Analysis of Investment of Deepwater Drilling …...1 Analysis of Investment of Deepwater Drilling Market in Myanmar Oliver Massmann – Partner, General Director Southeast Asia Offshore

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Analysis of Investment of Deepwater Drilling Market in Myanmar Oliver Massmann – Partner, General Director

Southeast Asia Offshore Summit Yangon 10-12 Sep 2015


Features

India’s Oil & Gas outlook

Oil & Gas Scenario - Myanmar

Deepwater Drilling Opportunities - Myanmar

Investment Analysis of Myanmar Deepwater Drilling

Conclusion


• Oil and Natural Gas Corporation Limited (ONGC) is an Indian

National Oil Company (NOC) under the administrative control of

the Ministry of Petroleum and Natural Gas (MOP&NG).

• It was founded on 14 August 1956 by Govt of India, which currently

holds 68.94% equity and spreads from Domestic E&P to Global Energy

Chain. Shareholders Shareholding

Government of India 68.94%

Government Companies 10.09%

Banks, Fin Inst. & Insurance co.

09.69%

Foreign Institutional Investors

06.27%

Private Corporate Bodies 01.83%

Individual shareholders 01.65%

Mutual Funds and UTI 01.13%

Employees 00.11%

Total 100.0%

Introduction

ONGC also spreading in renewable energy sectors like solar, wind, tidal, thermal etc.


• The company's domestic operations are structured around 11 Assets and 7

Basins spreading throughout India in onshore, offshore and deepwater areas.

Domestic E&P

ONGC69%

Others31%

Crude Oil

ONGC62%

Others

38%

Natural GasMumbai Offshore

KG Offshore

* excluding JV share

India : 37.8 MMT India : 35.4 BCM


• ONGC Videsh Limited (OVL) is the international arm of ONGC. It was incorporated in 1965 and rechristened in 1989. It operates in 17 countries (Brazil, Colombia, Cuba, Venezuela, Vietnam, Myanmar, Russia, Kazakhstan, Libya, Nigeria, Sudan, South Sudan, Mozambique, Azerbaijan, Iran, Iraq, Syria)

Overseas E&P

•Myanmar

OVL has been awarded two onshore blocks namely

B2 (Zebyutaung-Nandaw) and EP-3 (Thegon-

Shwegu) in the Onshore Bidding Round 2013.

It already has a presence in Myanmar with stakes in

A-1 and A-3 offshore blocks and Shwe Gas pipeline.

8.36 MMTOE $3.5 Billion $0.7 Billion


• Profit making PSU : India’s 1st (INR 0.22 trillion / US$ 4.1 billion)

• Market capitalization : India’s 2nd (INR 2.6 trillion / US$ 48.9 billion)

• Global E&P Co. : World’s 3rd (after Conoco-Phillips & CNOOC)

• Global Energy 250 : World’s 21st (by Platts)

• Global Fortune 500 : World’s 424th (annual revenue of US$ 27.6 billion)

Performance

India E&P sector


India’s Oil & Gas Outlook


Indian Economy is the third largest economy in the world and reaching to TOP by 2050

India’s need for more oil & gas leads to more thrust from Govt for Deepwater Exploration

India Story

15% of the World’s population

0.5% of the World’s Oil & Gas reserves ENERGY

Regaining GDP


26 Sedimentary Basins identified

Offshore (Shallow / Deepwater) = 8

Total Sedimentary Area : 3.14 MM Sq KM

Onshore : 1.39 MM Sq KM

Offshore (Shallow) : 0.40 MM Sq KM

Deepwater : 1.35 MM Sq KM 254 blocks awarded in 9 rounds

India Sedimentary Basin


India Oil Update

Import Gap

(83%)

2013-14

World’s largest refinery is in India (RIL)


India Gas Update

I bcm = 2.74 mmscmd

Import Gap

(LNG)


India Deepwater Update

RIL MA-D6, D1 and D3 (Bay of Bengal)

• Water depth 600-1700m

• 60 KM from shoreline

• 6 oil wells tied to FPSO

• 18 gas wells connected to CRP

• Started in 2009

• 60 MMm3 gas

ONGC KG-DWN-98/2 (Bay of Bengal)

• Water depth 450-2800 m


• 3 oil and 8 gas discoveries

• Production to start in 2018-19

• Waxy crude 25 Kbpd

• 40 MMm3 gas

GSPC KG-OSN-2001/3 (Bay of Bengal)

