According to the latest UK Trade & Investment (UKTI) report published in January 2015 on opportunities in Myanmar’s oil and gas sector, this is one of the world’s current hotspots for oil and gas exploration, with estimated gas reserves of 10 trillion cubic feet and oil reserves of 50 million barrels. A few experts have stated that the potential of Myanmar’s fields could match those of Britain’s North Sea before it was exploited or Brazil’s reserves today.
The report goes on to state that the country, formerly known as Burma, has enormous economic potential based on a number of factors including strategic location, size and stock of natural resources. Yet to date, both onshore and offshore exploration has been limited, despite the significant estimates listed above.
A strict nationalistic policy and the lack of an appropriate legal framework have resulted in an absence of foreign operators until very recently. However, this country is now rapidly emerging from almost 50 years of military rule and related economic isolation. The outcome is that many major international oil and gas companies are increasingly turning their attention to exploration and production in Myanmar now. While the legal regime remains complex as it is made up of a myriad of historic legislation, there have been significant changes in recent years and opportunities are abundant.
Daniel Ward, of WRS, a specialist recruiter for the worldwide oil & gas sector, says, “The view from international oil companies currently, is that investing in exploration efforts in Myanmar is as close to a sure thing, given the wealth of oil and gas to be found in all of its neighbours, specifically, India, Thailand & Malaysia. However, due to the limited amount of expertise there is in the geologies of Myanmar, companies will need to acquire exploration expertise in neighbouring countries and hope that the geologies and petroleum systems are similar.”
He goes on to say, “From a recruitment perspective, it is a location of great interest to many people, mainly to experience the “pure” culture of the country, before it has too many western influences. Most companies will be set up and working from Yangon, which I understand is a fine location for an expat to be based in, however outside of the city itself, there is very little development. The main drawback to the city as it stands is the limited options for those with families, such as international schooling.”
A significant Oil & Gas heritage
Myanmar is actually one of the world’s oldest oil producing countries, exporting its first barrel over 150 years ago. Rangoon Oil Company, the first foreign oil company to drill in the country, was created in 1871. Between 1886 and 1963, Myanmar’s oil industry was then dominated by Burmah Oil Company (BOC), which discovered the Yenangyaung field in 1887 and the Chauk field in 1902, both of which are still in production. The industry was then nationalised after a socialist-leaning military regime seized power in 1962, which resulted in the State assuming ownership of the resources. For the next 25+ years, the Ministry of Energy (MOGE) undertook the majority of oil exploration and production with just a few private operators allowed to carry out projects under production sharing contracts (PSCs). Foreign operators were kept out by a strict nationalistic policy and the lack of an appropriate legal framework and the majority of oil & gas foreign investment came from regional Asian countries such as Thailand and China.
The first signs of change did not occur until 1988, when foreign investment legislation was passed and the Government began to source and rely on technology and capital from foreign companies in a bid to revive Myanmar’s then dwindling oil industry.
Since late 2004, Myanmar’s authorities have intensified the opening of blocks to foreign companies and nine foreign oil companies were involved in 16 onshore blocks to explore new areas in 2007. The outcome was designed to enhance recovery from existing fields, to reactivate fields where production had been suspended and to produce oil and gas.
In recognition of the current and projected energy shortages Myanmar faced, their Government, the Asian Development Bank (ADB) and Accenture published a report in June 2013 entitled New Energy Architecture Myanmar. The report analysed the challenges facing Burma’s energy sector and assessed how future reforms and trends could be managed to support domestic energy demands as well as wider economic development. The report highlighted that: “Burma’s three ageing oil refineries, with utilisation rates as low as 41 percent, need urgent rehabilitation as well as technical upgrades to handle heavier crude oil.” Additionally this report also presented schemes for storage to ensure fuel availability in the future and for the operation and extraction of oil and gas from onshore and offshore fields. The report found that since a series of political and economic reforms were implemented in 2011, many positive developments had occurred in Myanmar’s energy architecture.
Although Myanmar has a heritage of well over of pumping onshore oil, and offshore gas for over 17 years, it only produced about 16,500 b/d oil and 241,000 Mcf/day of gas per day back in 2013. According to data from MOGE, Myanmar produced only 42 percent of gasoline and 11 percent of the diesel consumed in the 2013-14 fiscal year. The shortfall was met by importing 97 million gallons of gasoline and 330 million gallons of diesel – the majority of which was imported from Thailand and Singapore.
