Myanmar’s oil and gas boom fuels services scramble

YANGON — As economic and political changes brewed in Myanmar four years ago, Yadana Su Hlaing decided it was time to return home after a decade studying and working overseas to help run Smart Technical Services, the Yangon-based oil and gas support services company founded by her father, K.K. Hlaing.

Her timing could not have been better. Now, as managing director of Yangon-based Smart, the 33-year-old finds herself running a business that is poised to enter a new era.

Myanmar’s energy sector, previously off-limits to most Western companies because of U.S. and EU sanctions, has now been thrown open to the global marketplace amid a raft of democratic reforms. In the latest development, the government’s Ministry of Energy on March 26 awarded exploration rights for 20 offshore oil and gas blocks to a range of foreign companies.

With Western companies such as Shell, Woodside and Statoil, as well as regional giants like Oil India, preparing to enter the country in coming months, the move has triggered a scramble for support services, from helicopters and offshore rigs to seismic testing technology and catering services.

The end of sanctions and the influx of foreign operators means big business for the Schlumbergers, Halliburtons and Weatherfords of the world, which are expanding their support services operations in Myanmar or sending in new people. Many of them are seeking relationships with the handful of local support services companies, such as Smart and Kyaw Tin Htay Co. — as well as domestic oil and gas producers such as Parami Energy and MPRL E&P, companies with reputations for reliable service and an understanding of environmental and social responsibility standards. Transparency and accountability are also among the key concerns for Western companies wary of the risks in a country with a history of repression and corruption.

“We have to multitask a lot,” Hlaing told the Nikkei Asian Review in early May at Smart’s headquarters in Yangon’s bustling Mingalar Taung Nyunt district. The company, now experiencing a surge of interest from foreign energy groups, offers a range of services: “As small an errand as finding you a SIM card, and as big an errand as moving in your [production] equipment,” she added.

The support services boom is just one of the dynamics set to reshape Myanmar’s oil and gas industry, particularly in southern and western coastal areas, which include some of the least-understood but most keenly sought natural gas fields in Asia. The entry of so many big exploration and production companies will increase competition for the small number of trained Myanmar energy professionals. It will also strain the Myanmar government’s overburdened bureaucracy, in a country with sketchy environmental regulations and a legacy of corruption.

“There is certainly a surge in companies based in the region who are now making trips and trying to meet up with the operators to introduce themselves and to understand the opportunities,” notes Namita Shah, general manager in Myanmar for Total. The French oil giant has been operating the Yadana gas field in the Andaman Sea since before the onset of sanctions in the 1990s, along with U.S.-based Chevron and Thailand’s PTT Exploration and Production, and has just secured new offshore exploration territory. “The first real support which will be needed is seismic and related marine support,” she notes.

The March 26 tender awards capped months of anticipation and marked the most significant expansion of the country’s energy market since reformist President Thein Sein took office three years ago. Of the 20 blocks awarded, 10 are deepwater and 10 are in shallow water. Alongside Total and Chevron, which gained one more block each in the recent round, there are many rivals from the region as well as further afield entering the industry.

For winners of the new concessions, there are still tough negotiations ahead. Before they can begin the necessary social and environmental impact studies and seismic analyses, the companies must negotiate production-sharing contracts with the state-owned Myanmar Oil and Gas Enterprise.

The oil and gas contracts used by the Myanmar government — which under military rule up to 2011 were negotiated in secret with companies — are widely seen as antiquated. Western companies are likely to push for more guarantees to protect their rights. Companies awarded onshore blocks last year in a previous round of bidding are yet to sign their final contracts with the government, although finalization is expected in the next month or two.

More than meets the eye

Myanmar ranks 37th among natural gas producers worldwide. It has proven gas reserves of 283.16 billion cu. meters and proven petroleum reserves of 50 million barrels, according to the U.S. Energy Information Administration. But the Myanmar government claims that far more natural gas than estimated is lying under the sea.

Many experts agree with that prognosis. “Estimates of undiscovered gas reserves indicate that this resource could be even more significant. Although Myanmar’s gas reserves look relatively small in a global context, they are significant within Asia,” consulting firm McKinsey noted in a 2013 report on Myanmar.

While industry insiders complained about the dearth of official data on Myanmar’s oil and gas reserves, that did not stop numerous companies from bidding on the blocks. While several companies dropped out as the final deadline approached, big names offered bids — and won.

For Total, Chevron and PTTEP, getting quality support services back in the years of Western sanctions was difficult and expensive. But the move by most Western governments to suspend or end curbs from 2012 has opened the market to foreign support services businesses. And with international energy companies lining up to explore Myanmar’s offshore waters, such businesses can expect to find more clients in the country. Ultimately, said industry experts, the trend will drive down prices for everyone.

Myanmar is no stranger to major international support services companies. Back in 1926, Halliburton began its expansion into a global giant by selling cementing units to an English company operating in colonial Burma. Now, among numerous support services that will find a market are those ranging from drilling and construction companies to geoscience companies such as CGG.

Most local support services companies, meanwhile, lack modern technology due to decades of sanctions.

“We have only a … limited number of local players,” said Ken Tun, CEO of Yangon-based Parami Energy Group, which has grown from a services contractor into a production company and is now partnering with Britain’s Ophir Energy to explore an offshore block.