• Water depth 400 m


• FDP plans 15 wells

(HPHT)

• Prod to start in 1-2 year

• 6-8 MMm3 gas

These activities are at KG Basin at East Coast

Deepwater Basins which are yet to exploit :

Kutch-Saurashtra, Mumbai Offshore, Kerala-

Konkan at West Coast

Bengal, Mahanadi NEC, Cauvery, Andaman-

Nicobar at East Coast

ONGC drills world’s deepest well NA7-1 in

2013

Block : KG-DWN-2004/1 (East Coast)

Rig : DDKG-1 (Transocean) hired from

RIL in 2009

WD : 3165 m (TD 5625 M)


Oil & Gas Scenario - Myanmar


Area : 676578 sq-km

Population : 53.3 Million (0.1%)

Male : 25.7 Million (48.2%)

Female : 27.6 Million (51.8%)

Age Average : 29.9 Years

Introduction 1948 : Independence from British

1948 – 1962 : Democratic Country

1962 – 2010 : Under Dictatorship

2010 : Elected Government

Borders : India, Bangladesh

China, Laos, Thailand

Coastal Line : 2832 KM


Oil and Gas Business

The regulation of the oil and gas sector in Myanmar has undergone rapid change since the introduction of political reforms.

The Constitution of the Republic of the Union of Myanmar 2008 stipulates that the State is the ultimate owner of all natural resources.

Myanmar Oil & Gas Enterprise (MOGE) is the national oil and gas company of Myanmar which also serves as the energy sector's regulatory agency.

All foreign participation in oil and gas activity takes place through joint venture arrangements with MOGE.

The MOGE falls under the auspices of the Ministry of Energy.

Ministry of Energy

Energy

Planning

Department

(EPD)

Myanma Oil

and Gas

Enterprise

(MOGE)

Myanma

Petrochemical

Enterprise

(MPE)

Myanma

Petroleum

Products

Enterprise

(MPPE)


14 Onshore Basins, only 3 explored thoroughly

4 Offshore Basins, only 3 explored thoroughly

Sedimentary Basin STATUS OF EXPLORATION

(Offshore)

A. Thoroughly Explored Basins

1.Rakhine Offshore 2.Moattama Offshore 3.Tanintharyi Offshore B. Not Explored Yet 1.East Andaman Basin

STATUS OF EXPLORATION (Onshore) A. Thoroughly Explored Basins 1.Central Myanmar 2.Pyay Embayment 3.Ayeyarwady Delta B. Explored to Some Extent 1.Chindwin 2.Rakhine Coastal C. Very Little Explored 1.Hukaung 2.Shwebo-Monywa 3.Bago Yoma D. Not Explored Yet 1.Hsipaw-Lashio 2.Namyau 3.Kalaw 4.Sittaung Valley 5.Mawlamyine 6.Mepale (Oil Shale)

1

2 3

4


Sedimentary Blocks

53 Onshore Blocks

currently 20 blocks are under operation

(15 companies – 10 countries)

51 Offshore Blocks

(shallow 26 and deepwater 25)

currently 25 blocks (shallow 18 and

deepwater 7) are under operation

(12 companies – 7 countries)

Bidding Offered Awarded PSC

2011 18 11 onshore

2013 18 16 onshore

2013 30 (11S+19D)

20 (10S+10D)

offshore

Mainly Production Sharing Contract (PSC) of $17 billion

Shallow Water

Rakhine - 7

Moattama - 11

Tanintharyi - 8

Total - 26 Blocks

Deep Water

Rakhine - 16

Moattama - 3

East Andaman - 6

Total - 25 Blocks


Current Onshore Activities Blocks : 20, Companies : 15

Countries (10): Russia, China, Indonesia, UK, India, Singapore, Hong Kong, Switzerland, Malaysia, Thailand

Countries in 2013 for 16 Blocks (10): India, Canada, Pakistan, Italy, Brunei, Russia, Singapore, Malaysia,

Thailand, Luxembourg

India

Essar : PSC-L

Jubilent : PSC-1

----------------------

ONGC (OVL) : PSC-B2,

EP-3

Block Country

Without bidding

7 4

1st (2011)

bidding 8 (11) 10

2nd (2013)

bidding 16 (18) 10


Current Offshore Activities

Blocks: 25 (18S + 7D), Companies : 12

Countries (7): France, Malaysia, South Korea, Thailand, China, Singapore, Vietnam

