Interview: U Kyaw Kyaw Hlaing on the oil and gas sector

U Kyaw Kyaw Hlaing is the chairman of the SMART Group of Companies and the Myanmar Oil and Gas Services Society (MOGSS). Myanmar Energy Monitor met with U Kyaw Kyaw Hlaing to discuss the upstream industry, including the how to attract companies for the upcoming bid round and what needs to be done to grow the services industry.
 
 
Many companies have recently relinquished offshore blocks, and there are plans for a bidding round before the end of the year. What direction do you see the industry moving in? What are the big changes coming this year?
 
There are three factors behind the companies leaving. The first is that oil prices were still low when they decided to leave. Oil prices are now coming up, but were lower when they decided to leave.
 
Another reason is that the companies committed to huge signature bonuses when doing the bidding. When you enter a competition, you always want to win, you don’t want to lose. This means you don’t think logically, you think emotionally. 
 
I started in the oil and gas sector in 1975, and have always studied the bidding rounds, including what they are bidding and the terms and conditions.  The largest signature bonuses I’ve ever seen in my life in the last bidding round.
 
We saw those large numbers because when companies are bidding, they want to win. But when they came to really study, including looking at the seismic results and the risks, the companies have decided they would rather go to a more secure place.
 
The third reason has to do with the situation. Companies are thinking about whether they should leave or not leave, and then suddenly the prospect of sanctions comes.
 
 If the prospect is good, it cannot be overruled by sanctions alone. But if the prospect is in a 50-50 situation, these kind of external issues become the catalyst. The Rakhine issue has become a catalyst issue.
 
 
Do you think offshore E&P companies are concerned about Rakhine?
 
Chevron and previously Unocal has been in Myanmar since day one with TOTAL, and they never left. If the interests for oil companies are good, they don’t think about other factors. But if the prospect is 50-50 or lower, these external factors are used to make decisions.
 
We have to wait for Woodside when you talk about what will happen in the future. Woodside already has a discovery in AD-7 and a discovery in A-6 with TOTAL and MPRL. Both blocks are deep water.
 
Now we will have to wait and see while they do their appraisal wells. If it becomes a successful project, there will be more oil companies that will look back into the country.
 
 
There’s been talk in the ministry of another bidding round later this year, though it seems like plans are subject to change. Do you support the idea of another bidding round? Do you think it will be a success?
 
Myanmar has 51 offshore blocks. I want all 51 blocks to be engaged. It’s good for the country. But I’m always telling the ministry that you have to attract people.
 
If you’re selling a product, and the product is not selling well, you need to do something differently, such as package it differently or change the name.
 
The size of our blocks are very large compare to neighbor countries. . The deepwater blocks should be big because you need huge companies to come in, and big companies want larger blocks.
 
However, there are many prospects in each of the shallow water blocks. For instance, there are seven or eight prospects in A-8 under Berlanga. 
 
The trouble now is that if you have eight prospects in one block, the operator will focus on the very best prospect and leave the others behind. But if you split the blocks in two, then the second-best prospect will be the best prospect in the new block.
 
Another issue is they have to review the present PSC terms and conditions. Our PSC terms are from about 1989 or 1990, meaning they are 29 years old. By comparison, Petronas started PSC in 1973, but has modified its PSC terms three or four times in the meantime. Our PSCs have never been modified to attract the investors. Instead we increase the Royalty from 10% to 12.5% in last bidding rounds. 
 
Currently it’s one size fits all for deep water, shallow water and for marginal fields. We need to come out with new ideas about how to attract the investors.
 
 
Is SMART or MOGSS engaging on this issue?
 
No, but I'm ready to share my knowledge and experience on request. 
 
 
How else can Myanmar support getting more E&P companies to the next bidding round?
 
One concern is that the companies come with the bidding rounds, but then do not fulfill their commitments. Some of these companies are blacklisted, but even then it’s difficult for MOGE to take necessary actions. 
 
These kind of things are not good for the long run. Every company has to fulfill its commitment.
 
In Myanmar, when you put in a proposal, you say you will drill two wells for say $20m on land. But you don’t need to say how deep you will drill or which formation you will drill.
 
In India it’s not like that. You need to be very detailed, including specifying how deep you will drill and which formation you will drill into.
 
Another issue is the data room. MOGE should open the data room for free. If you don’t have the data, how can you bid. We now have a lot of information from the seismic that has been shot by previous companies.
 
But still in some blocks there are no seismic data. In these cases, MOGE should go for a speculative seismic survey.  
 
 
What type of companies do you expect to bid in the next round? For instance, will we see super-majors, or Chinese firms?
 
There are some companies that are interested, but didn’t get a chance in the last round. They may participate.
 
Timing is also very important. Oil prices are coming up. Recently I saw that Trump is definitely planning to place sanctions on Iran. This will limit production. OPEC’s agreement is also working very well. Now OPEC members are  receiving the same amount of money by producing less. 
 
 
That’s good news for a bidding round.
 
That’s why timing is very important. Even if they have not come out with a tender, they should say they are going to do the round, and that they are going to change some of the terms to accommodate investors. 
 
Oil and gas is a cycle. It’s time for the cycle to come up.
 
If they get the right timing, they can put up some land blocks that have never been bid on before, such as Htaukshabin and Kanni. There are also plans for the O,P, Q Blocks in the delta area.
 
 
How interesting is O, P, Q?
 
Very interesting. MOGE has drilled so many wells in the delta area, but unfortunately the wells have generally been off structure. That is why MOGE wants to study these blocks again, and then probably put them in the bidding round.
 
If you look at the map of Myanmar and the trend, you can see … we have gas in the  Payagon, Ma-U-Bin, Nyaungdon, Apyauk and offshore Block M3, M5/6 and M9. In between are Blocks O, P, Q and transition zone. If they do a proper 3D survey in these area  I have a strong belief they’ll find some gas fields in delta area. 
 
We have never done seismic surveys in the transition zones between land and water. Previously it was not allowed, but there were also technical issues. 
 
The delta area in the O,P, Q Blocks has so many rivers, which made it impossible to run seismic tests in the past. Nowadays though we don’t need cables that are five or six miles long, instead everything is done by telemetry and without laying cables. 
 
 
How about the offshore and onshore service industry for oil and gas? How is it going? What could be done better?
 
Local companies in our service industry can provide only very limited services. 
 
If you look back at history, TOTAL started around 1992 for its appraisal wells, and began production at 1998 at Yadana. You can say it’s been about 25 years since Total started. My company grew together when TOTAL started.
 
Looking back over the past 25 years, we can see that local service companies growth is very little. Local companies can provide only limited services. 
 
It’s been 25 years, we should have grown better than this.
 
 
How can we encourage this growth?
 
My belief is that in every organisation, every industry, every country, the leader is the most important person.
 
Look at the story of Alibaba and the 40 thieves. Alibaba is the leader, but no one can name the 40 thieves, the followers. The leader is very important, and must have a passion and a vision. In our case, the leader must have a passion that the service industry must grow.
 
Malaysian service companies are all over the world today. Malaysia started PSC in 1973 with Petronas, but we started earlier. The difference is that Malaysia had a plan to grow local companies. The oil firms were told that if they take up a block, they must develop and train local companies to a certain standard, which helped them grow. But here, I didn't see this kind of arrangements.  It’s a sad story.
 
 
You would hope the oil and gas industry would bring up local companies.
 
No. That’s why MOGSS is very much pushing in that direction. Minister for Electricity and Energy U Win Khaing knows about MOGSS very well and he has desires for the growth of local companies.  We need more collaboration from MOGE but still a long way to go.

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