March 2019

Oil and gas in the capitals

Houston, Myanmar still has an E&P problem
Jeff Moore / Contributing Editor

Myanmar’s E&P sector has stumbled—again. After offering more than 40 blocks through multiple bidding rounds during 2011 through 2014, scores of energy companies flocked into Myanmar. But during 2017-2018, at least six of these companies folded up shop and left. To reverse the tide, the government put together international investment conferences in January and February, touting Myanmar’s gas and oil sectors.

Here’s what’s going on. Shell, Reliance Industries, Equinor, Tap Oil, Oil India and ConocoPhillips have all left Myanmar. They returned their blocks to the government, which accounts for nearly 50% of the offshore blocks awarded during 2014’s big bidding round. Why? There are four main reasons.

First, LNG prices have fallen, which decreased ROI projections. LNG was at $4.20 in 2013, when Myanmar began its major block offerings. Then, prices fell to $2.80 in 2018. While Myanmar is mostly a gas play, oil prices have had a negative impact, too. In 2013, oil was over $100/bbl. Since 2016, it’s fallen to the $35.70–$74.08 range.

Second, PSC terms from 2014—which were 65%/35% in the government’s favor—became sub-par when LNG and oil prices dropped.

Third, a nasty war broke out. Muslim vs. Buddhist communal riots during 2012, in Rakhine state (formerly Arakan), gave rise to the Arakan Rohingya Salvation Army (ARSA), which, in its own words, claimed to be waging a jihadist war. ARSA launched attacks during 2016-2017, including the massacre of 100 Hindu villagers. The UN said the government’s brutal response demonstrated “genocidal intent.”

Taking advantage of the chaos, the Buddhist Arakan Army (AA) attacked Burmese police in January 2019. The AA says it’s fighting for the two million Arakanese Buddhists that it says are victimized by Bamar Buddhists, the ethnic majority in country, centered in Yangon. So, there is the threat of this violence impacting E&P, since many offshore blocks are off Rakhine.

The government’s response has attracted international human rights protests, and the EU is considering sanctions. In November 2017, Islamic finance firm and activist investor Azzad Asset Management—which owns shares in 20-year Myanmar veteran Chevron—filed a shareholder resolution, to force the energy giant to report on the possibility of ending E&P in Myanmar, because staying there meant supporting a genocidal regime. Chevron says that it’s providing socioeconomic security to an impoverished country with no real electricity grid. Moreover, Chevron asserts that it’s provided access to renewable energy to 10,000 households, and its health programs have trained 10,700 volunteers who have provided medical aid to 1.25 million people.

Fourth, there is activist opposition to E&P in Rakhine. A group called the Arakan Natural Resources and Environmental Network (ANREN) is staging protests against what it says is government exploitation of Rakhine’s resources at the expense of Rakhine’s people. An ANREN protest in November 2018 amassed over 1,000 people, indicating the movement has legs.

All is not lost in Myanmar, however. E&P activity continues. The government says foreign companies are exploring 27 onshore and 38 offshore blocks. And while many companies have left, several firms are staying and expanding.

In 2018, Chevron, via its subsidiary, Unocal Myanmar Offshore, assumed a 55% interest in a deal with three other firms to merge Blocks A5 and AD3, pending government approval. Chevron’s partners are Royal Marine Engineering, Parami Energy Development and Ophir Myanmar.

Woodside is significantly expanding its operations in Myanmar, seemingly taking advantage of the vacuum left by some of the majors leaving. Woodside has interests in nine offshore blocks, it has completed three drilling campaigns, and it has discovered gas in Myanmar every year since 2015. During 2017, it farmed into three blocks belonging to China National Petroleum Corporation: AD-1, AD-2, AD-8. In 2018, Woodside drilled three wells. One included a gas discovery at the Aung Siddhi-1 well in Block AD-1, and another included a successful appraisal at Shwe Yee Htun field in Block A-6.

In January 2018, Eni and Total hired a seismic company to collect data on 10,000 km2 in Blocks YWB and MD-4. And Thailand’s PTTEP has five projects in Myanmar, where it will invest $16 billion over the next five years.

Latest overtures. To tempt energy companies to return to Myanmar, the government held two investment conferences in the beginning of 2019, the first of which was the Invest Myanmar Summit 2019, held on Jan. 28-29, in Nay Pyi Taw. “Now is the time to be bold and ambitious,” said internationally heralded State Counsellor Aung San Suu Kyi, while speaking to an audience of prospective investors. “I stand here to reaffirm our commitment to continue our reform and to build an investment-friendly environment.”

SC Suu Kyi specifically touted Myanmar’s hydrocarbon sector as a dynamic, lucrative place for foreigners to do business.

Then on Feb. 22, the government held the Rakhine State Investment Fair 2019, announcing that 18 onshore and 15 offshore blocks in Rakhine would soon be offered; so, never mind the war there. Some of these were blocks that the exiting oil majors left behind. The government is moreover floating revised PSC terms of 50%/50% as an incentive.

What’s next? With Myanmar’s track record, who knows! For certain, however, Myanmar still has significant E&P risks, and except for oil and gas prices, it’s up to the government to mitigate the bigger problems mentioned here.

About the Authors
Jeff Moore
Contributing Editor
Jeff Moore runs Muir Analytics, a risk consulting firm specializing in deciphering threats in conflict zones. He is author of the book, Spies for Nimitz, which depicts America’s first modern intelligence agency. He holds a PhD from the University of Exeter in the UK.
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