Countries in 2013 for 20 Blocks (8): UK, USA, Australia, India, Malaysia, Netherland, Italy, France

India OVL(STAKE) : A1, A3

OIL +

Mercator +

Oilmax : M4, YEB

Reliance : M17, M18

Block Country

Without bidding

13S +

4D

7

1st (2013) bidding

10S (11S) +

10D (19D)

8


Oil & Gas Production

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

22000

24000

26000

28000

30000

32000

34000

1974-7

5

1975-7

6

1976-7

7

1977-7

8

1978-7

9

1979-8

0

1980-8

1

1981-8

2

1982-8

3

1983-8

4

1984-8

5

1985-8

6

1986-8

7

1987-8

8

1988-8

9

1989-9

0

1990-9

1

1991-9

2

1992-9

3

1993-9

4

1994-9

5

1995-9

6

1996-9

7

1997-9

8

1998-9

9

1999-0

0

2000-0

1

2001-0

2

2002-0

3

2003-0

4

2004-0

5

2005-0

6

2006-0

7

2007-0

8

2008-0

9

2009-1

0

2010-1

1

2011-1

2

2012-1

3

Crude Oil Production (BOPD)

"Onshore"

"Offshore"

0100200300400500600700800900

10001100120013001400

19

74

-75

19

75

-76

19

76

-77

19

77

-78

19

78

-79

19

79

-80

19

80

-81

19

81

-82

19

82

-83

19

83

-84

19

84

-85

19

85

-86

19

86

-87

19

87

-88

19

88

-89

19

89

-90

19

90

-91

19

91

-92

19

92

-93

19

93

-94

19

94

-95

19

95

-96

19

96

-97

19

97

-98

19

98

-99

19

99

-00

20

00

-01

20

01

-02

20

02

-03

20

03

-04

20

04

-05

20

05

-06

20

06

-07

20

07

-08

20

08

-09

20

09

-10

20

10

-11

20

11

-12

20

12

-13

Natural Gas Production (MMSCFD)

"Onshore"

"Offshore"

1200 MMSCFD = 36.0 MMSCMD

20000 BOPD = 1.0 MMTPA

Y – axis : ‘000 BOPD

Current Production

Oil : 15-20000 BOPD

Gas : 2055 MMSCFD

: 61.7 MMSCMD

: 372,000 BOPD

Offshore

Oil : 50%

Gas : 97%


Oil & Gas Business Prospects

Political and economic reforms

• New political reforms introduced in 2011 have seen sanctions lifted by the European

Union and United States, allowing international players to re-enter the market.

Tenders announced

• In 2013 - 2014, the Government of Myanmar awarded 20 offshore blocks to

international companies and accordingly offered them the preliminary rights to explore

and produce from offshore blocks, with exploration likely to start in 1-2 years.

A hotspot for exploration

• Myanmar is one of world’s hotspots for exploration: according to research firm IHS

Global Insights, Myanmar is estimated to possess 3.2 billion barrels of oil and 18

trillion cubic feet (tcf) of natural gas reserves. Its unproven resources may be vastly

greater.


Potentially valuable resources

• Myanmar’s proven reserves are almost on a par with those in India, which possesses

5.7 billion barrels of oil and 18 trillion cubic feet (tcf) of natural gas and is ranked 16th

globally in terms of the value of its resources by British Petroleum’s 2013 statistical

review of world energy.

Limited local capacity

• At present, Myanmar’s local capacity is limited, which means there is a demand for

international suppliers across the entire supply chain.

• The Government of Myanmar is keen to work with responsible international

businesses to ensure that international standards in health, safety and the environment

are met.

Oil & Gas Business Prospects


Deepwater Drilling Opportunities - Myanmar


Offshore Blocks

Shallow Blocks : 26 Offshore Blocks : 51 Deepwater Blocks : 25

Myanmar offshore Crude oil & Gas Reserves are estimated to be 540 MMBBL & 17 TCF respectively

Without Bidding : 4 1st Bidding : 10 Yet to Award : 11


Deepwater Blocks

4 Blocks without bidding, 10 Blocks awarded, 7 Blocks open and 4 Blocks yet to offer

The oil discoveries in deepwater area off the east coast of India (e.g. MA-D6 Field in K-G Basin) in the Bay of

Bengal, indicated that deepwater area of Rakhine Basin has very high commercial oil potential in Miocene to

Paleocene sediments and wet gas and condensate in Mesozoic sediments.

