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Myanmar's upstream sector hobbled b
- Subject: Myanmar's upstream sector hobbled b
- From: darnott@xxxxxxxxxxx
- Date: Sun, 20 Aug 2000 07:49:00
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The Oil and Gas Journal
June 26, 2000
Myanmar's upstream sector hobbled by pipeline controversy poor E&D results.
After a string of large offshore gas discoveries in the early 1990s brought
it out of a long doldrums,
Myanmar's oil and gas sector is sputtering once again.
The main culprits are tensions between state oil company Myanma Oil & Gas
Enterprise (MOGE) and
the ruling military government that are hindering development and the
disappointing results of onshore oil
exploration; both are causing operators to throttle back investment.
Legal problems affecting two major foreign companies are also a strain.
Unocal Corp. and Premier Oil
PLC are again facing legal and political pressure in their home countries
and internationally for their
involvement in development and pipeline projects involving Yadana and
Yetagun, gas fields that they
respectively operate in the Gulf of Martaban off Myanmar (Fig. 1).
The administration of US Pres. Bill Clinton last month renewed unilateral
sanctions against Myanmar,
first imposed in 1997 over allegations of slave labor and other human
rights abuses in the country.
Unfulfilled promise
When Myanmar embarked on market-oriented economic policies back in 1988,
oil and gas companies
were excited by the prospect of searching for oil and gas in the
underexplored nation. Non-US
operators lined up to sign the first production-sharing contracts in 1989.
But over the past few years, Myanmar has grown increasingly isolated
because of the US-led embargo
and is regularly criticized for its slow bureaucracy, contrary
decision-making, and a lack of clear laws
and regulation and their arbitrary implementation, as well as increasing
corruption. Many companies
have already pulled their operations out of Myanmar, and others have
threatened to do the same if the
country's investment atmosphere does not improve soon.
Simply put, Myanmar has not been a simple place for foreign companies to do
business. "It's been a
nightmare," said one oil industry executive. "It can take weeks to get
approval to do the simplest things,
and then that decision can get overturned by another official in another
department or ministry."
Despite considerable interest during the 1990s, Myanmar remains an obscure
backwater as far as the
oil and gas industry is concerned. Exploration and development onshore is
proceeding with limited
success, and after 18 months of delay, the country is only just now about
to receive the first payments
for offshore gas exports.
On the onshore front, the operator of the country's biggest oil field,
Houston-based oil field service giant
Baker Hughes Inc., announced in mid-January its intention to pull out of
the Mann field, in central
Myanmar. In addition, six other companies or groups have been mostly
inactive over the past 2 years.
All are small to medium-sized operators, and the results of both
exploration and development have been
sporadic at best.
Given Myanmar's earlier, much-vaunted potential, the delays offshore,
coupled with he disappointment
onshore, have left the country's industry in disarray The further impact of
the US economic embargo has
made matters that much more difficult, discouraging investment from
companies that have the resources
necessary to plan beyond initial poor results.
"The fact is, it will be some time indeed before Myanmar truly lives up to
its potential as far as
hydrocarbons are concerned," said one executive with an oil operator based
in Yangon (Rangoon).
"The combination of the embargo, the economic crisis, and delayed
development have really constrained
[investment]."
Human rights controversy
Most of the storms of controversy have swirled over the first pipeline to
be built to deliver Myanmar
hydrocarbons to another country.
The $ 1 billion, 665-km Yadana pipeline extends from Yadana gas field to a
power plant in Ratchaburi
province. The Yadana consortium consists of operator TotalFinaElf SA
(31.24%), Unocal (28.26%),
PTT Exploration & Production (25.5%), and MOGE (15%).
The pipeline was originally scheduled for completion last April. However,
in January, the Thai
government suspended construction on a 10-km section of the pipeline that
extends through the Sai Yok
forest reserve near the Thailand-Myanmar border amid protests from
environmental groups (Fig. 2).
Work resumed thereafter, and the pipeline was completed during the first
quarter.
But the real trouble came with allegations of slave labor used to build the
pipeline.
Attorneys for a group of Myanmese refugees have claimed that they
discovered "smoking-gun"
documents that prove that Unocal was complicit in abuses of human rights by
the Myanmese military.
The abuses allegedly included slave labor, numerous deaths, and the seizure
of property. Unocal has
denied the charges.
A US federal judge in Los Angeles will hear the charges in July to
determine whether the suits, the first
ever to hold a US company liable for human rights abuses abroad, can
proceed to trial.
Meanwhile, the British Foreign Office reiterated a request to Premier that
it pull out of its Yetagun gas
project as soon as legally possible. The request was made to Premier
Chairman Charles Jamieson as
part of British efforts to put further pressure on Myanmar to improve its
human rights record.
An initial request was made 2 years ago. Premier is not expected to heed
the latest appeal. Premier
operates Yetagun field, 175 miles west of Thailand on Blocks M-12, M-13,
and M-14 in the Gull of
Martaban.
