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Focus: Burma oil and gas market opening up

27 April 2012

In brief: Burma (Myanmar) is expected to put more petroleum blocks to international tender in 2012. Partners Anthony Patten and Darren Murphy and Lawyer Robert Merriam report and look at the investment opportunities that may result from recent political developments.

How does it affect you?

  • Burma's oil and gas potential has attracted attention recently, and some foreign companies have already invested.
  • New developments may create further investment opportunities for foreign companies looking to enter the Burmese oil and gas industry.

Introduction

Burma is a country rich in natural resources, including oil, gas, teak, jade and rubies. The country's oil and gas potential has attracted attention in recent months, following positive political developments and the easing of sanctions by western countries, and some foreign companies have already invested. For example, Total, Chevron and PTT Exploration and Production have had interests in the Yadana Project (comprising an offshore gas field and pipelines that supply gas to Burma and Thailand) for many years.

It is expected that the Burmese Government will put more petroleum blocks out to international tender in 2012, following the award earlier this year of rights to 10 onshore blocks.

The 2011 round

In January 2012, the Government awarded 10 out of 18 onshore blocks that had been offered as part of an international licensing round in 2011.1 The winning firms were mostly Asian, including Malaysia's Petronas and Thailand's PTT Exploration and Production. Three production sharing contracts for these blocks have been signed between the state-owned national oil and gas company Myanma Oil and Gas Enterprise (MOGE) and resource companies.2 State-owned media reported that the most recent production sharing contract, for two blocks, was agreed on 4 April 2012 among MOGE, Malaysia's Petronas Carigali Myanmar Inc and Burma's UNOG Pte Ltd. The same newspaper also reported that the Government had selected seven Burmese companies 'to do joint-venture business' with international oil companies on nine of the blocks.3

The Burmese Government failed to strike deals on the remaining eight onshore blocks. Four of the remaining blocks were not the subject of any bids and may be offered again in the future.4

The 2011 licensing round saw the introduction of some new contractual terms, including an increase in the existing royalty rate from 10 per cent to 12.5 per cent.5

The 2012 round

The Government has designated more than 100 onshore and offshore petroleum blocks, more than half of which are yet to be awarded.6 Burma is reportedly preparing to undertake another international licensing round of onshore blocks. Timing, legal terms, and the exact number of blocks to be the subject of the next round are yet to be determined.7

In late March 2012, Burma hosted the 'Myanmar Oil, Gas and Power Conference' that was to be attended by government representatives and hundreds of delegates from 35 countries. Among the companies that were to be represented were Shell, Chevron, Total, Petronas, JX Nippon Oil & Energy and China National Offshore Oil Corp.8 The Singapore-based organisers of the conference, the Centre for Management Technology, reported that the country has proven crude oil reserves of 3.2 billion barrels and gas reserves of 11.8 trillion cubic feet.9

Recent developments

Recent positive political developments for Burma include:

  • a visit to Burma by US Secretary of State Hillary Clinton in December 2011 and a visit by British Prime Minister David Cameron in April 2012;
  • in January 2012, the release and pardon of a group of high-profile political prisoners;
  • on 1 April 2012, the holding of a by-election for 45 of the total 664 Burmese parliamentary seats, of which the opposition party, National League for Democracy, won 43 (including a seat won by Aung San Suu Kyi);
  • recognition of these by-election results by the electoral commission and the President, Thein Sein;10
  • announcements by the Obama administration that it will begin easing sanctions on Burma (including lifting travel bans on senior leaders), open a US AID agency office there, and appoint the first American ambassador to Burma since 1990. Despite this, the removal of certain US sanctions will require congressional support;
  • Australian Foreign Minister Bob Carr stating that Australian sanctions will continue to be eased,11 and that travel and financial restrictions on about 260 Burmese nationals, including President Thein Sein, would be lifted;12
  • British Prime Minister David Cameron calling for the suspension (rather than the lifting) of sanctions on Burma (excluding an arms embargo);
  • Japan announcing that it will forgive approximately US$3.7 billion of Burmese debt and resume full development aid;13 and
  • on 23 April 2012, the European Union agreeing to suspend sanctions against Burma (excluding an arms embargo).

The Asian Development Bank (ADB) commented in April 2012 that Burma is poised for a period of 'rising economic growth', while adding that further reform is needed for the country to reach its full potential.14 In a recent report,15 the ADB noted that gas exports from Burma rose nearly 15 per cent in FY2011, to an estimated value of US$3 billion. Gas production and export are expected to increase sharply in FY2013, as gas fields and pipelines to neighbouring countries come online. The ADB also noted: 'The government is preparing a new foreign investment law that is expected to offer tax breaks to investors and allow them to lease private land and repatriate investment proceeds using market exchange rates.'

Implications

Despite some sanctions continuing to affect investment in Burma, recent political developments inside and outside the country are encouraging. If the Burmese Government continues on the path towards democracy and sanctions ease further, more opportunities will open for involvement in Burma's oil and gas industry. Recent developments may lead to additional companies tendering for the next round of Burmese petroleum blocks.

We would be happy to discuss with you the legal, regulatory and commercial aspects of investing in Burma.

Footnotes
  1. Reuters, The Guardian, 'Myanmar hopes reforms will translate into energy boom', 26 March 2012, available from the website of The Guardian.
  2. Amanda Battersby, Upstream – The International Oil & Gas Newspaper, 'Burma closes in on offshore offers', 30 March 2012; and The New Light of Myanmar, 'Production sharing contract signed', 6 April 2012, p. 8.
  3. The New Light of Myanmar, 'Production sharing contract signed', 6 April 2012, p. 8.
  4. Amanda Battersby, Upstream – The International Oil & Gas Newspaper, 'Burma closes in on offshore offers', 30 March 2012.
  5. Ibid.
  6. Reuters, The Guardian, 'Myanmar hopes reforms will translate into energy boom', 26 March 2012, available from the website of The Guardian.
  7. Amanda Battersby, Upstream – The International Oil & Gas Newspaper, 'Burma closes in on offshore offers', 30 March 2012.
  8. Reuters, The Guardian, 'Myanmar hopes reforms will translate into energy boom', 26 March 2012, available from the website of The Guardian.
  9. Centre for Management Technology, Myanmar Oil, Gas and Power Summit, available from the website of Centre for Management Technology.
  10. AAP, The Age, 'Carr calls for easing of Burma sanctions', 6 April 2012, available from the website of The Age.
  11. Ibid.
  12. BBC News, 'Australia eases some sanctions against Burma', 16 April 2012, available from the website of BBC News.
  13. Associated Press, The Washington Post, 'Japan to forgive $3.7 billion of Myanmar's debt, resume aid to support reforms', 21 April 2012, available from the website of The Washington Post.
  14. Asian Development Bank, Myanmar's Economic Outlook Improving but Broad Reforms Still Needed, 11 April 2012, available from the website of the Asian Development Bank.
  15. Asian Development Bank, Asian Development Outlook 2012: Confronting Rising Inequality in Asia, April 2012, pp. 206-208.

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