Total Takes The Lead In The Western March

BMI View : Total's acquisition of an offshore block is reflective of rising Western interest in Myanmar since the easing of sanctions on the country. We expect more of such deals from Western companies to be struck. However, we highlight that Total's boldness is likely to be encouraged by its experience in Myanmar, and should not make companies incognisant of the risks that remain in the country.

Total has taken a 40% interest in an offshore Myanmar block. Its head of upstream activities, Yves-Louis Darricarrere, expressed that the acquisition will see the French company 'bring its well-recognised deep offshore expertise and its worldwide proven technology' to Myanmar and 'potentially develop the country's hydrocarbon resources'.

The French major will be part of a consortium consisting of operator PTTEP (45%) and JX Nippon Oil & Gas Exploration (15%) that will explore Block M11, located in the Gulf of Martaban. The value of Total's farm-in is undisclosed.

The 5,373 square kilometre (sq km) deepwater Block M11 is adjacent to M9, where PTTEP had discovered gas at the Zawtika field in 2007. Estimates for Zawtika's recoverable resources are 39.2bn cubic metres (bcm) and the field is expected to deliver first gas by the end of 2013, at an initial rate of 8.4mn cubic metres (Mcm) per day, or 3.07bcm per year.

The proximity to a proven gas area gives M11 good prospects. PTTEP had concluded a 3D seismic survey of M11 - a 'high potential structure area' - in March 2011. It plans to drill the first exploratory well by Q313.

Marching Into Mandalay

The easing of Western sanctions on Myanmar since its efforts at reform and to open up in 2012 has brightened the prospects for greater involvement in the country ( see our online service, May 3, 'Western IOCs To Join Road To Mandalay'). Myanmar has been reliant on Asian companies or players outside the purview of Western jurisdictions to tap into its underexplored oil and gas potential since the imposition of sanctions in 1992 ( see 'Asian NOCs To Benefit From Latest Myanmar Licensing Round', July 15 2011). While Asian national oil companies (NOCs) may be capital-rich, Myanmar will have missed out on the technological know-how that major international oil companies (IOCs) such as Royal Dutch Shell, ExxonMobil and BP can bring to help resource extraction - particularly in its deepwater. Increased participation from the likes of Total will be much welcomed.

IOCs are seizing the opportunity offered by these developments. The Ministry of Energy in Myanmar revealed that Shell and the UK's BG Group have expressed interest in entering the market, according to a Reuters report. US giants Chevron, ExxonMobil and ConocoPhilips also paid Myanmar a visit, after President Barack Obama announced the relaxation of sanctions on the country. The week-long Myanmar Oil, Gas and Power road show, held in the first week of September 2012, also saw the attendance of British major BP and Norwegian NOC Statoil.

Navigating Through Murky Waters

Total, however, is the first major IOC to have taken a move post-sanctions. Its boldness in a still uncertain political and regulatory environment is no doubt prompted by its experience in Myanmar, being one of two oil majors with operations that pre-date sanctions (the other being Chevron). It operates the 150bcm Yadana field that lies within offshore blocks M5 and M6, which produced about 15,000 barrels of oil equivalent (boe) in 2011.

Myanmar's history of oil and gas production, its potential and strong regional demand for energy sources will draw IOCs to the country and therefore we expect more deals with western IOCs to be struck in the near future. These could be revealed when results from Myanmar's 23 offshore block tenders to foreign investors are announced ( see 'IOCs To Embrace Mandalay's Opportunities', July 19).

However, these IOCs could do well to take more precautions before jumping on the bandwagon. For Total, prior experience of operating in the country de-risks its move to expand its presence there. Other companies will likely have a steeper learning curve in navigating Myanmar's murky business environment. This includes the strict requirement to collaborate with an authorised local firm in order to enter Myanmar's upstream market. These firms do not always have oil and gas experience to contribute to operations, and their involvement could be a greater liability than help.

Table: Myanmar - Risk Ratings
Latest Rating* Last Month Rating Previous Rating Regional Avg Global Mkts Avg
Source: BMI
S-T Political 56.5 56.5 56.5 72.6 65.6
L-T Political 34.7 34.7 34.7 62.0 63.2
S-T Economy 53.5 53.5 53.5 61.8 54.4
L-T Economy 48.7 49.3 49.3 58.9 53.7
Business Environment 0 0 0 49.4 48.6
Composite 0 0 0 55.7 52.8
This article is tagged to:
Sector: Oil & Gas
Geography: Myanmar

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