But it is the suits against Unocal that have the gravest potential
consequences. The class action suits,
originally filed in 1996, seek more than $ 1 billion in damages. Attorneys
for the refugees say that US
Department of State cables obtained under the US Freedom of Information Act
contradict Unocal's
denials. They cite a 1995 cable of an interview with Unocal executive Joel
Robinson, which stated: "On
the general issue of the close working relationship between Total/Unocal
and the Myanmese military,
Robinson had no apologies to make. He stated forthrightly that the
companies have hired the Myanmese
to provide security and pay for this through the Myanma Oil & Gas Enterprise."
Robinson was quoted as saying that three truckloads of Myanmese soldiers
typically accompanied the
project officials during survey work and the soldiers were informed of the
next day's activities so they
could secure the area. Lawyers for the plaintiffs say the cables are
evidence of a contractual relationship
between Unocal and the Myanmese military.
For its part, Unocal claims that the cables were "not factually accurate"
and that there is "no evidence
that the Myanmese military was hired by Unocal or Total or anybody else." A
Unocal lawyer insisted
that its summary judgment motion "will dispose of the case in its entirety."
US District Judge Richard Paez has already dismissed TotalFinaElf, the
operator of the Yadana
consortium, and the Myanmese government as defendants in the cases.
In January 1999, the Myanmese military was reported to have sent troops and
armored vehicles to
suppress ethnic insurgents threatening to bomb the pipeline. A unit was
assigned to protect a 60-km
stretch of pipeline from the town of Kanbauk to the border city of Thong
Pha Phum that had been
threatened by Karen guerrillas. The unit consisted of an artillery
battalion and five rapid-response
battalions. Four Karen men arrested as spies a month before the deployment
admitted to Myanmese
intelligence that they were planning to bomb the pipeline.
Unocal insists that its past 10 years of engagement in Myanmar have meant
"employment opportunity,
technology training, education, and health care opportunities," Carol
Scott, a Unocal spokeswoman
based in Singapore, said recendy. "Reaching out through this kind of
engagement is the best way to
achieve change, not hiding behind sanctions. There should be more American
companies there, not
fewer." She said people living close to the gas project Unocal was involved
in Myanmar were "very
happy" it was going on because of the opportunities it presented. "It will
only serve to quicken the
process towards democratization."
In late 1998, a renewed crackdown by the government on the country's
prodemocracy movement and
its international supporters added to the woes of business concerns already
enduring criticism and local
sanctions for their trade ties with Yangon. This has yet to subside.
Clinton's decision in 1997 to bar new
US investments in Myanmar has also been effective. The sanctions drive-as
well as consumer boycotts
directed at firms that deal with Yangon--have largely succeeded at pushing
companies to end their work
in Myanmar.
ARCO, which had invested in two gas projects that provided more than $ 55
million to the country, did
not renew its remaining exploration lease in the Gulf of Martaban. In
addition, Texaco pulled out of its
onshore acreage, reportedly due to sanctions pressure.
Onshore E&D struggling
Onshore, activities have been difficult, although a sizeable amount of
acreage has been leased in the
country since the late 1980s (Fig. 3). Smaller players with limited cash
continue to stay involved in the
country, but efforts at success have been disappointing.
One of Myanmar's onshore gas fields, Aphyauk gas field in the Taikkyi area
in the central part of the
country, is operated by MOGE and has been supplying natural gas to Yangon,
Pyay, and other areas in
the southern part of the country for power generation and industrial use.
Meanwhile, a pipeline has also been laid to bring natural gas from another
newly developed onshore oil
field, Kyaukkliwet, to Kyuanchaung and Chauk areas in Myanmar's Magway
Province.
The following foreign companies remain active onshore:
* Myanmar Petroleum Resources Ltd., Yangon, has taken complete control of
Mann field following the
departure of joint-venture parmer Baker Hughes.
* Astra Petro Nusa of Indonesia operates Chauk and Yemangyaung fields in
central Myanmar
(Yemangyaung is the oldest in the country and has been prodcing since
1887). Astra Petro Nusa is in
the midst of shooting 2D seismic and has talked about future exploration
drilling but has no firm plans.
* Mercantile Southeast Asia Ltd. operates Myanaung field in southern
Myanmar, 200 miles
fromYangon and has plans to drill one shallow well.
* Focus Energy Ltd., formerly Asia Pacific Energy Ltd. operates Canni field
in central Myanmar. The
company has completed some remedial drilling but plans no new wells.
* A consortium led by the UK's Westburne Oil Ltd. operates in the Yenama
region of central
Myanmar. The consortium includes Westburne, the UK's A&T Exploration Co.
Ltd., and Israel's
Capital Investment Development Corp. This group is considering drilling a
shallow well with a MOGE
rig.
* PT Expan Sumatra Oil Co. of Indonesia operates blocks in the Ohndwe,
Kyaukkyi-Mindon, and
Padaukpin-Monnatkon areas. The company has plans to drill two wells, and
was expected to spud the
first one in the second quarter.
