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Feature: Rohingya crisis hits Myanmar's upstream at critical investment phase

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Feature: Rohingya crisis hits Myanmar's upstream at critical investment phase

Highlights


Myanmar upstream loses sheen as oil and gas explorers face low prospectivity

Reliance, Shell, other companies relinquish Myanmar blocks awarded in 2014

Lobby groups pressure oil companies on Myanmar assets amid humanitarian crisis

Singapore — A growing backlash against energy companies in Myanmar, amid the Rohingya humanitarian crisis, comes at a bad time for the country's oil and gas upstream sector that is already starting to turn off some investors.

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Since Myanmar's hugely successful licensing rounds in 2014 that saw top oil majors winning exploration blocks, the country has been the hotspot for upstream activity, at least up to early 2017.

But in recent months, companies have started relinquishing the blocks that were awarded to them due to complaints of low prospectively, and more are expected to do so in coming months as they get closer to the deadline for the first phase of exploration work around March 2018.

With oil companies at a critical decision-making juncture, they now have to also worry about reputational and geopolitical risks as lobby groups start targeting investors for doing business with a Burmese government blamed for human rights violations against the minority Rohingya Muslim community.

"Myanmar upstream has lost its momentum and we need a few signals to show that it is as hot as it could have been," Jean-Baptiste Berchoteau, upstream research analyst at Wood Mackenzie said.

He said it is still early to completely write off the Myanmar story, but the attractiveness of the Southeast Asian country's oil and gas acreage appears to have become diluted in the last few months.

"We already have 4-5 blocks that have been relinquished or are about to be relinquished," Berchoteau said. "If you ask me at this moment the Rohingya situation does not help for sure."

Offshore exploration blocks awarded under Myanmar's 2014 bidding rounds

Click on image to enlarge


LOSING ITS LUSTER


Myanmar became the hotspot for oil and gas exploration in Southeast Asia at a time when oil companies had pared back on upstream spending due to the oil price crash and no big discoveries were being made.

But companies also took advantage of another aspect of cheap oil -- significantly lower exploration costs. Australia's Woodside Energy for instance undertook an aggressive exploration campaign in blocks awarded before 2014 that resulted in several gas discoveries.

These included the largest discovery in the Asia Pacific of 1.5 Tcf of gas that put Myanmar on the exploration map, Berchoteau said.

While no new licensing rounds are coming up, the blocks awarded in 2014 are approaching the end of the first study phase, after which the operator has to notify the government whether it wishes to enter the next drilling phase.

The notifications have to be submitted between September 2017 and the end of March 2018, depending on when the blocks were awarded.

Some companies have already begun relinquishing their blocks. In mid-October, India's Reliance Industries said it would relinquish Blocks M17 and M18 on completion of the study period.

On November 15, Shell said it relinquished three blocks in mid-October along with its partners -- Block MD-5 in the Thanintharyi Basin and Block AD-9 and Block AD-11 in the Rakhine Basin of Bay of Bengal subject to ministry ratification.

"We have relinquished these blocks to the Myanmar government because the 3D seismic evaluation suggests that these blocks are commercially very challenging," a spokesman said.

Blocks awarded to Oil India and ASX-listed Tap Oil have also been relinquished or are about to be relinquished, and many companies won't proceed to the next round, Berchoteau said. Tap Oil did not respond to queries. Oil India could not be immediately reached for comment.

Berchoteau said Woodside has also been unable to find significant upside to its discoveries, and the 1 Tcf find may not be enough as it is very hard for offshore deepwater or frontier projects to be economic, especially given Myanmar's tough fiscal terms.

"So unless you have something like 4-5 Tcf (of gas) then it is very difficult to make money," he said.


GEOPOLITICAL RISK LOOMS LARGE


International investors in Myanmar have become increasingly jittery since early November when the UN Security Council publicly condemned violence against the Rohingya community and the excessive use of military force by the government.

While no businesses have pulled out of Myanmar yet, companies are wary of tarnishing their reputations, with the biggest worry being a return of western sanctions.

Two weeks ago, a group of 47 Malaysian politicians petitioned state-run oil company Petronas to withdraw from Myanmar for its apparent failure in halting the humanitarian crisis.

Petronas is not the first oil company to take flak for its Myanmar ventures.

In October, investors representing more than $53 billion in assets under management sent letters to six oil and gas companies -- China National Offshore Oil Corp, Daewoo, PetroChina, Petronas, Total, and Woodside Petroleum -- asking them to "reassess their dealings" in Myanmar in light of human rights violations.

The campaign was partly backed by a certain Azzad Asset Management, which in August sent a letter to Chevron on behalf of shareholders, calling a re-evaluation of its Myanmar business.

"Chevron values the on-going dialogue with stockholders on this critical issue of violence in Rakhine State, Myanmar. We believe that US investment is a strong mechanism for economic growth and development," a company spokesman said, adding that Chevron conducts business respecting universal human rights, including in Myanmar.

Australia's Woodside said the situation in Rakhine State has not directly affected its activities but it had to cancel some community consultations with fishing villages in the north, which are required ahead of future drilling.

"We've also put some social programmes on hold due to safety concerns," the spokesman said, adding that Woodside is concerned about the ongoing situation and hopes for a sustainable and peaceful resolution.

Other major players like Total, Petronas and PTTEP did not respond to queries on their Myanmar positions.

"I wouldn't read too much into the request made by the MPs in Malaysia," Miguel Chanco, lead ASEAN analyst at The Economist Intelligence Unit, said, referring to the Petronas petition.

"I suspect that there is an element of grandstanding on the part of these MPs, especially with a general election looming in Muslim-majority Malaysia," he said.

It remains to be seen how Petronas responds amid an increasingly a sensitive political climate in Malaysia.

-- Eric Yep, eric.yep@spglobal.com

-- Edited by Jonathan Fox, newsdesk@spglobal.com