Feb 2, 2013

Myanmar welcomes Western oil giants

After opening its doors to a steady stream of Western oil executives for months, Myanmar finally rolled out a tantalising offer to petroleum giants from the US, Britain and Europe. The government was inviting foreign bids for onshore oil blocks, the New Light of Myanmar, a state-run newspaper, declared blandly in a half-page advertisement tucked away in its inside pages recently.

The countryâ s energy ministry had identified 18 oil blocks to â conduct petroleum operationsâ , the paper said in the advertisement, continuing its role as the mouthpiece of the government. The oil blocks up for exploration cut across areas of the country that have historically been known to hold substantial oil reserves: the western coastline, south and central Myanmar.

This auction will be the second round of oil blocks opened to foreign oil companies since President Thein Sein launched his political reforms in April 2011, ending 50 years of military dictatorship. The first round, held in August 2011, was scooped up by Asian companies.

But the latest offer for what will put over a third of the countryâ s estimated 50 onshore blocks up for tender is expected to attract a wider field, diplomatic sources in Yangon say. It would see the entry of Western oil giants following the suspension last year of punitive economic sanctions imposed on Myanmar by the US and European governments.

Such a prospect is more apparent given the interest Western oil companies have shown in the forthcoming Myanmar Oil and Gas Summit 2013. Among the participants slated to attend the gathering in the former capital from Feb 4 to 5 are US, British and European oil giants such as Chevron, ConocoPhillips, BG Group and Total, the meetingâ s official website reveals.

â Thereâ s widespread interest among Western oil companies and I have heard reports that all of the majors are interested,â says Jared Bissinger, an economist specialising in Myanmar affairs at Australiaâ s Macquarie University. â Total has been operating in Myanmar for some time now and it is reportedly interested in other opportunities. Shell and BP have also been reported to be keen on the country.â

These views are echoed in the Weekly Eleven, a Myanmar-based news journal that revealed last month Chevron, ExxonMobil and ConocoPhillips were â planning to investâ .

â These companies have reportedly been in discussion with ministries and other experts in the sector and many are likely to pursue both onshore and offshore opportunities,â Bissinger says.

The deadline for the bids is mid-March. And by then, the winning firms would reveal how much has changed for Western oil and gas companies to do business in a country that reportedly boasts 25 trillion cu ft of gas reserves, an estimated 2.1 billion barrels of oil and shale oil reserves of nearly 3.3 million barrels.

After all, it was in early April last year that the administration of President Barack Obama broke new ground by announcing that Washington was easing its sanctions on Myanmar to reward and encourage reformist leader Thein Sein. That paved the way for US financial services to be revived in Myanmar after decades.

And in July, the Obama government gave the green light to US oil and gas investments to be revived in Myanmar, which was a shift that had long been pushed for by the oil and commercial lobbies in Washington and endorsed by US senators and congressmen who had backed calls for engagement with Myanmar. Typical among the latter was Republican Senator James Inhofe, the latest among US lawmakers to visit Myanmar to endorse the role of US oil and gas firms.

The Myanmar government, however, has already determined that the foreign companies that win the exploration bids will have to work with two local partners, including the controversial, state-owned Myanmar Oil and Gas Enterprise (MOGE). â Potential bidders will be allowed to submit up to three proposals for three onshore blocks together with proposed terms and conditions. The proposal submitted shall be on a block-by-block basis,â the energy ministry states.

â The petroleum operation shall be conducted on a production-sharing basis and/or improved petroleum recovery basis,â it adds in a statement that appeared in Myanmar Times, an independent publication.

A major role for MOGE in the expected oil exploration would inevitably place Western firms in an awkward corner unlike their Asian counterparts. The US government, for instance, has turned up the heat on American companies investing in Myanmar to reveal their company policy on politically charged issues ranging from human rights and corruption to the environment and corporate social responsibility.

Such pressure has brought to the fore standards expected of oil and gas companies set by the Extractive Industries Transparency Initiative (EITI), whose officials have already visited Myanmar. The principles of this global watchdog, which have been implemented in 36 countries, including Myanmarâ s Southeast Asian neighbours Indonesia and Timor-Leste, expect companies and governments to publicly reveal payments made for natural resources.

MOGE gained international notoriety after natural gas was discovered off Myanmarâ s southwestern coast in the early 1990s, resulting in exports to Thailand that, since the late 1990s, have brought in an estimated US$3.6 billion (RM10.96 billion) a year. And this state enterprise was converted to a cash cow by the military regime that preceded the Thein Sein administration.

â Revenue that MOGE earned from the gas sector never went to the people,â says Wong Aung, spokesman for the Shwe Gas Movement, an environment group monitoring the gas extraction sector in western Myanmar. â Senior military officials thought that the earnings from gas exports was for them personally and to prop up the military institutions.â

Such a lack of transparency and abuse during military rule hardly deterred Asian investors that had to work with MOGE. They have been the main source of foreign investment in the oil and gas sector, which, as at mid-July last year, had attracted an estimated US$14.1 billion, after the power sector, which drew in US$19 billion. The oil and gas sector accounted for 34% of the US$41 billion that had been pumped into Myanmar as at mid-2012 by predominantly Asian companies for nearly 485 projects.

In keeping with the tone of its reforms, the Thein Sein administration tore off the secrecy that had shrouded annual gas export revenue that had helped fatten the former military leaders. â For the first time ever, receipts from oil and gas were included in the national budget for the 2012 to 2013 fiscal year,â says Derek Tonkin, a former British ambassador now on the board of Bagan Capital, a Yangon-based investment and advisory firm. â This was a great step forward since previously, this revenue is understood to have gone into a special account outside the budget.â

He admits to The Edge that Myanmarâ s still uncertain investment climate will not deter Western firms hoping to tap the countryâ s oil riches. â Oil and gas companies are used to operating in politically and economically complex and contentious environments and are unlikely to be discouraged, provided the commercial terms are satisfactory.

Source: The Edge

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