Exploration and development drilling in all but Mann field has been spotty,
at best. The Myanmese have
been trying to get the onshore E&D firms to spend money, but scant activity
has been forthcoming. A
large part of the difficulty has been dealing with MOGE, say foreign
industry executives here. The state
company has little experience and even less respect in senior government
circles, they say Simply put,
MOGE does not possess the clout to honor the terms of contracts,
particularly when results are less
than anticipated, they contend.
"MOGE is sad to deal with," says one executive of an onshore operating
firm. "They are simply not
trusted by the government. There is no sign of any technology. They are a
state company that cannot do
anything on their own. None of their staff will speak up and say anything
significant, no one has
authority, everything has to go for approval to the Petroleum Ministry or
the Finance Ministry."
Baker Hughes saga
The recent story of onshore development in Myanmar has been dominated by
the misadventures of
Baker Hughes with Mann field.
According to those involved, Baker Hughes had a distressing experience
operating in the country, and
results from its production compensation contract with MOGE have been
disappointing. The company
won an agreement in October 1996 to implement efforts to enhance production
at the aging field,
wherein it was to be paid for production that exceeded an agreed-upon level
based on the field's
projected decline profile. The initial consortium, which consisted of Baker
Hughes, Irrawaddy
Resources, Keppel Group, Nissho Iwai Corp., and Mynt Associates, broke up
after it became obvious
that initial output projections were far too optimistic and that MOGE
payments were going to be
seriously delayed.
Production exceeding the decline profile has been far less than
anticipated. Original projections were
3,000-6,000 b/d above the originally projected output of 3,050-3,100 b/d
and a limited amount of gas.
Currently the field is producing only 740 b/d above the decline profile,
confirmed Baker Hughes
executives (OGJ, Mar. 20, 2000, p. 80).
This disappointment resulted in the failure of MOGE to pay for any of the
oil produced until the week of
Nov. 29, 1999. According to industry sources, MOGE has very limited power
and is not permitted to
pay out money without the express permission of the Finance Ministry.
Early this year, Baker Hughes teamed up with Myanmar Petroleum Resources
and signed an additional
contract on the same block. To date, three wells have been spudded: Nos.
645, 646, and 647, at a
total cost of $ 53 million. Baker Hughes's recent decision to pull out of
the development has nothing to
do with the disappointment of Mann field's performance. According to
company officials, the decision
was made at the board level to withdraw from all activities that deviated
from its core oil field services
businesses.
"We started the Mann field project as a production enhancement exercise and
went about deepening
sidetracks to existing production wells," said a former Baker Hughes
executive. "Unfortunately, it soon
became obvious that we were never going to get the increase in output that
we had initially projected.
As of now, Mann field production is between 3,050 and 3,100 b/d, and
incremental production is 740
b/d and will be sustained for a while. But this is a disappointment, and we
had projected doubling output
when we signed the first agreement.
"Partially as a result of this disappointment, we had a lot of difficulty
getting money out of MOGE," he
said. "The fact is, MOGE essentially has very little power, particularly
when it comes to paying foreign
companies. It is the Finance Minister who makes the ultimate decision, and
we have had to negotiate
directly with him as well as his team of advisers.
"When we had difficulty being paid and were going through the
disappointment of the
lower-than-anticipated enhancement output, we began reducing expenses
dramatically. We had
originally budgeted for $ 6 million/year in overhead and $ 15-20 million in
revenue. Then we had cut
expatriate staff to just two and increased local manpower significantly to
save costs."
Offshore gas woes
While results offshore have been better in terms of development, the
difficulties finding markets for the
offshore gas and getting the terms honored when agreed to have been equally
frustrating.
"Better late than never" is the emerging attitude in the Myanmese gas
sector after the announcement that
the Petroleum Authority of Thailand (PTT) resolved a long-running dispute
with the Yadana consortium
for payment of all gas not taken from the pipeline. In addition to the $
50.47 million settlement for gas
not taken last year, Myanmar now looks set to begin receiving regular
revenue from gas sales for the
first time in its history.
After 2 years of delay, Thailand's Ratchaburi power station soon may begin
taking Yadana gas. A
dispute this spring arose between PTT and Electricity Generating Authority
of Thailand (EGAT), its
chief customer for Yadana gas, over sharing of take-or-pay costs (OGJ
Online, May 2, 2000). Because
of repeated construction delays, the Ratchaburi plant is now prepared to
take only about 150 MMcfd
of Yadana gas, although PTT is committed to purchasing 525 MMcfd of Yadana
gas to feed the plant.
The dispute centered on whether or not EGAT would be willing to share part
of the take-or-pay costs
the power plant construction delays have incurred.
According to press reports from Bangkok, a June 15 agreement determined
that five parties involved in
the dispute--besides PTT and EGAT, there are also the Finance Ministry and
the Independent Power
Producers and Small Power Producers groups--would each shoulder part of the
take-or-pay burden.
Officials says the apportionment of those costs have not been decided yet,
but a final decision is
expected soon--perhaps this month.
The Yadana agreement also stipulates that PTT agrees to accept gas without
enrichment until December
2006. The Yadana gas contains 712 btu of heating value, while the original
contract called for 715 btu.
