Companies will soon find out how much oil and gas there really is offshore

After a long wait, and several delays, Myanmar’s government will soon announce which companies have won the right to explore the bulk of its offshore oil and gas reserves. The outcome of the bidding for the 19 deep- and 11 shallow-water blocks is one of the most eagerly awaited events in the hydrocarbons industry. The competition attracted almost all the global giants, including Total, Shell, Statoil and Chevron. The winners expect to explore some of the most promising waters left in Asia, and possibly the world.

Just how promising, however, is a subject of intense speculation, and not a little guesswork. Because of the long-running economic sanctions against Myanmar, introduced in the mid-1990s and only relaxed two years ago, almost no work has been done to determine the capacity of the country’s oil and gas fields, so estimates vary widely. The proven energy reserves are modest: 50m barrels of oil and 283 billion cubic metres of natural gas, the latter worth about $75 billion at today’s prices.

It is the unofficial estimates that have lured the Shells and Chevrons. Myanmar Oil and Gas Enterprise, which is state-owned, has put the reserves at 226m barrels of oil and 457 billion cubic metres of gas. Foreign oilmen agree that this could well be true. Those figures would put the Myanmar fields on a par with Britain’s North Sea before it was exploited, or Brazil’s reserves now. They might even underestimate the bounty.

Even by the uncertain standards of the oil industry, therefore, the winners of the bidding process will be drilling in the dark. The way that the contracts are being structured reflects that. Companies awarded deepwater blocks will initially have two years to study and survey them, after which they can walk away if they find nothing worth exploiting. If they think they have found oil or gas, they then have a further three-year exploration period, followed by another three years to start production. The timescale is slightly shorter for the more-manageable shallow-water blocks. Either way, Myanmar is unlikely to see any oil or gas from the offshore fields for at least seven or eight years.

The exact terms of the production-sharing contracts between the government and the winning companies will only be thrashed out after the blocks are awarded, another source of uncertainty. The impecunious and previously reclusive government, anxious to make the most of a possible windfall, is likely to drive a hard bargain. It will probably try to secure 80-85% of total revenues for itself, which is high by international standards. Since only about one-third of Myanmar’s citizens have access to electricity from the mains, the government is also demanding that the country’s domestic needs be met first. Its top priority is to provide fuel for new gas-fired power stations.

All this is not unreasonable. However, there are grounds for worry about the integrity of people involved in the bidding process who are in the government and close to it. The bidding—and its outcome—is being viewed as a test of the quasi-military regime’s commitment to political and economic reform. Is it really turning its back on the crony capitalism of the past, from which the generals profited so handsomely? Outside experts oversaw last year’s auction of mobile-telecoms licences, which was hailed as a model of openness and fairness. The bidding process for the oil and gas licenses, by contrast, is not facing such scrutiny. The risk is that decision-making will be as murky as the depths where Myanmar’s reserves lie.

Link: http://www.economist.com/news/business/21599810-companies-will-soon-find-out-how-much-oil-and-gas-there-really-offshore-drilling-dark