Interview: Ken Tun and Olivier De Langavant
Myanmar’s deepwater acreage is expected to hold significant gas potential. Given recent oil prices, how would you assess the investment climate for large-scale energy projects?
KEN TUN: Firstly, a recent US Energy Information Administration report suggested that the current oil price decline is not sustainable, and the government should not use this current price as a guideline for its energy master plan. Secondly, less than 30% of Myanmar’s offshore acreage has been explored, and there are a lot of stakeholders who are very optimistic about new and very big discoveries given the history of the region. The third thing is that Myanmar is located very close to the energy-hungry economies of Asia. We currently supply 30% of Thailand’s energy needs, as well as supplying energy to China, and we can potentially supply energy to India and Bangladesh provided there is a significant discovery with the new bidding round. So definitely, from an investor perspective, the oil and gas industry is still very attractive, despite the recent dip in the price of oil.
OLIVIER DE LANGAVANT: Everybody would agree that the investment climate for major oil and gas projects will be very tough for the coming months, or even years. Given the sharp decrease in oil prices, investors will need to assess the robustness of each project with stronger criteria, and severe arbitration will be unavoidable. The key challenge for operators will be demonstrating their ability to apply cost reductions everywhere and to adopt a “fit for purpose” long-term attitude. Therefore, we strongly believe that technological advantages will become even more crucial to a project’s economic viability. Since the beginning of 2000, deep-water operations have come to symbolise the sector’s capacity for innovation and project management. With each new project, solutions have been invented to overcome increasingly stringent constraints.
What challenges does Myanmar face in developing its upstream oil and gas sector, and what incentives exist for investors?
LANGAVANT: Myanmar is just at the beginning of a new step in the development of its oil and gas sector. Until recently there were only a few companies, and even fewer international oil companies, operating in the country, especially on the offshore acreages. In 2013 the government launched a hotly contested bid round which has lead to the signature of 20 new production sharing contracts (PSCs) with various companies, including a significant number of international oil and gas companies, Total being one of them.
The expectations are high, since offshore acreages in Myanmar have been notoriously under-explored during the last decades. The challenge for the authorities and for the regulator, Myanmar Oil and Gas Enterprise (MOGE), will be to manage such a big number of different contracts with significant work programmes, which could lead to delays in the approval process, and ultimately deferral of production. Total, as a historical operator in the country, has always maintained excellent relations with MOGE. The new economic environment – linked to a sharp decrease of oil and gas prices in the region – could become an issue for the launch of future development projects: the contractual terms of the PSCs in Myanmar are rather tough for contractors compared to those of other countries, and some flexibility might be required.
TUN: Myanmar has the oldest producing oil field in the world. The golf course near the oil field has reciprocal membership with St. Andrews in the UK, so that gives you an idea of how old the oil and gas history is here. In terms of the experience, the government has instituted more than 100 production sharing contracts (PSCs). Having said that, there are some challenges because Myanmar was ignored by the world for more than 30 years and we are now open for business – there are a lot of improvements to be made to infrastructure. For the investor, regardless of which industry they belong to, logistics are a challenge, making Myanmar 1.8 times more expensive than the typical oil-producing country.
Another challenge to be expected from an emerging country is human resource development. We have a limited pool of talent in the energy sector, but that can be overcome by smart operators who can link up with universities for vocational training. Government regulation and clarity of permits present a further obstacle, with numerous ministries involved in every permit. As the oil industry is crucial to the economy, the sector can benefit from having a one-stop shop run by the government. The government is very pro-active in solving these challenges; evidence of which can been seen in Myanmar’s better placing in the World Bank’s ease of doing business ranking.
How important will partnerships between national and international companies be in accelerating the country’s oil and gas development?
TUN: We need to add value: the only way to do this is through partnerships which bring technology, know-how and project management skills to bridge the gap that was created from many years of market isolation. There should be more facilitation of these partnerships, which can improve the sustainability and the capability of the sector. The local private sector benefits from increased revenue and exposure to more market share, while those coming in to form a partnership do not need to spend time learning the market, as local experts can provide the intelligence.
In the upstream segment we have a long established national oil company, MOGE. In the downstream segment we have Myanma Petrochemical Enterprise, while on the distribution side we have Myanma Petroleum Products Enterprise.
We need to find a way to empower these national entities so they become guiding lights for local companies. We would encourage MOGE to participate on a greater scale by looking into areas such as liquefied natural gas and floating platforms, following the model successfully adopted by Petronas and PTT Exploration and Production. We must strive to realise fruitful partnerships between government, the local private sector and international companies.
LANGAVANT: Exploring and producing oil and gas is both risky and costly. Not just capital costs, but societal, environmental, local licensing and permit issues all weigh heavily. Good partnering can significantly mitigate these burdens by combining knowledge and experience for the mutual benefit of all stakeholders and for the country, while continuing to respect the social and natural environment in which a company operates.
International operators have contributed to promote the local skills and to develop the local oil and gas industry, both directly through their own operations and indirectly through the use of numerous national contractors. The commitment to energy solutions means addressing all the issues faced by the country together.
On block A-6, in the Bay of Bengal, for instance, we are in partnership with Woodside and with MPRL, a national company which already has a strong track record. We have recognised this company for its professionalism and experience in the local upstream sector of the industry. In the current context, such partnerships between national and international companies are likely to prove essential to successfully developing energy projects in a timely, cost-efficient and safe manner.