PTT did not reveal when and how much it will pay forYadana gas: "All par-.
ties are confident that this
agreement is the outcome of extremely good cooperation between the buyer
and seller," PTT said in a
statement. "It protects the interest of all the parties and strengthens
their good relations for the coming
30 years [the duration of the sales agreement]
While a far cry from the highly publicized expectations of 1998, when
Myanmar was expected to join
the ranks of Southeast Asian natural gas exporters such as Malaysia,
Indonesia, and Brunei, the sales
should still earn the country $ 2.9 billion over the life of the field.
Output of 550 MMcfd will also nearly
triple the country's currently modest output of 174 MMcfd, which it
produces from various small fields.
A second gas development, Premier's Yetagun field, 270 km west of Thailand
in the Gulf of Martaban,
is scheduled to begin supplying 200 MMcfd to Thailand in 2000 under a
30-year arrangement between
PTT and the Yetagun consortium. The Yetagun group consists of Premier,
MOGE, PTTEP, Petronas
Carigali, and Nippon Oil Corp. Earnings for Myanmar from. Yetagun should
average $ 823
million/year. However, like Yadana, the Yetagun project is almost certainly
due to be significantly
delayed.
PTT announced last December that it was seeking to postpone the delivery of
natural gas from second
phase of its contract with the Yetagun group. In the first phase, PTT will
accept 200 MMcfd as of July
1, 2000, rising to 260 MMcfd by Aug. 1. In the second phase, delivery is
set to increase to 400
MMcfd in 2003. PTT is seeking to delay taking the additional 140 MMcfd for
at least 2 more years or
until 2005. Discussions between PTT and Premier Oil are under way.
The gas revenues will dramatically increase Myanmar's foreign exchange
earnings. The country's major
foreign exchange revenue has traditionally been rice, beans, and teak. Its
foreign exchange reserves are
estimated at a paltry $ 150-300 million.
Constructing the Yadana line has been almost as problematic as getting the
Ratchaburi power plant on
stream and is a classic illustration of the difficulties that can occur in
developing countries. For starters,
the project was developed despite US sanctions, In the past several years,
Coca Cola and Texaco Inc.
have withdrawn from the country, and Unocal is the only remaining US
company with significant
investment.
Outlook
It would be a gross mistake to believe the new gas revenue represents the
thin end of the wedge of
Myanmar gas potential. Analysts caution that the two offshore projects have
effectively cornered the
regional market for Myanmar natural gas. Due to the recent economic slump
in the region, additional
discoveries and subsequent development would have difficulty finding markets.
Which is not to say that Myanmar does not remain highly prospective. The
Gulf of Martaban is thought
to be replete with commercial quantities of gas, and certain onshore areas
also have good potential. But
the only likely buyer of future Myanmese gas production is Thailand, and it
has scant appetite to
purchase any more than Yadana and Yetagun.
It is also unlikely that much further activity will take place off Myanmar
in the medium term: "There is a
lot of potential, but people are reluctant to explore the offshore areas,
because they're gas-prone, one
oil company executive said. "The two big players have the market sewn up.
Although exploration results have been disheartening since the Yadana and
Yetagun strikes, Myanmar
hopes to stimulate interest in some remaining unawarded offshore and
onshore blocks. Many of these
are located outside of traditional exploration areas. MOGE estimates that
it will need $ 5 billion in
foreign investment in its oil sector to fully develop its petroleum
resources. Due to the sanctions and the
country's poor administrative reputation, anything approaching this amount
is unlikely to be forthcoming.
"They tend to forget that it is a competitive world out there," said one
negotiator for a Western oil
company operating in Myanmar in reference to the government. "It's like the
old adage: 'Don't open the
stable door after the horse is dead.' If there is not a lot of positive
movement soon, more and more
companies will pull out, and they will have to do some real convincing to
bring them back again."
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<html>
The Oil and Gas Journal <br>
June 26, 2000 <br>
<br>
<b>Myanmar's upstream sector hobbled by pipeline controversy poor E&D
results.</b> <br>
<br>
<i>After a string of large offshore gas discoveries in the early 1990s
brought it out of a long doldrums,<br>
Myanmar's oil and gas sector is sputtering once again. <br>
<br>
</i>The main culprits are tensions between state oil company Myanma Oil
& Gas Enterprise (MOGE) and<br>
the ruling military government that are hindering development and the
disappointing results of onshore oil<br>
exploration; both are causing operators to throttle back investment.
<br>
<br>
Legal problems affecting two major foreign companies are also a strain.
