Offshore Contracts Signed, But Delays Abound

By William Boot 12 December 2014

One of the 13 foreign companies to win offshore oil and gas exploration licences in March has announced it has finally negotiated a production-sharing contract with the state Myanma Oil & Gas Enterprise (MOGE).

But an industry report said it could be the next decade by the time any new oil or gas is actually produced from 20 licensed blocks.

The final contract was signed by Britain-based Ophir Energy, but it did not disclose any terms.

The other 12 foreign businesses, including some major international oil firms, plus eight Burmese companies, are continuing to negotiate contract terms.

“Nine months after the [Burma] government awarded exploration licences for 20 new offshore blocks to 21 foreign and domestic firms there has been only one production-sharing contract signed,” the Asia Oil & Gas Monitor said this week. “[Ophir] has not made any information on contract terms available.”

Its Block AD-03 covers an area of 10,000 square kilometres and is in the same region of the Bay of Bengal as the big Shwe natural gas field operated by South Korea’s Daewoo International, said Natural Gas Asia news website.

The Shwe field’s production will mostly go to China under a contract signed during the military junta era.

Most of the 20 offshore blocks still under contract negotiation have little or no research data on potential oil and gas reserves. Ten are in shallow water locations and ten in deep waters where exploration and production work is much more expensive.

The energy industry news agency Platts of Singapore quoted a Burmese oil services firm, Smart Technical Services, saying it did not anticipate any drilling in the 10 shallow water blocks before 2017 and thought it would be at least a year later for the deep water projects.

Major foreign firms which won licences in March include Shell, Chevron, Total, Japan’s MOECO and ConocoPhillips.

With plummeting crude oil prices threatening to undermine the viability of many new exploration and production projects globally, especially in costly offshore deep water sites, Shell made a statement earlier this month saying it was reassessing contract terms with MOGE on its March block licence award.

“We have to be confident in our future investment. We are clarifying details within the models of production sharing contracts with the [Burmese] government, trying to understand some of the language,” Shell vice president Graeme Smith told journalists.

The business law firm VDB Loi, which has offices in Rangoon, was quoted by Asia Oil & Gas Monitor saying that negotiations for new offshore oil and gas deals in Burma is much more complex than had originally been anticipated.

“The awarded operators have underestimated the effort that goes into a market entry in Myanmar. That is why the [production sharing contract] executions are slower than hoped. Same goes on the government side,” VDB Loi’s Edwin Vanderbruggen was quoted as saying.

However, the much smaller Ophir appears confident of success in Burma.

“Ophir is continuing to act counter cyclically to expand its exploration portfolio. The Block AD-03 [production sharing contract] contains multiple mapped prospects with world class potential and we now look forward to completing a 3D seismic survey to refine this prospectivity,” chief executive Nick Cooper was quoted by Natural Gas Asia as saying in a statement.

The slow progress in finalising actual operational contracts for the new offshore development blocks is due to more than hesitancy by big oil companies worried over the plummeting oil market, according to Asia Oil & Gas Monitor.

“MOGE and various government departments are overwhelmed by new laws, changing rules and a bureaucratic system made worse by Naypyidaw’s bid to ditch its past image of corruption by applying to the Extractive Industries Transparency Initiative,” the industry magazine said.

“Add to that the hesitancy of the foreign oil companies on cost grounds, following the collapse of crude oil prices, and the prospect of the rapid development of [Burma’s] upstream looks unfeasible.”

It notes that the pace of contract agreements is so slow, MOGE is still negotiating with some of the 13 winners of licenses for onshore blocks which were awarded as long ago as Nov. 2013.

“[Burma] is unlikely to reap any major financial rewards from its post-military regime oil and gas discoveries until the next decade,” it said.