However, October 2013 saw the successful auction of 18 onshore blocks in Myanmar which marked the first steps by western companies into a market traditionally dominated by Chinese, Thai and Indian companies. Then in March 2014, further blocks were awarded; 10 deep water and 10 shallow water offshore. This was followed in June 2014 by MOGE inviting bids for Joint Venture partnerships for a number of hydrocarbon-related projects, including onshore pipeline construction and maintenance services.
So where is the Oil & Gas industry in Myanmar as we approach the end of Q1 for 2015?
Myanmar now has proven reserves of 50 million barrels of crude oil and 283 billion cubic metres of natural gas. The US Energy Information Agency rates oil production at 20.8 thousand barrels per day and it is these numbers that are enticing E&P companies to invest in Myanmar in 2015 and beyond.
It all sounds positive but at present, Myanmar’s local capacity is still limited which means there is a significant demand for international suppliers across the entire supply chain. The Government is keen to work with the worldwide oil & gas community to ensure that international standards in health, safety and the environment are implemented.
The key factor in all this is that those five decades of isolation have led to a challenging commercial environment for most foreign investors to do business. The legislation alone is extremely complex – there are colonial-era laws (pre 1948), parliamentary laws (1948 to 1962), revolutionary council laws (1962 to 1988), military regime laws (1988 to 2011) and laws of the newly elected government (2011 onwards). Although new petroleum laws are being considered, any foreign investors will need to gain a clear understanding of the existing legislation.
In addition, MOGE continues to oversee two other state-owned enterprises: Myanmar Petrochemical Enterprise (MPE) and Myanmar Petroleum Products Enterprise (MPPE). MPE is responsible for oil and gas exploration and production, as well as domestic gas transmission, while MPPE manages retail and wholesale distribution of petroleum products. These bodies are also responsible for issuing tenders to foreign companies.
An article by James Bourne, syndicated and published in September 2014, highlighted some of the infrastructure challenges still faced within this emerging country: “Credit card acceptance is virtually nil. The internet, where available, is slow. There are frequent power cuts. The roads are in a dire state, the railways not much better and only three of the country’s airports meet global safety standards. Among anyone under 60, levels of spoken English and education are low. Most kids leave school after Grade 5 and the country's once excellent universities went to rack and ruin during the decades of military rule.”
What next for Oil & Gas in Myanmar?
With the lifting of international sanctions, Myanmar's Government has acted swiftly to licence vast regions of its onshore and offshore shelf to foreign investors. This increase is expected to boost exploration over the next few years, especially in Myanmar's deep water shelf, which remains mostly unexplored.
A statement by the Ministry of Energy in 2014 indicated that the next bidding round for offshore oil and gas exploration blocks is likely to take place in 2015. Also, along with new influx of foreign investment that is expected, Myanmar will see a gradual adoption of the latest technologies and innovation to harness maximum potential from its oil and gas resources.
Both Myanmar’s Government and their business community are keen to embrace the vast range of skills and experience that expat workers can offer, as there is currently a lack of skilled personnel within the nation’s Oil & Gas workforce. The skills needed are diverse and cover infrastructure, security, risk analysis, training, legal/professional services, health and safety analysis and last but not least, environmental and social impact assessment.
The opening up of trade with foreign investors has seen regular industry specific events held over the last few years. January 2015 saw the 5th Myanmar Oil & Gas Summit which incorporated the Asia & Myanmar Oil & Gas Awards to recognise the biggest achievements in the region for 2014, while mid May will see the 2nd Myanmar Oil and Gas Week hosted in Yangon.
While there will continue to be issues, including the lack of a local supply and service center, the national skills shortage and a host of regulatory and fiscal unknowns, Myanmar’s oil and gas sector had received over US$14.3 billion in Foreign Direct Investment (FDI) by the end of the third quarter of the 2014/15 financial year and FDI in oil and gas currently accounts for about 36.3 percent of the country’s total foreign investment. Through this investment and explorations in oil and gas blocks bids, Myanmar’s focus is very clearly on bringing foreign companies’ technology, expertise and knowledge to domestic companies.
Daniel summaries on the feedback from those interested in working in this new oil and gas ‘frontier’: “When I speak with candidates about Myanmar, they all see it as an exciting location to work in and many want to be involved with work that could easily lead to significant discoveries to which their names could become synonymous.”