Unocal Corp. and Premier Oil<br>
PLC are again facing legal and political pressure in their home countries
and internationally for their<br>
involvement in development and pipeline projects involving Yadana and
Yetagun, gas fields that they<br>
respectively operate in the Gulf of Martaban off Myanmar (Fig. 1). <br>
<br>
The administration of US Pres. Bill Clinton last month renewed unilateral
sanctions against Myanmar,<br>
first imposed in 1997 over allegations of slave labor and other human
rights abuses in the country. <br>
<br>
<b>Unfulfilled promise <br>
<br>
</b>When Myanmar embarked on market-oriented economic policies back in
1988, oil and gas companies<br>
were excited by the prospect of searching for oil and gas in the
underexplored nation. Non-US<br>
operators lined up to sign the first production-sharing contracts in
1989. <br>
<br>
But over the past few years, Myanmar has grown increasingly isolated
because of the US-led embargo<br>
and is regularly criticized for its slow bureaucracy, contrary
decision-making, and a lack of clear laws<br>
and regulation and their arbitrary implementation, as well as increasing
corruption. Many companies<br>
have already pulled their operations out of Myanmar, and others have
threatened to do the same if the<br>
country's investment atmosphere does not improve soon. <br>
<br>
Simply put, Myanmar has not been a simple place for foreign companies to
do business. "It's been a<br>
nightmare," said one oil industry executive. "It can take weeks
to get approval to do the simplest things,<br>
and then that decision can get overturned by another official in another
department or ministry." <br>
<br>
Despite considerable interest during the 1990s, Myanmar remains an
obscure backwater as far as the<br>
oil and gas industry is concerned. Exploration and development onshore is
proceeding with limited<br>
success, and after 18 months of delay, the country is only just now about
to receive the first payments<br>
for offshore gas exports. <br>
<br>
On the onshore front, the operator of the country's biggest oil field,
Houston-based oil field service giant<br>
Baker Hughes Inc., announced in mid-January its intention to pull out of
the Mann field, in central<br>
Myanmar. In addition, six other companies or groups have been mostly
inactive over the past 2 years.<br>
All are small to medium-sized operators, and the results of both
exploration and development have been<br>
sporadic at best. <br>
<br>
Given Myanmar's earlier, much-vaunted potential, the delays offshore,
coupled with he disappointment<br>
onshore, have left the country's industry in disarray The further impact
of the US economic embargo has<br>
made matters that much more difficult, discouraging investment from
companies that have the resources<br>
necessary to plan beyond initial poor results. <br>
<br>
"The fact is, it will be some time indeed before Myanmar truly lives
up to its potential as far as<br>
hydrocarbons are concerned," said one executive with an oil operator
based in Yangon (Rangoon).<br>
"The combination of the embargo, the economic crisis, and delayed
development have really constrained<br>
[investment]." <br>
<br>
<b>Human rights controversy <br>
<br>
</b>Most of the storms of controversy have swirled over the first
pipeline to be built to deliver Myanmar<br>
hydrocarbons to another country. <br>
<br>
The $ 1 billion, 665-km Yadana pipeline extends from Yadana gas field to
a power plant in Ratchaburi<br>
province. The Yadana consortium consists of operator TotalFinaElf SA
(31.24%), Unocal (28.26%),<br>
PTT Exploration & Production (25.5%), and MOGE (15%). <br>
<br>
The pipeline was originally scheduled for completion last April. However,
in January, the Thai<br>
government suspended construction on a 10-km section of the pipeline that
extends through the Sai Yok<br>
forest reserve near the Thailand-Myanmar border amid protests from
environmental groups (Fig. 2).<br>
Work resumed thereafter, and the pipeline was completed during the first
quarter. <br>
<br>
But the real trouble came with allegations of slave labor used to build
the pipeline. <br>
<br>
Attorneys for a group of Myanmese refugees have claimed that they
discovered "smoking-gun"<br>
documents that prove that Unocal was complicit in abuses of human rights
by the Myanmese military.<br>
The abuses allegedly included slave labor, numerous deaths, and the
seizure of property. Unocal has<br>
denied the charges. <br>
<br>
A US federal judge in Los Angeles will hear the charges in July to
determine whether the suits, the first<br>
ever to hold a US company liable for human rights abuses abroad, can
proceed to trial. <br>
<br>
Meanwhile, the British Foreign Office reiterated a request to Premier
that it pull out of its Yetagun gas<br>
project as soon as legally possible. The request was made to Premier
Chairman Charles Jamieson as<br>
part of British efforts to put further pressure on Myanmar to improve its
human rights record. <br>
<br>
An initial request was made 2 years ago. Premier is not expected to heed
the latest appeal. Premier<br>
operates Yetagun field, 175 miles west of Thailand on Blocks M-12, M-13,
and M-14 in the Gull of<br>
Martaban. <br>
<br>
But it is the suits against Unocal that have the gravest potential
consequences. The class action suits,<br>
originally filed in 1996, seek more than $ 1 billion in damages.
