The Myanmar government has issued an announcement launching the long-awaited auction of 30 offshore blocks of oil and gas exploration (11 shallow water and 19 deep water) on production sharing basis.
The bids for both offshore and onshore blocks came online after both were postponed in August 2012 when the Ministry of Energy announced that it would take time to prepare the regulations regarding transparency in the bidding process. This claim was followed through with the second bidding round for onshore blocks on 17 January 2013, the first since in 2011.
The selection procedure for pre-qualified bidders for the offshore blocks specifies that the deadline for this round is 14 June 2013.
For shall water blocks, a partnership with a Myanmar national owned company among the 137 registered at the Ministry of Energy is required. For deep water blocks, operational conduct must be 100 per cent foreign direct investment.
In addition to the list of offshore blocks, the Ministry of Energy has selected 59 potential bidders pre-qualified to participate in the tender for 18 onshore blocks. Some of global oil and gas majors included in the list are Eni, Total E & P Myanmar, KOGAS, Petronas, PTTEP, Nippon Oil & Gas Exploration, Mitsui Oil Exploration, Woodside and ONGC Videsh. In the first tender round for onshore blocks in 2011, eight out of 27 companies were awarded 10 out of 18 blocks by the Ministry of Energy. Bidders for onshore blocks will be obligated to cooperate with one of the 137 registered, domestic entities in the industry.
Standard terms and conditions for deep water blocks require that companies enter into partnership with state owned Myanma Oil and Gas Enterprise(MOGE) with a minimum state participation of an undivided 15 per cent interest, up to 25 per cent. For PSC contracts, a three year exploration period is granted with a 20 year production period for each commercial discovery. There is also a two year study period provided for technical evaluation. A 12.5 per cent royalty fee and a 25 per cent tax on contractor’s net profit are levied, but with a three year tax holiday from the start of production. 20 per cent of crude oil and 25 per cent of natural gas is reserved from contractor’s share for domestic supply and will be paid at 90 per cent of fair market values.
The Yadana and Yetagun projects in offshore blocks are currently producing natural gas at a rate of 1200mmcfd from which a daily average of 1000mmcf is exported to PTT Plc, Thailand. Production in the Yadana project operated by TOTAL E&P in offshore blocks M-5 and M-6 was commenced in 2000 with an expected commercial production period of 30 years. The gas reserves for the projects are estimated to be 7.91 trillion cubic feet (tncf)). Petronas Caligali Myanmar operates the Yetagun project in the M12, M13 and M14 blocks, which generate not only natural gas, but also 12,000 bopd. It has an estimated gas reserve about 4.16tncf. Onshore blocks currently produce a daily average of approximately 7,500 barrel of oil and 65mmcf of natural gas.
Myanmar’s gas export value for FY2012 is expected to exceed USD4bn allowing Myanmar to emerge as one of the key suppliers of natural gas in the region. Over 80 per cent of natural gas production is exported to Thailand, which constitutes about 25 per cent of Thailand’s consumption. Commenced from the beginning of mid-2013, the production from the Shwe and Zawtika projects are expected to double gas production. The Shwe gas project is operated by Daewoo and China received purchasing rights from the Myanmar government in 2008. A 30 years agreement has been made between CNPC and Daewoo to export 6.5tncf of natural gas to Yunnan province next to the border of China and Myanmar. CNPC has built 793km long twin pipelines which will transport natural gas and crude oil respectively from the Rakhine Basin. India has also expressed its interest in importing the natural gas by constructing either a Myanmar-Bangladesh-India onshore pipeline or a Myanmar-India onshore pipeline.
Silk Road Finance views the announcement of the auctions for offshore blocks believed to hold substantial oil and gas potential as positive for the industry and the economy of Myanmar. The company expects western global majors including ConocoPhillips, Royal Dutch Shell, BP and Hess Corp, which petitioned the Ministry of Energy last year raising the issue of ensuring the transparency in the bidding process and as a result the tender was postponed until the required transparency rules are in place, are expected to make a presence in the unprecedented bid. Silk Road believes that re-launching the auction after less than 12 months with revised transparency rules is a testimony that the Myanmar government is committed to cooperation with western global energy majors. The large scale bidding is likely to be historic for the country as the industry is expected to attract multi-billion dollar investments in the coming several years laying a foundation for long term economic growth and creating investment opportunities across various asset classes and industries.
