Deepwater rigs to come to Myanmar

Deepwater production is perhaps the most complicated method of petroleum extraction – and one with which Myanmar has little experience.

While there are currently four offshore platforms in the country’s waters – Yetagun, Yadana, Shwe and Zawtika – all are considered to be shallow-water projects.

Yet Myanmar auctioned off the rights to explore and eventually produce oil on 20 offshore blocks in 2013 – and half of these blocks are in deep water, generally defined as water deeper than 600 feet (183 metres).

While any offshore oil and gas activities are difficult, the challenges are much greater with deepwater projects, though there are high potential rewards as well.

There is a long process ahead until there is any such deepwater production in Myanmar, though.

First, there needs to be legal certainty. The production-sharing contracts governing how the 20 offshore blocks will be explored and developed are expected to be signed soon, ushering in a level of oil and gas search unprecedented in modern Myanmar.

Shell is one of the international giants entering into Myanmar. It won rights to blocks AD-9, AD-11 and MD-5 in conjunction with Japanese firm MOECO as part of the bidding process last year, though the production sharing contracts are still to be finalised.

“We are discussing a lot of things,” said Graeme Smith, Shell vice president for Asia and Australia. “We have to be confident in our future investment. We are clarifying details within the models of production sharing contracts with the government, trying to understand some of the language,” he said.

Once the production sharing contracts are inked, Shell and the other giants will begin exploring the offshore blocks. If they find deposits, investment comes next – usually requiring billions of dollars to tap deepwater reserves.

Shell invited journalists from regional media, including The Myanmar Times, to the Philippines last week to help understand what goes in to the large-scale deepwater investments.

The firm has been in Southeast Asia for a century. Its Malampaya deepwater project in the Philippines Sea is one of Shell’s largest operating projects worldwide, producing enough energy to generate 2700 megawatts of electricity.

Malampaya is spearheaded by the Philippine’s Department of Energy, and is operated by Shell in a joint venture with Chevron and Philippine National Oil Corporation (PNOC) – with respective 45-45-10pc stakes.

“Malampaya is an excellent example of public-private partnership, reducing [the Philippine’s] dependence on imported fuel by 30 percent,” said Sebastian Quiniones, managing director of Shell Philippines Exploration. The project has also generated US$7.7 billion for government coffers as of June 2014, providing 1400 direct jobs for local people.

Operating in deep water requires extensive focus on health and safety training, as it’s perhaps the most dangerous part of an already dangerous industry.

Shell built and run a world-class centre to train its workforce in health and safety procedures. Reporters were put through the paces at the centre before heading to the offshore rig, including training in escaping underwater from a crashed helicopter – a portion of the training made particularly difficult for this reporter given a lifetime of smoking.

The constortium initially drilled several wells to determine the site’s potential. It is located 80 kilometres (50 miles) northwest of Palamwa Island in the central part of the Philippine archipelago.

Reserves were estimated at about 2.7 trillion cubic feet of natural gas and 85 million barrels of condensate located 3000 metres below sea level.

The project was inaugurated in 2001 and current daily production is about 400 million standard cubic feet per day, some 13 years later.

Five wells are currently producing gas and condensate, though the production levels are set by customer demand, said Rey Protacio Barcebal, Malampaya offshore installation manager.

“We are preparing for new phases of development to maintain production levels, like installing a new platform by 2015,” he said.

A 504km (314 mile) long pipeline has also been built to avoid environmentally and culturally sensitive areas to offload the gas, he added.

In the region, Shell has a number of projects in the Philippines, Malaysia and Brunei, though the Malampaya project stands out from its sheer size.

The company also claims world records such as Bullwinkle platform in the Gulf of Mexico as the world’s tallest fixed structure in the sea, and the Troll A platform in Norway as the world’s biggest concrete deepwater platform.

Whether such large deepwater projects will come to fruition in Myanmar remains to be seen. It depends first on the production sharing contracts being inked, then on finding commercially viable deposits, which is no easy task.

The business is notoriously complex, and there will be challenges for the international companies like Shell as they set up in the country – but large potential rewards as well.


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