Attorneys for the refugees say that US<br>
Department of State cables obtained under the US Freedom of Information
Act contradict Unocal's<br>
denials. They cite a 1995 cable of an interview with Unocal executive
Joel Robinson, which stated: "On<br>
the general issue of the close working relationship between Total/Unocal
and the Myanmese military,<br>
Robinson had no apologies to make. He stated forthrightly that the
companies have hired the Myanmese<br>
to provide security and pay for this through the Myanma Oil & Gas
Enterprise." <br>
<br>
Robinson was quoted as saying that three truckloads of Myanmese soldiers
typically accompanied the<br>
project officials during survey work and the soldiers were informed of
the next day's activities so they<br>
could secure the area. Lawyers for the plaintiffs say the cables are
evidence of a contractual relationship<br>
between Unocal and the Myanmese military. <br>
<br>
For its part, Unocal claims that the cables were "not factually
accurate" and that there is "no evidence<br>
that the Myanmese military was hired by Unocal or Total or anybody
else." A Unocal lawyer insisted<br>
that its summary judgment motion "will dispose of the case in its
entirety." <br>
<br>
US District Judge Richard Paez has already dismissed TotalFinaElf, the
operator of the Yadana<br>
consortium, and the Myanmese government as defendants in the cases.
<br>
<br>
In January 1999, the Myanmese military was reported to have sent troops
and armored vehicles to<br>
suppress ethnic insurgents threatening to bomb the pipeline. A unit was
assigned to protect a 60-km<br>
stretch of pipeline from the town of Kanbauk to the border city of Thong
Pha Phum that had been<br>
threatened by Karen guerrillas. The unit consisted of an artillery
battalion and five rapid-response<br>
battalions. Four Karen men arrested as spies a month before the
deployment admitted to Myanmese<br>
intelligence that they were planning to bomb the pipeline. <br>
<br>
Unocal insists that its past 10 years of engagement in Myanmar have meant
"employment opportunity,<br>
technology training, education, and health care opportunities,"
Carol Scott, a Unocal spokeswoman<br>
based in Singapore, said recendy. "Reaching out through this kind of
engagement is the best way to<br>
achieve change, not hiding behind sanctions. There should be more
American companies there, not<br>
fewer." She said people living close to the gas project Unocal was
involved in Myanmar were "very<br>
happy" it was going on because of the opportunities it presented.
"It will only serve to quicken the<br>
process towards democratization." <br>
<br>
In late 1998, a renewed crackdown by the government on the country's
prodemocracy movement and<br>
its international supporters added to the woes of business concerns
already enduring criticism and local<br>
sanctions for their trade ties with Yangon. This has yet to subside.
Clinton's decision in 1997 to bar new<br>
US investments in Myanmar has also been effective. The sanctions drive-as
well as consumer boycotts<br>
directed at firms that deal with Yangon--have largely succeeded at
pushing companies to end their work<br>
in Myanmar. <br>
<br>
ARCO, which had invested in two gas projects that provided more than $ 55
million to the country, did<br>
not renew its remaining exploration lease in the Gulf of Martaban. In
addition, Texaco pulled out of its<br>
onshore acreage, reportedly due to sanctions pressure. <br>
<br>
<b>Onshore E&D struggling</b> <br>
<br>
Onshore, activities have been difficult, although a sizeable amount of
acreage has been leased in the<br>
country since the late 1980s (Fig. 3). Smaller players with limited cash
continue to stay involved in the<br>
country, but efforts at success have been disappointing. <br>
<br>
One of Myanmar's onshore gas fields, Aphyauk gas field in the Taikkyi
area in the central part of the<br>
country, is operated by MOGE and has been supplying natural gas to
Yangon, Pyay, and other areas in<br>
the southern part of the country for power generation and industrial use.
<br>
<br>
Meanwhile, a pipeline has also been laid to bring natural gas from
another newly developed onshore oil<br>
field, Kyaukkliwet, to Kyuanchaung and Chauk areas in Myanmar's Magway
Province. <br>
<br>
The following foreign companies remain active onshore: <br>
<br>
* Myanmar Petroleum Resources Ltd., Yangon, has taken complete control of
Mann field following the<br>
departure of joint-venture parmer Baker Hughes. <br>
<br>
* Astra Petro Nusa of Indonesia operates Chauk and Yemangyaung fields in
central Myanmar<br>
(Yemangyaung is the oldest in the country and has been prodcing since
1887). Astra Petro Nusa is in<br>
the midst of shooting 2D seismic and has talked about future exploration
drilling but has no firm plans. <br>
<br>
* Mercantile Southeast Asia Ltd. operates Myanaung field in southern
Myanmar, 200 miles<br>
fromYangon and has plans to drill one shallow well. <br>
<br>
* Focus Energy Ltd., formerly Asia Pacific Energy Ltd. operates Canni
field in central Myanmar. The<br>
company has completed some remedial drilling but plans no new wells.