Sl. Blocks Company

1 AD-2 BG + Woodside

2 AD-3 Ophir Energy

3 AD-5 BG + Woodside

4 AD-9 Shell + MOECO

5 AD-10 Statoil + ConocoPhillips

6 AD-11 Shell + MOECO

7 MD-2 Eni

8 MD-4 Eni

9 MD-5 Shell + MOECO

10 YWB Total

11-13

AD-1,6,8 CNPC

14 AD-7 Daewoo


Study Period 2 Years seismic acquisition, processing and interpretation / geological studies

Exploration Period 3 years with extension (1 year x 2 times) seismic and drilling program

Production Period 20 years each commercial discovery

Domestic Requirement 20% of crude oil and 25% of natural gas of Contractor’s share at 90% of market price

Governing Law Laws of the Republic of the Union of Myanmar

Arbitration UNCITRAL Arbitration Rules

Training Fund Exploration Period = 50,000 US$ p/a Production Period = 100,000 US$ p/a

R & D Fund 0.5% of contractor’s share of profit petroleum

Deepwater PSC – Key Terms

Exploratory / Drilling for Deepwater to start from 2016-17


Royalty 12.5% of all available petroleum

Cost Recovery 50% (Depth ≤ 600 ft)

70% (Depth over 2000 ft)

Profit Split (MOGE – Contractor)

60 - 40% to 85 – 15%

55-45% to 80 – 20%

State Participation

20 - 25%

Income Tax

25% on the contractor's net profit

(5 years tax holiday )

Deepwater PSC – Revenue Structure

Crude oil ≤ 600 ft Over 2000 ft

BOPD MOGE CONT. MOGE CONT.

0 – 25,000 60 40 60 40

25,001 – 50,000 65 35 65 35

50,001 – 100,000 80 20 75 25

100,001 - 150,000 85 15 80 20

> 150,000 90 10 85 15

Natural gas ≤ 600 ft Over 2000 ft

MMCFD MOGE CONT. MOGE CONT.

0 - 300 65 35 55 45

301 - 600 75 25 65 35

601 - 900 85 15 75 25

> 900 90 10 80 20


Drilling Contractors in Myanmar Offshore

Semi Submersible Jack-up Rig Drillship

Top 5 179

Others 46


Supply Vessels in Myanmar Offshore

• Most of untapped oil and gas resources in both shallow water and deep water areas

will not be suitable for fixed platform and require support vessel like Oil FPSO,

LPG-FPSO, FLNG(LNG-FPSO) and FDPSO.

• After signing the PSC for 2013 Bidding Round, operating blocks in Myanmar

offshore will be (14) deep water blocks and (23) shallow water blocks. That will

create rapid growth of considerable amount of giant and smaller marginal fields in

Myanmar offshore within next seven years.

• Myanmar offshore will be a hot spot for FPSOs investment in Asia by year 2020.

Signed PSC

2014 2015 2016 2017 2018 2019 2020

Discovery

First Oil/ Gas

(FPSOs)

Currently, E & P in deepwater blocks activities will be at very initial stage in

Myanmar offshore. Less demand within country will also attract FPSOs.

Only one Supply Base operating at present will not be adequate to cater the

activities of all the deepwater blocks.


Opportunities in Myanmar Offshore

• Huge size & stock of natural resources – oil & gas

• 20 newly awarded blocks – 10 shallow & 10 deepwater

• 7 Open Blocks (deepwater)

• Next round of Offshore Bidding shortly

• Strategic Location – Long Coast Lines

• Excellent Supply Chain Opportunities

• New Service Areas including new Supply Bases

• Capacity Building

• Attractive Foreign Investment Schemes

• Appreciated GDP growth

• Knowledge & Technology Transfer

• Educated nationals returning to Myanmar

• Government’s keenness to diversify commercial partners

• Many International Companies’ interest to work with

trusted local partners

Recent low crude oil prices seems to be conducive for carrying out drilling activities

at low cost and when the production will start, the anticipated higher crude oil prices

will be advantageous to the operators

Decline of Deepwater Dayrate


Challenges in Myanmar Offshore

• Water Depth more than 2000 M

• No Adequate Shipyard / No Deepsea Port / No Logistic Base

• Need Deepwater drilling rigs largely from International players

• Need high capital investment from large investors creating

entry barriers for smaller companies

• Unstable Policy & Bureaucracy (Document System)

