Foreign operators may bid for total control of offshore blocks that Myanmar (Burma) plans to offer in April now that the country’s authorities no longer require foreign players to have local partners.

Myanmar will invite bids for between 25-30 blocks in deepwater and shallow water plays during its upcoming licensing round, according to a senior Energy Ministry official.

Bidders for a round in January for onshore blocks are required to have local partners. As a result around 100 domestic players were quick to register with the Energy Ministry in the hope of joining forces with foreign investors.

The unidentified ministry official told local reporters: “Only a few of these local companies have any experience in the oil and gas industry. I think this requirement might have made some foreign investors reluctant. Offshore blocks are more challenging and costly. In order to make them more attractive, the requirement for mandatory partnership with local companies will be dropped.”

The official said Shell, Chevron, ConocoPhillips, and ExxonMobil are in the frame to table bids for the offshore blocks, while Norway’s Statoil is considering bidding with a local partner.

The Energy Ministry believes this change to the local partnership requirement will attract a wider range of interested parties to bid in the offshore round.

The country hopes to attract interest from international majors. “The major companies are more interested in the offshore blocks,” Myanmar’s Energy Minister Than Htay said.

Political Reform

Myanmar ended 15 years of military rule in 2010 with an election that was seen internationally as a step toward political reform and democracy. This prompted the US and other Western governments to lift sanctions that barred companies from investing there.

Now, Western governments want to see what access they will have to Myanmar’s oil and gas reserves, with offshore plays having the most interest.

The upcoming offshore round is seen as another important step as Myanmar opens to foreign investment since the civilian government assumed control in March 2011 following the 2010 election. The country’s reform process was backed by a visit by US President Barack Obama in November 2012.

The government initially had planned to launch the round in 2012, but bidding was postponed due to transparency concerns from foreign investors. The government has committed to follow international standards in the licensing round, Htay told delegates at a recent conference in Rangoon.

Questions Remain

Myanmar’s government still faces criticism over its close ties to the former military junta and a lack of transparency.

Opposition leader Aung San Suu Kyi, who spent 20 years under house arrest under the former regime, last year criticized the business dealings of state-owned Myanmar Oil and Gas Enterprise (MOGE) and warned foreign governments against letting companies partner with it.

Since then, Myanmar has taken the first steps toward joining the Extractive Industries Transparency Initiative, a Norway-based program aimed at tackling corruption in the mining and energy sectors in developing countries. “Up until now, all projects were based on direct negotiation, but from now on we are going to apply an international tendering system,” Htay said.

The government is planning to announce the offshore tender in late April, said Zaw Aung, director of planning at MOGE.

Myanmar’s new government is headed by Thein Sein, who also ran the former military junta. Although the administration’s reforms and legislation may have helped gain the trust of international energy companies, there is still skepticism about investing in Myanmar and MOGE. The state-owned company has been accused of corruption, displacing people along the Shwe gas project, and carrying out human rights abuses.

Many investors also could opt to keep a close eye on how infrastructure and the banking system develop in the coming months and years before entering the country.

Future Developments

While the financial terms for foreign investments in offshore projects have been settled, whether foreign companies will be allowed to take full ownership of the offshore projects once they enter the development stage is still being discussed, Aung said.

The high cost and technical knowledge needed for deepwater plays might give foreign operators the opportunity to go it alone on such projects.

“We are now recommending our local companies to participate in onshore and shallow water blocks,” Deputy Energy Minister Htin Aung said. “For the deep water, it’s very risky and highly capital intensive, so our people may not have the financial or technical capabilities.”

Myanmar’s current daily production stands at less than 20,000 b/d of oil and around 1.4 Bcf/d of gas. Most of the output comes from two offshore projects: the Yadana field operated by Total with Chevron as a partner, and the Yetagun field operated by Malaysia’s state-owned Petronas.

The Shwe and Zawtika offshore projects, operated by Daewoo International and PTTEP respectively, are expected to start production this year and raise Myanmar’s total gas production to around 2.2 Bcf/d by 2015.