<br>
<br>
* A consortium led by the UK's Westburne Oil Ltd. operates in the Yenama
region of central<br>
Myanmar. The consortium includes Westburne, the UK's A&T Exploration
Co. Ltd., and Israel's<br>
Capital Investment Development Corp. This group is considering drilling a
shallow well with a MOGE<br>
rig. <br>
<br>
* PT Expan Sumatra Oil Co. of Indonesia operates blocks in the Ohndwe,
Kyaukkyi-Mindon, and<br>
Padaukpin-Monnatkon areas. The company has plans to drill two wells, and
was expected to spud the<br>
first one in the second quarter. <br>
<br>
Exploration and development drilling in all but Mann field has been
spotty, at best. The Myanmese have<br>
been trying to get the onshore E&D firms to spend money, but scant
activity has been forthcoming. A<br>
large part of the difficulty has been dealing with MOGE, say foreign
industry executives here. The state<br>
company has little experience and even less respect in senior government
circles, they say Simply put,<br>
MOGE does not possess the clout to honor the terms of contracts,
particularly when results are less<br>
than anticipated, they contend. <br>
<br>
"MOGE is sad to deal with," says one executive of an onshore
operating firm. "They are simply not<br>
trusted by the government. There is no sign of any technology. They are a
state company that cannot do<br>
anything on their own. None of their staff will speak up and say anything
significant, no one has<br>
authority, everything has to go for approval to the Petroleum Ministry or
the Finance Ministry." <br>
<br>
<b>Baker Hughes saga <br>
<br>
</b>The recent story of onshore development in Myanmar has been dominated
by the misadventures of<br>
Baker Hughes with Mann field. <br>
<br>
According to those involved, Baker Hughes had a distressing experience
operating in the country, and<br>
results from its production compensation contract with MOGE have been
disappointing. The company<br>
won an agreement in October 1996 to implement efforts to enhance
production at the aging field,<br>
wherein it was to be paid for production that exceeded an agreed-upon
level based on the field's<br>
projected decline profile. The initial consortium, which consisted of
Baker Hughes, Irrawaddy<br>
Resources, Keppel Group, Nissho Iwai Corp., and Mynt Associates, broke up
after it became obvious<br>
that initial output projections were far too optimistic and that MOGE
payments were going to be<br>
seriously delayed. <br>
<br>
Production exceeding the decline profile has been far less than
anticipated. Original projections were<br>
3,000-6,000 b/d above the originally projected output of 3,050-3,100 b/d
and a limited amount of gas.<br>
Currently the field is producing only 740 b/d above the decline profile,
confirmed Baker Hughes<br>
executives (OGJ, Mar. 20, 2000, p. 80). <br>
<br>
This disappointment resulted in the failure of MOGE to pay for any of the
oil produced until the week of<br>
Nov. 29, 1999. According to industry sources, MOGE has very limited power
and is not permitted to<br>
pay out money without the express permission of the Finance Ministry.
<br>
<br>
Early this year, Baker Hughes teamed up with Myanmar Petroleum Resources
and signed an additional<br>
contract on the same block. To date, three wells have been spudded: Nos.
645, 646, and 647, at a<br>
total cost of $ 53 million. Baker Hughes's recent decision to pull out of
the development has nothing to<br>
do with the disappointment of Mann field's performance. According to
company officials, the decision<br>
was made at the board level to withdraw from all activities that deviated
from its core oil field services<br>
businesses. <br>
<br>
"We started the Mann field project as a production enhancement
exercise and went about deepening<br>
sidetracks to existing production wells," said a former Baker Hughes
executive. "Unfortunately, it soon<br>
became obvious that we were never going to get the increase in output
that we had initially projected.<br>
As of now, Mann field production is between 3,050 and 3,100 b/d, and
incremental production is 740<br>
b/d and will be sustained for a while. But this is a disappointment, and
we had projected doubling output<br>
when we signed the first agreement. <br>
<br>
"Partially as a result of this disappointment, we had a lot of
difficulty getting money out of MOGE," he<br>
said. "The fact is, MOGE essentially has very little power,
particularly when it comes to paying foreign<br>
companies. It is the Finance Minister who makes the ultimate decision,
and we have had to negotiate<br>
directly with him as well as his team of advisers. <br>
<br>
"When we had difficulty being paid and were going through the
disappointment of the<br>
lower-than-anticipated enhancement output, we began reducing expenses
dramatically. We had<br>
originally budgeted for $ 6 million/year in overhead and $ 15-20 million
in revenue. Then we had cut<br>
expatriate staff to just two and increased local manpower significantly
to save costs." <br>
<br>
<b>Offshore gas woes <br>
<br>
</b>While results offshore have been better in terms of development, the
difficulties finding markets for the<br>
offshore gas and getting the terms honored when agreed to have been
equally frustrating. <br>
<br>
"Better late than never" is the emerging attitude in the
Myanmese gas sector after the announcement that<br>
the Petroleum Authority of Thailand (PTT) resolved a long-running dispute
with the Yadana consortium<br>
for payment of all gas not taken from the pipeline. In addition to the $
50.47 million settlement for gas<br>
not taken last year, Myanmar now looks set to begin receiving regular
revenue from gas sales for the<br>
first time in its history. <br>
<br>
After 2 years of delay, Thailand's Ratchaburi power station soon may
begin taking Yadana gas. A<br>
dispute this spring arose between PTT and Electricity Generating
Authority of Thailand (EGAT), its<br>
chief customer for Yadana gas, over sharing of take-or-pay costs (OGJ
Online, May 2, 2000). Because<br>
of repeated construction delays, the Ratchaburi plant is now prepared to
take only about 150 MMcfd<br>
of Yadana gas, although PTT is committed to purchasing 525 MMcfd of
Yadana gas to feed the plant.<br>
The dispute centered on whether or not EGAT would be willing to share
part of the take-or-pay costs<br>
the power plant construction delays have incurred. <br>
<br>
According to press reports from Bangkok, a June 15 agreement determined
that five parties involved in<br>
the dispute--besides PTT and EGAT, there are also the Finance Ministry
and the Independent Power<br>
Producers and Small Power Producers groups--would each shoulder part of
the take-or-pay burden.<br>
Officials says the apportionment of those costs have not been decided
yet, but a final decision is<br>
expected soon--perhaps this month. <br>
<br>
The Yadana agreement also stipulates that PTT agrees to accept gas
without enrichment until December<br>
2006. The Yadana gas contains 712 btu of heating value, while the
original contract called for 715 btu. <br>
<br>
PTT did not reveal when and how much it will pay forYadana gas: "All
par-. ties are confident that this<br>
agreement is the outcome of extremely good cooperation between the buyer
and seller," PTT said in a<br>
statement. "It protects the interest of all the parties and
strengthens their good relations for the coming<br>
30 years [the duration of the sales agreement] <br>
<br>
While a far cry from the highly publicized expectations of 1998, when
Myanmar was expected to join<br>
the ranks of Southeast Asian natural gas exporters such as Malaysia,
Indonesia, and Brunei, the sales<br>
should still earn the country $ 2.9 billion over the life of the field.
