Burma Govt Allows Oil and Gas Firms to Name Profit-Sharing Terms

[News_Editor]

Oil wells in the Burmese town of Chauk in Magway Division. (Photo: Reuters)

RANGOON — In an apparent bid to make tenders to explore for oil and gas more attractive, Burma’s Ministry of Energy is inviting international companies preparing their bids to suggest their own terms for profit sharing with the government, a ministry official said Tuesday.

The ministry is currently accepting bids from companies for exploration licenses on 18 “blocks†of onshore territory, and 11 shallow-water and 19 deepwater offshore blocks, in an attempt to tap into the countries largely untapped and highly lucrative energy reserves. Firms winning the tenders will be invited to enter so-called production sharing agreements with the state-owned Myanmar Oil & Gas Enterprise.

A detailed outline of the bidding process—presented to potential investors and contractors at the Myanmar Oil and Gas conference, held in Rangoon by the Centre for Management Technology (CMT) on Tuesday—suggested that the government is considering awarding the blocks on more generous terms than it had previously announced.

Aung Kyaw Htoo, deputy director of the Ministry of Energy’s production planning section, told potential investors and contractors at the conference that Burma’s government needed international help developing reserves below the deep seabed of the Bay of Bengal.

“The offshore blocks are a good incentive for the investors,†he said. “Especially the deepwater blocks; they are untapped, they are never touched before. So we believe, more or less, the giant oil and gas reserve will become [available].â€

Aung Kyaw Htoo said that, in the companies’ bids, an upfront “signature bonus†to be paid to the government for exploration licenses was an important factor in choosing the winning bids.

An additional “production bonus†to be paid to the government if and when the company is approved to begin extracting oil or gas, the amount the company will put into a local training fund, and the amount of capital gains tax they will pay on profits are all also factors the companies must include in bids, he said.

And, contrary to “standard terms†of the production sharing contracts, set by the Ministry of Energy in September 2012 and published on the ministry’s website, Aung Kyaw Htoo said companies could set in their bids how much of the profits they want to share with Burma’s government.

“Profit split is very important for both sides,†he said. “In the offshore area, generally 60 percent- 40 percent—60 percent for government, 40 percent for investor—that is our preferable business scale. But all of you investors can submit what’s your scale.â€

The original published terms for the profit split gave the private companies a maximum of only 40 percent of profits for most projects and 45 percent for offshore projects at a depth of more than 2,000 feet.

Aung Kyaw Htoo said that, under the government’s favored terms—when royalties of 12.5 percent, all taxes and other factors are taken into account—the total “government take†from oil and gas revenues would be 81.4 percent.

An adviser to one of the foreign firms licensed to bid in the tender said the original terms were “very tough†for companies. The change appeared to be a concession from the government to make the tender more attractive to firms, the advisor said.

Jean Loi, managing partner at legal consultants VDB Loi, told the Myanmar Oil and Gas conference that, based on the way bidding had gone in the telecommunications tender awarded to Norway’s Telenor and Qatar’s Ooredoo in June, the amount of money companies promise to inject into Burma would be a deciding factor.

“At the end of the day, [the telecoms tender was] all about the roll out [of the] projects: how much money are you going to spend on the roll out? And how much money are you going to pay for the spectrum,†she said.

“The reputation of the contractor is also very important. Myanmar government wants to show the rest of the world that they can do business with the East and the West,†Loi added.

Deputy Energy Minister Myint Zaw, also speaking at the conference, said 26 companies had already submitted bids for the onshore blocks since bidding began in January, and that 61 prequalified firms are preparing bids for the offshore areas.

A previously announced list of the 61 firms bidding for offshore blocks includes Total of France, Chevron of the United States, Daewoo of South Korea PTTEP of Thailand and CNPC of China, as well as Burmese firm MPRL E&P.

“We are planning the award of onshore blocks before the end of 2013, and offshore blocks by the first quarter of 2014,†he said.

Myint Zaw said the total cumulative crude oil production in Burma had so far been 600 million barrels and 1.4 trillion cubic feet of natural gas.

“However, I’m told by my expert geologists that Myanmar still has lots of onshore potential still remaining to be discovered,†he said. “Our country Myanmar is awaiting technology, expertise and funds to discover new onshore reserves of petroleum…. [And] our new round of bid invitations for 11 shallow-water blocks and 19 deepwater blocks will surely give us new discoveries in the next five to seven years time.â€

According to a presentation to potential investors by Lynn Myint, vice general manager at China’s North Petro-Chem Corporation (Myanmar) Ltd, some 20 trillion cubic feet of natural gas reserves had already been discovered beneath Burma’s waters, and there were an additional 80 trillion cubic feet of “probable and possible†gas reserves, before the unexplored deepwater areas are taken into consideration.

“As the exploration is not fully conducted yet, the hydrocarbon reserves of Myanmar offshore is still unknown. However it can be envisaged as a sleeping petroleum giant in the Southeast Asia region,†the presentation said.

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Source: Irrawaddy.org