Monday, March 4, 2013

International oil companies can go it alone, says govt


Monday, 04 March 2013 18:43 Victoria Bruce / M-ZINE+ Senior Reporter

International oil companies (IOCs) will be able to independently invest 100 percent in offshore and deepwater blocks without having to take on a local partner, Deputy Minister Htin Aung from Myanmar’s Ministry of Energy (MoE) told Mizzima’s sister publication, M-ZINE+, in an exclusive interview on Monday on the sidelines of a petroleum conference in Yangon.

In Myanmar’s onshore sector, operators are required to team up with a local partner to explore for oil and gas, the focus being on technology and skills transfer, Htin Aung said, explaining that this requirement will remain for all onshore and some shallow offshore exploration.

This picture taken on on June 1, 2012, shows the construction of oil tanks at a site operated by China National Petroleum Corporation at an offshore block of Madae Island near the town of Kyaukphyu in Rakhine State, western Myanmar. (AFP PHOTO)

“At this moment, for onshore and shallow water, there will be a requirement for local participation. But for the deepwater which is capital intensive and high risk, we are looking to promote foreign direct investment,” he said.

For many local companies, the announcement will come as a disappointment, since around 100 firms have registered with the MoE in recent months in anticipation of pairing up with foreign operators to exploit Myanmar’s offshore petroleum resources.

“Local firms are lobbying against this,” said a representative from local services company Parami Energy, which is a minority partner for onshore block PSC-I with India’s Jubilant Energy.

To balance things out, the Myanmar government said it is leaving the decision whether to take on a local partner to the discretion of the operator, explained Soe Myint, the former Director-General of the Ministry’s Energy Planning Department, who is now the Executive Director of local services firm Machinery and Solutions Co Ltd.

“We have more than 80 local companies registered with the Ministry of Energy ready to work with foreign E&P companies,” he said.

But in the capital-intensive business of deepwater exploration, where drilling one well can cost in excess of US $100 million, it’s just not economically feasible to expect the local partner to come up with five or 10 percent, or to free-carry them, a representative from Anadarko Petroleum Corporation told M-ZINE+.

“Most IOCs have global portfolios and if the terms aren’t profitable in Myanmar, then they’ll look elsewhere,” he said.

The requirements in capital, technology, and the expertise of drilling a well in 2,000-meter open deepwater as compared to depths of 200-500 meters in shallow offshore or onshore differ exponentially, said Edwin Vanderbruggen, a partner of VDB Loi, a law firm specializing in transactions and taxation.

“Doing deepwater or doing petroleum operations on the shelf is like comparing boiling an egg with cooking a six-course dinner in a two-star Michelin restaurant,” Vanderbruggen said. “It’s actually an entirely different business.”

He said it doesn’t make sense to have a local partner requirement for deepwater offshore blocks, because the local partner has little to offer in terms of technology or capital.

“There are only four or five E&P [exploration & production] companies in the world with the money and technology to do deepwater,” said Vanderbruggen.

“Drilling a well at this depth costs $500-600 million,” he said. “If you have a local partner who has 10 percent, that means with every well they have to come up with $60 million. How many local partners in Myanmar have that kind of money lying around? That will be very difficult.”

He said many operators will compare the profitability of a Myanmar play against their global operations, and if the numbers don’t add up, they won’t invest.

“For example, if you want to invest $600 million to drill a well, and your local partner can’t come up with his 10 percent, what are you going to do? Free carry him? That’s giving money away,” he said.

Under the current MoE guidelines, foreign firms must enter into a production-sharing contract (PSC) with the Myanmar Oil and Gas Enterprise (MOGE), the country’s national oil company, which is responsible for upstream hydrocarbon production.

Htin Aung said the terms and conditions of the PSC, the industry term for an agreement between an IOC and host country regarding the percentage of production each party will receive, will not be up for negotiation, as the Myanmar government wants to create an equal playing field for all applicants.

“Before it [the PSC terms] was negotiable, but now with more interest coming from foreign companies, we will not have time for negotiation because it takes too long,” he said.

However, he stressed the need to speedily develop Myanmar’s petroleum sector to respond to the country’s growing demand for energy.

“We are not going to entertain any negotiations, but we want to develop our country very fast,” Htin Aung told M-ZINE+, adding, “so the company that offers the best terms and conditions will be preferable.”

Bids are currently being invited for the country’s onshore tender, which is due to close later this month. The much-anticipated tender for offshore and deepwater blocks is tipped to be announced in the next few months, industry insiders said.

A range of international E&P firms are putting in bids for some 17 blocks in Myanmar’s second onshore tender, including India’s ONGV Videsh Ltd and UK-registered Dove Energy.

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