May 5, 2013

Russian oil companies heading for Myanmar

Bashneft and Nobel Oil are determined to win a share of the Myanmar market. The two Russian companies have already submitted applications to develop several oil fields in the country.

Faced with stiff competition for the right to develop Russia's own oil and gas resources, as well as the dominance of state-owned giants in the sector, privately owned Russian oil companies are looking for opportunities farther afield. Zarubezhneft and Itera have already tried their luck in Myanmar, and failed - but now the Russian oil business is once again showing interest in the country. Bashneft and Nobel Oil have announced their intention to bid for the right to develop several oil and gas fields there.

In March the two companies informed the Myanmarese government that they will submit applications in the upcoming tender, the country’s Energy Ministry has said. A total of 18 blocks will be put up for the tender; the size of the reserves they contain has not been disclosed. Apart from the two Russian bidders, 57 companies from several other countries are expected to take part. Bashneft and Nobel Oil have both confirmed their interest in Myanmar; in fact, the latter has worked in the country since 2008. The Myanmarese Energy Ministry is expected to open up the data room for all the contenders in the coming weeks. The winners will be invited to form joint ventures with Myanmarese state-owned companies.

The ministry has also given potential bidders until 14 June to submit applications for offshore fields, including 11 shallow-water and 19 deepwater blocks. Each company will be able to choose up to three blocks, but “owing to the large number of potential applicants and a tight schedule, there will be no negotiations regarding the proposed terms". Information about the blocks in question will be provided to the companies immediately upon registration. According to the terms of the tender, foreign bidders will be required to form joint ventures with the Myanmarese state-owned company for oil and gas production at shallow-water fields, but the condition will not apply to deepwater fields. Bashneft and Nobel Oil say, however, that they are not interested in offshore exploration in Myanmar.

The Nobel Oil group is an independent Russian oil and gas holding company set up in 2000, when it took over the assets of NeftUs and Kolvaneft. It has no relationship to the similarly named American oil and gas company Nobel Oil. The founder and chief executive of the company is Grigoriy Gurevich, who used to serve as a vice president of TNK. The company is 50-per-cent foreign-owned. In 2009 China Investment Corporation acquired a 45-per-cent stake; 5 per cent of the shares are held by Oriental Patron Financial Group, based in Hong Kong. Nobel Oil operates oil fields in Russia’s Komi and the Hanty-Mansi autonomous region. Production has commenced at only two of its nine fields; the annual oil output has reached 1.5m tonnes.

Myanmar is one of the world’s oldest producers of oil, but the country has only 50 oil fields, all of them fairly small, in the Irrawaddy oil and gas basin. Its proved oil reserves are estimated at no more than 440m tonnes. Owing to the difficult political situation in previous years, foreign investors were allowed to operate in the county only in 2004. Three years later, there were 27 foreign oil and gas companies working in Myanmar, including Petronas, ONGC and France's Total. In September 2012 the latter acquired a 40-per-cent stake in the M-11 offshore block under a production-sharing agreement. The second foreign partner is Thailand's PTT Exploration and Production Plc. Total has also been designated as the operator of the Yadana field on the M-5 and M-6 offshore blocks.

Russian companies have already tried to enter the Myanmarese market in the past. In 2006 Zarubezhneft and Suntera, a joint venture between Itera and India’s Sun Group, signed an agreement with state-owned MOGE (Myanmar Oil and Gas Enterprise) to develop the M-8 offshore block – but the project still remains on paper. What is more, a year later Zarubezhneft even denied the very fact of its participation in the venture. In 2011 the Russian company pulled out of its last project in Myanmar, Vietsovpetro (a joint venture with PetroVietnam), citing high geological and geopolitical risks of working in the country. According to a source in one of the two companies, the size of the royalties demanded by the Myanmarese government was deemed too high. In 2007 another two Russian companies, Silver Wave Sputnik Petroleum and Silver Wave Energy, owned by the Energy Ministry of Russia's Kalmyk Republic, began operations in Myanmar as part of a joint venture with MOGE. Both companies were involved in oil and gas exploration and production on the B-2 continental block near the border with India. Nothing is known about the current state of the project.

Nobel Oil began geological exploration at the Hukaung and U-Ru fields in partnership with MOGE back in 2008, but the two sides have not disclosed the results achieved so far. Bashneft has no previous history of working in Myanmar, but it has considered the possibility of bidding for offshore exploration rights in Vietnam. According to Konstantin Cherepkov, an analyst with UBS, it is normal practice for small and medium Russian oil companies to take part in projects abroad. He explains that large assets in Russia itself are usually snapped up by large state-owned companies. In addition, working as part of a foreign project is a chance to diversify the business and gain valuable expertise. The analyst describes the outlook for the projects in Myanmar as “very uncertain”. On the plus side, however, the region does have proved oil and gas reserves, and Myanmar is close to the lucrative Chinese energy market.

Source: Russia Beyond the Headlines