International companies will not shy away wholesale from Myanmar exploration and production projects despite a collapse in global crude oil prices, according to experts.
A panel discussion at the 5th Myanmar Oil and Gas Conference in Yangon on January 29 discussed the possibility that industry players may pull back on investment plans.
While Myanmar is not immune to what happens on the international market, it also occupies a strategic position for foreign companies. Many of the projects are still at the earliest stages and are years away, while more existing production in the country is natural gas rather than crude oil, which will be somewhat insulated from the collapse.
Nevertheless, Myanmar will not be exempt from what happens around the world.
“The falling oil prices have global impact,” said Xavier Preel, Myanmr general manager of French firm Total E&P.
“Every oil company needs to choose the best country to invest in. For Total, we are not going to reduce the production level [of our Myanmar offshore] Yadana project.”
Total is one of the world’s largest oil and gas firms, and has been operating in Myanmar for over 20 years. Still, governments must appreciate that profit margins are being squeezed by tumbling prices, said Mr Preel.
“It is important that investors receive encouragement from the government to continue investing and exploring, even though there is no impact on our current production assets,” he said.
Internationally, crude oil prices had been relatively stable at over US$100 a barrel until the middle of 2014, when it fell to less than $50 within six months. As of January 30th, benchmark WTI traded at $44.53 and Brent at $49.13.
Around the world, oil companies have been reviewing their investment plans, with some suspending projects and cutting expenses, though so far there has been little impact in Myanmar.
“We will not go back,” said Tom Kelly, country manager of Berlanga International. The firm signed a production sharing contract for an offshore block in early December, and has revealed an investment plan calling for expenditures of $153 million over six years at the M-8 offshore block.
“We will continue with the commitment we agreed on with the government,” he said. “I don’t think the price will be lower for the long term. It will come up.”
“We are very happy to be here in Myanmar.”
While most petroleum companies are so far adamant they are not scaling back their local plans, service companies say they also face significant risk.
“Service companies are always the first ones to be hit by a change in oil prices. A price below $50 is such as surprise to the world, and here in Myanmar we are not isolated,” said Daw Hnin Phyu Phyu, managing director of Lion Energy. “The [foreign] companies will cut their costs, and perhaps we can provide services at a cheaper prices.”
Outside of the panel, The Myanmar Times asked an official from state-owned Myanmar Oil and Gas Enterprise about the effect of falling prices.
“The will be some effects from international oil price fluctuations. International companies may be slow to continue their projects or investments, but we encourage them to continue as planned,” he said.
Already there have been tentative signs that some firms may slow down their plans.
Thai state-owned PTT Exploration and Production representatives have been quoted in international media saying they may slow investment in Myanmar’s M-3 project as global prices continue falling.
Last week, PTT told The Myanmar Times in a statement, “PTTEP is not going to stop M-3 project but we may consider its investment plans to temporarily put a hold on new investment projects including M-3 if oil price is still volatile and continue to fall further.”
The firm experienced minimal impact on existing operations in 2014 from falling prices as about 70 percent of its total sales are in gas, it added.
There are currently 17 onshore and four offshore oil and gas projects producing in Myanmar. The projects are owned by a number of companies, including heavy foreign involvement in the offshore projects.
Malaysian state-owned firm Petronas also claimed no plans at the moment to reduce production at its Yetagun project, one of Myanmar’s large offshore gas production fields.
“We have a long-term contract with our customers and gas will be supplied as usual,” it said in a statement.
Myanmar is currently producing 8000 barrels per day of crude and 55 million cubic feet of natural gas from onshore projects, and 7000 barrels of condensate and 2 billion cubic feet of natural gas from offshore projects, according to information from the Ministry of Energy.
The important offshore production sharing agreements, between international companies, their local partners, and Myanmar Oil and Gas Enterprise, have been delayed for several months. The agreements will provide the rules under which exploration and production can take place.
A total of 14 onshore and four offshore PSCs were signed last year, but there are still 16 more offshore PSCs to go.
Source: MYANMAR TIMES