• Limited Information (Ministry to Ministry)

• Shortage of Talents (Weak Capacity)

• Poor Infrastructure

• Closed door for 20 Years (Red Tape)

• Limited Weather Windows in Myanmar

• Cooperation with Local Responsible Persons before Operation

• Dependence on Foreign Investors & Service Providers

Offshore Rigs – Worldwide Fleet

Deepwater starts in 1990 Africa leading in Deepwater


Investment Analysis of Myanmar Deepwater Drilling


Criteria for Foreign Investment

Safeguard of Environment Conservation

Transparency and Accountability in Financial

Matters

Create Job Opportunities

Abide Existing Labor Law

Support Corporate Social Responsibilities

consistent with Regional and International

Standard and Agreements

Transfer of Technology

Encourage and Create Level Playing Field among

Investors

Nine Laws largely based on

British Law Codes of the pre-

independence Indian Statutes

• The Oilfields Act (1918)

• The Petroleum Act (1934)

• The Oilfields Rules (1936)

• The Essential Supplies and

Services Act (1947)

• The Oilfields Labour and

Welfare Act (1951)

• The Petroleum Resources

Development Regulation Act

(1957)

• The Myanmar Petroleum

Concession Rules (1962)

• The Law Amending the

Petroleum Resources

Development Regulation Act

(1969)


Scope for Foreign Investment

Oil & Gas40%

Power39%

Mining7%

Manufacturing7%

Hotel & Tourism4%

Industry1%

Agriculture1%

Others1%

Mature Growing Stars

Agriculture Education Garments & CMP Automobiles

Fishery Hotel & Tourism Oil & Gas Electronics

Forestry Hospitality Energy & Electric Biotech

Gems Healthcare IT & Telecom Insurance

Job Agencies Food & Consumers Banking & Finance Investment Firm

Commodities Mining & Minerals Logistics Real Estate

Pharmaceuticals Construction Industrial Supplies Infrastructure

Foreign Investors in

Offshore Oil & Gas

1. Australia

2. British Virgin

3. China

4. France

5. India

6. Italy

7. Japan

8. Malaysia

9. Netherlands

10. Russia

11. Singapore

12. South Korea

13. Thailand

14. United States

15. Vietnam


Recommendations

Globally Deepwater Investment is steadily increasing

Offshore Oil & Gas Companies in Myanmar

BG, Woodside, Ophir Energy, Shell, MOECO, KMDC,

Statoil, ConocoPhillips, ENI, OVL, CNPC, CNOOC,

Daewoo, Total, PTTEPI, PETRONAS, Petro Vietnam,

Rimbunan Petrogas and MPRL E&P etc.


Conclusion

After 50 years of isolation, Myanmar doors have been unlocked & Sanctions have

also been moving away. Good market places are also nearby.

Overwhelmed by the political and economical reform, Myanmar will be the biggest

treasury land for the investors.

Myanmar is going to market economy system and the opportunity for exploration

and production is likely to be good future.

Deepwater Blocks are the upcoming potential for Myanmar Offshore Area. Some

Deepwater Blocks are awarded in 1st Bidding Round. But also some potential

Exploration blocks are still opened in deepwater area.

Deepwater Operators are motivated to sign PSCs, grabbing the opportunities and

ready to overcome challenges. Local and International Partnerships are also getting

stronger, although not essential for Deepwater Blocks.

Recent low crude oil prices seems to be conducive for carrying out drilling

activities at low cost, since when the production will start, the anticipated higher

crude oil prices will be advantageous to the operators.

The total investment including the investment for supply vessels (FPSO) will be

increased rapidly from 2015-16 onwards and the outlook for exploration/production

of oil & gas in Myanmar will have bright future.


Thank you!

Oliver Massmann – Partner, General Director

[email protected];

Documents

Analysis of Investment of Deepwater Drilling …...1 Analysis of Investment of Deepwater Drilling Market in Myanmar Oliver Massmann – Partner, General Director Southeast Asia Offshore