When his company started doing logistics work in 2009, Tun notes, the local procurement market totaled about $300 million. Now, he says, it is “growing into the multibillions.”

The situation is also being closely watched by good governance advocates. That is because poor practices by support services companies often lie behind criticism of big oil and gas companies, whether the issue is treatment of local construction workers or marine mammal observation during seismic analysis.

In Myanmar, “companies have … been left free to do whatever they want,” said Vicky Bowman, a former British ambassador to Myanmar who now heads the Myanmar Centre for Responsible Business. “Will that now change with more of the Shells, Statoils, BGs and Woodsides coming in?”

The Myanmar government requires foreign oil and gas companies to buy a certain percentage of their goods and services from local companies — the kind of local sourcing contract that is increasingly popular with developing countries throughout the world. But Myanmar’s government requires multinationals to choose from a list of “approved companies.” How those companies make it onto the list in the first place is less than transparent.

The ‘new transparency’?

The expanding market will test the government’s pledges to ensure better governance in the natural resources industry, as it prepares to join the Extractive Industries Transparency Initiative, a voluntary global transparency pact.

For local companies, the coming months and years will determine which ones are ready for international exposure. Smart’s Hlaing, who earned a degree in the U.S. and an MBA in Australia, said her company has adopted international standards on transparency. In a sign of the company’s growing profile, she noted, Smart recently inked a deal with GE Oil & Gas, an arm of General Electric.

“Since we’ve been in the industry for 20 years, we are already acquainted with most of the companies coming in… It’s just that they are more aggressive now,” thanks to the end of sanctions, said Hlaing. “So as a company, we’re very busy.” If Smart’s rivals take the cue, the same will undoubtedly apply to them, too, in coming years.

More than meets the eye

Myanmar ranks 37th among natural gas producers worldwide. It has proven gas reserves of 283.16 billion cu. meters and proven petroleum reserves of 50 million barrels, according to the U.S. Energy Information Administration. But the Myanmar government claims that far more natural gas than estimated is lying under the sea.

Many experts agree with that prognosis. “Estimates of undiscovered gas reserves indicate that this resource could be even more significant. Although Myanmar’s gas reserves look relatively small in a global context, they are significant within Asia,” consulting firm McKinsey noted in a 2013 report on Myanmar.

While industry insiders complained about the dearth of official data on Myanmar’s oil and gas reserves, that did not stop numerous companies from bidding on the blocks. While several companies dropped out as the final deadline approached, big names offered bids — and won.

For Total, Chevron and PTTEP, getting quality support services back in the years of Western sanctions was difficult and expensive. But the move by most Western governments to suspend or end curbs from 2012 has opened the market to foreign support services businesses. And with international energy companies lining up to explore Myanmar’s offshore waters, such businesses can expect to find more clients in the country. Ultimately, said industry experts, the trend will drive down prices for everyone.

Myanmar is no stranger to major international support services companies. Back in 1926, Halliburton began its expansion into a global giant by selling cementing units to an English company operating in colonial Burma. Now, among numerous support services that will find a market are those ranging from drilling and construction companies to geoscience companies such as CGG.

Most local support services companies, meanwhile, lack modern technology due to decades of sanctions.

“We have only a … limited number of local players,” said Ken Tun, CEO of Yangon-based Parami Energy Group, which has grown from a services contractor into a production company and is now partnering with Britain’s Ophir Energy to explore an offshore block.

When his company started doing logistics work in 2009, Tun notes, the local procurement market totaled about $300 million. Now, he says, it is “growing into the multibillions.”

The situation is also being closely watched by good governance advocates. That is because poor practices by support services companies often lie behind criticism of big oil and gas companies, whether the issue is treatment of local construction workers or marine mammal observation during seismic analysis.

In Myanmar, “companies have … been left free to do whatever they want,” said Vicky Bowman, a former British ambassador to Myanmar who now heads the Myanmar Centre for Responsible Business. “Will that now change with more of the Shells, Statoils, BGs and Woodsides coming in?”

The Myanmar government requires foreign oil and gas companies to buy a certain percentage of their goods and services from local companies — the kind of local sourcing contract that is increasingly popular with developing countries throughout the world. But Myanmar’s government requires multinationals to choose from a list of “approved companies.” How those companies make it onto the list in the first place is less than transparent.

The ‘new transparency’?

The expanding market will test the government’s pledges to ensure better governance in the natural resources industry, as it prepares to join the Extractive Industries Transparency Initiative, a voluntary global transparency pact.

For local companies, the coming months and years will determine which ones are ready for international exposure. Smart’s Hlaing, who earned a degree in the U.S. and an MBA in Australia, said her company has adopted international standards on transparency. In a sign of the company’s growing profile, she noted, Smart recently inked a deal with GE Oil & Gas, an arm of General Electric.

“Since we’ve been in the industry for 20 years, we are already acquainted with most of the companies coming in… It’s just that they are more aggressive now,” thanks to the end of sanctions, said Hlaing. “So as a company, we’re very busy.” If Smart’s rivals take the cue, the same will undoubtedly apply to them, too, in coming years.

Source: Nikkei Asian Review

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