, a se­nior energy of­fi­cial said.

The Myanmar Times - Weekend - - Front Page - CHAN MYA HTWE chan­[email protected]­

THE oil and gas sec­tor is look­ing ex­cit­ing this year, with op­por­tu­ni­ties emerg­ing from an in­ter­na­tional ten­der sched­uled to take place early this year for the first time since 2013.

In ad­di­tion to on­shore and off­shore blocks, the ten­der is ex­pected to in­clude work in “Im­proved Petroleum Re­cov­ery” blocks at older oil fields in Myan­mar.

One se­nior of­fi­cial from the Min­istry of Elec­tric­ity and Energy (MOEE) told The Myan­mar Times that the ten­der will be launched “as early as pos­si­ble this year”.

Ac­cord­ing to the MOEE of­fi­cial, the min­istry is now re­vis­ing the terms and con­di­tions of pro­duc­tion shar­ing con­tracts (PSC) that will be of­fered to the win­ning bid­ders in the ten­der ex­er­cise. Once the re­vised terms are ready, they will be sub­mit­ted to the Cabi­net and the Pres­i­dent’s Of­fice for ap­proval.

Myan­mar is look­ing to open up more of its off­shore, deep­wa­ter acreages to in­vestors. Up to 18 on­shore and 13 off­shore blocks could be of­fered to both lo­cal and for­eign in­vestors within the com­ing months. Last year, Aus­tralian oil and gas com­pany Wood­side Energy also dis­cov­ered two gas fields that of­fer po­ten­tial.

Myan­mar also has 17 PSCS that were awarded as part of the 20 13 on­shore and off­shore bid­ding rounds, where drilling and seis­mic works must be­gin over the next two years, ac­cord­ing to con­tract terms.

Bet­ter terms Yet, in­vestors are ex­posed to a high level of risk when un­der­tak­ing ex­plo­ration and pro­duc­tion projects in the coun­try. Th­ese have in­cluded red tape, un­pre­dictable changes in tax rates and un­favourable PSCS, which are all bar­ri­ers for po­ten­tial in­vestors. Pre­vi­ous con­tracts, for ex­am­ple, stip­u­late that pro­duc­tion would be shared on a 65per­cent/35pc ba­sis in favour of Myanma Oil and Gas En­ter­prise.

“Now, the con­di­tions will be eased. It is very costly to de­velop deep­wa­ter blocks, so a 50-50 based PSC will do more to attract in­ter­na­tional in­vestors,” the MOEE of­fi­cial said.

“Im­prov­ing the ex­ist­ing PSC terms will be cru­cial for Myan­mar, as Naypyi­daw seeks to attract more in­vest­ment into the oil and gas sec­tor while re­duc­ing the grow­ing strain on de­plet­ing do­mes­tic oil and gas re­serves,” ac­cord­ing to a Jan­uary 2 re­port by Fitch So­lu­tions Macro Re­search.

“We need to think about both sides if we want to of­fer good agree­ments. In my opin­ion, I want to nei­ther give more nor take less. It must be fair for both sides,” said U Kyaw Kyaw Hlaing, chair of lo­cal oil and gas ser­vices com­pany Smart Group.

The MOEE is also re­view­ing un­favourable terms and con­di­tions for in­vestors in the sec­tor. This in­cludes an 8pc spe­cial com­mod­ity tax on nat­u­ral gas pro­duc­tion. In the past, the MOEE had granted three-year tax ex­emp­tions to oil com­pa­nies once com­mer­cial pro­duc­tion be­gan.

Will in­vestors come? In­dus­try in­sid­ers are ex­pect­ing the bulk of in­vestors to come from Asia this year.

There are many things to worry about al­though ar­range­ments are be­ing made to call ten­ders for oil and nat­u­ral gas blocks, said U Kyaw Kyaw Hlaing. “The ques­tion re­mains whether prom­i­nent com­pa­nies will come if we in­vite them. And, an­other ques­tion is whether western com­pa­nies will come due to the Rakhine cri­sis,” he said, point­ing out that in­ter­na­tional oil com­pa­nies that signed ex­plo­ration deals in Myan­mar in 2014 and 2015, such as Shell, Sta­toil, Re­liance In­dus­tries, all pulled out of the coun­try in 2017 and 2018.

Due to the cur­rent si­t­u­a­tion, it is ex­pected that few oil and gas gi­ants from western coun­tries will bid in the com­ing ten­der, while more ASEAN coun­tries and small com­pa­nies will bid in­stead, peo­ple in the lo­cal oil and gas sec­tor said.

“The gov­ern­ment may face chal­lenges de­pend­ing on whether the PSCS of­fered are at­trac­tive. Even so, I ex­pect few western com­pa­nies will come. We will have to take into con­sid­er­a­tion that small and less sig­nif­i­cant com­pa­nies will ap­ply, mak­ing things less ben­e­fi­cial for Myan­mar,” said U Than Tun, ad­viser of oil and gas con­sul­tancy Arc and Part­ners Co and former di­rec­tor of Myanma Oil and Gas En­ter­prise.

As a whole though, an­a­lysts see promis­ing prospects for the sec­tor this year. “Myan­mar is among the few still-un­der­ex­plored up­stream mar­kets in Asia, and in­ter­est in de­vel­op­ing its be­low-ground prospects con­tin­ues to re­main high among do­mes­tic and in­ter­na­tional oil and gas firms alike, de­spite a litany of do­mes­tic and ex­ter­nal risks,” Fitch re­ported.

It noted that “the longer-term out­look for gas is rel­a­tively more op­ti­mistic, due to on­go­ing ne­go­ti­a­tions for the devel­op­ment of the MPRL-A6 and AD-1 blocks, in line with shift­ing re­gional in­vest­ment trend to­wards nat­u­ral gas , and to ease the g row­ing ex­port bur­den to China and Thai­land.”

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