Output of 550 MMcfd will also nearly<br>
triple the country's currently modest output of 174 MMcfd, which it
produces from various small fields. <br>
<br>
A second gas development, Premier's Yetagun field, 270 km west of
Thailand in the Gulf of Martaban,<br>
is scheduled to begin supplying 200 MMcfd to Thailand in 2000 under a
30-year arrangement between<br>
PTT and the Yetagun consortium. The Yetagun group consists of Premier,
MOGE, PTTEP, Petronas<br>
Carigali, and Nippon Oil Corp. Earnings for Myanmar from. Yetagun should
average $ 823<br>
million/year. However, like Yadana, the Yetagun project is almost
certainly due to be significantly<br>
delayed. <br>
<br>
PTT announced last December that it was seeking to postpone the delivery
of natural gas from second<br>
phase of its contract with the Yetagun group. In the first phase, PTT
will accept 200 MMcfd as of July<br>
1, 2000, rising to 260 MMcfd by Aug. 1. In the second phase, delivery is
set to increase to 400<br>
MMcfd in 2003. PTT is seeking to delay taking the additional 140 MMcfd
for at least 2 more years or<br>
until 2005. Discussions between PTT and Premier Oil are under way. <br>
<br>
The gas revenues will dramatically increase Myanmar's foreign exchange
earnings. The country's major<br>
foreign exchange revenue has traditionally been rice, beans, and teak.
Its foreign exchange reserves are<br>
estimated at a paltry $ 150-300 million. <br>
<br>
Constructing the Yadana line has been almost as problematic as getting
the Ratchaburi power plant on<br>
stream and is a classic illustration of the difficulties that can occur
in developing countries. For starters,<br>
the project was developed despite US sanctions, In the past several
years, Coca Cola and Texaco Inc.<br>
have withdrawn from the country, and Unocal is the only remaining US
company with significant<br>
investment. <br>
<br>
<b>Outlook <br>
<br>
</b>It would be a gross mistake to believe the new gas revenue represents
the thin end of the wedge of<br>
Myanmar gas potential. Analysts caution that the two offshore projects
have effectively cornered the<br>
regional market for Myanmar natural gas. Due to the recent economic slump
in the region, additional<br>
discoveries and subsequent development would have difficulty finding
markets. <br>
<br>
Which is not to say that Myanmar does not remain highly prospective. The
Gulf of Martaban is thought<br>
to be replete with commercial quantities of gas, and certain onshore
areas also have good potential. But<br>
the only likely buyer of future Myanmese gas production is Thailand, and
it has scant appetite to<br>
purchase any more than Yadana and Yetagun. <br>
<br>
It is also unlikely that much further activity will take place off
Myanmar in the medium term: "There is a<br>
lot of potential, but people are reluctant to explore the offshore areas,
because they're gas-prone, one<br>
oil company executive said. "The two big players have the market
sewn up. <br>
<br>
Although exploration results have been disheartening since the Yadana and
Yetagun strikes, Myanmar<br>
hopes to stimulate interest in some remaining unawarded offshore and
onshore blocks. Many of these<br>
are located outside of traditional exploration areas. MOGE estimates that
it will need $ 5 billion in<br>
foreign investment in its oil sector to fully develop its petroleum
resources. Due to the sanctions and the<br>
country's poor administrative reputation, anything approaching this
amount is unlikely to be forthcoming. <br>
<br>
"They tend to forget that it is a competitive world out there,"
said one negotiator for a Western oil<br>
company operating in Myanmar in reference to the government. "It's
like the old adage: 'Don't open the<br>
stable door after the horse is dead.' If there is not a lot of positive
movement soon, more and more<br>
companies will pull out, and they will have to do some real convincing to
bring them back again." <br>
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