LIMITED PRODUCTION FROM BURMA,S ONSHORE GAS WELLS

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 001035 SIPDIS SIPDIS STATE FOR EAP/MLS; INR/EAP; OES FOR JMIOTKE AND ACOVINGTON; EAP FOR JYAMAMOTO; EEB FOR TSAEGER PACOM FOR FPA; TREASURY FOR OASIA:SCHUN E.O. 12958: DECL: 10/19/2017 TAGS: ECON ENRG PGOV EPET BM SUBJECT: LIMITED PRODUCTION FROM BURMA,S ONSHORE GAS WELLS REF: A. RANGOON 746 ¶B. RANGOON 706 RANGOON 00001035 001.2 OF 002 Classified By: Economic Officer Samantha A. Carl-Yoder for Reasons 1.4 (b,d) ¶1. (C) Summary. The GOB earned more than $2 billion in revenues last year from the oil and gas sector, although very little came from Burma's onshore fields. The Myanmar Oil and Gas Enterprise (MOGE) controls more than 70 percent of onshore fields, although the GOB has recently granted foreign firms, particularly Chinese companies, new production contracts. Current onshore production averages 10,000 barrels a day, far short of the domestic demand of 40,000 barrels a day. While industry analysts agree that huge oil and gas reserves exist under Burma's soil, the MOGE lacks the technology and infrastructure to dig deep enough through high pressure areas for extraction. Foreign companies have no plans for new investments, despite repeated requests by MOGE. End Summary. FDI from China? No Problem -------------- ¶2. (C) Although the GOB encourages foreign companies to invest in the offshore oil and gas sector, it limits the rights of foreign companies to drill onshore. The Myanmar Oil and Gas Enterprise (MOGE),the state owned company responsible for oil and gas production, controls more than 70 percent of onshore fields. Under Burmese law, only the state can invest in the onshore oil and gas sectors; if a foreign company wants to invest, it must enter into a joint venture with MOGE. Ye Myat Soe, Technical Coordinator for Focus Energy (a joint venture between MOGE and the Swiss),informed us that in recent years, the GOB granted exceptions to several Chinese companies in the hope that they would be able to expand onshore production. Only four companies, Burmese-owned Myanmar Petroleum Resources Limited (MPRL), Focus Energy, Chinese-owned CNPC/Chinnery Assets, and Indonesian-French GoldPetrol, are currently producing from their fields. Other foreign companies, including Chinese-owned Sinopec and CNOOC, Russian-owned Sputnik, and Indian-owned Essar, have exploration rights in ten onshore oil fields. ¶3. (C) Ye Myat Soe explained that the GOB has been slow in approving foreign investments in the onshore gas sector. Although it took Focus Energy six months to negotiate its production sharing contract (PSC),other companies, including GoldPetrol and Essar, only received approval after an 18 month wait. Because the GOB actively pursed investment from CNPC and CNOOC, the Chinese were not subject to the GOB's approval whims. Current Onshore Production -------------- ¶4. (C) Despite production success in gas fields offshore (reftels) and more than $2 billion in revenues from the sale of oil and gas, investors in Burma's onshore oil and gas fields continue to struggle. Currently, companies produce approximately 10,000 barrels of oil a day, far less than domestic demand of 40,000 barrels a day. Industry insiders noted that Burma imported 89 percent of crude oil it used in 2006, despite GOB officials' claims that Burma has not imported crude oil since 2003. -------------- -------------- Burma's Major Onshore Oil and Gas Fields -------------- -------------- RANGOON 00001035 002.2 OF 002 Company Field State/ Production Reserves Name Division Daily -------------- -------------- MOGE Nyaungdon Rangoon 1069 barrel 297 bil/CF Apyauk Rangoon 220 barrel 483 mil/CF Myanaung Irrawaddy 51 barrel 76 mil/bar Letpando Magwe 668 barrel 16 mil/bar Thargyitaung Magwe 493 barrel 138 mil/bar Chauklanywar Magwe 541 barrel 400 mil/bar MPRL Mann Rangoon 2036 barrel 433 mil/bar Focus Kanni Magwe 1934 barrel 56 mil/bar Htaukshabin Magwe 607 barrel 157 mil/bar CNP Pyitaung Bago 201 barrel 50 mil/bar Gold- Yenangyaung Magwe 1810 barrel 540 mil/bar Petrol -------------- -------------- Total 9300 barrels -------------- -------------- Source: MOGE ¶5. (C) Seismic data shows that there are still oil and gas deposits in Burma, although they are located deep beneath the surface under areas of high pressure. Industry analysts blame MOGE for Burma's low onshore production, noting that the state-owned enterprise, with its antiquated technology, lack of geologic understanding, and desire for immediate wealth, depleted shallow oil reserves without exploring ways to extract the richer deposits below. To tap into the remaining reserves, investors would need to employ the newest drill technology, digging on a diagonal to avoid the high pressure areas. Focus Energy and GoldPetrol officials informed us that they have no plans for new investments, despite repeated requests by the MOGE; their fields are too old and will not yield enough in production to justify the high costs. They could not envision the Chinese spending the money either, and discounted MOGE because it lacks the technology, equipment, and wherewithal to drill in high pressure joints. ¶6. (C) Raymond Bona, General Manager of GoldPetrol, confirmed that Chinese-owned CNPC/Chinnery Assets recently discovered a new natural gas deposit in Pyitaung Tan field in Bago State, which could hold up to 300 billion cubic feet of gas. According to MOGE figures, CNPC's current operations in Pyitaung Tan yield a paltry 201 barrels a day, down from 2,435 barrels/day in 1970. With the new find, CNPC could produce up to 20 million cubic feet of gas per day, as well as 40 barrels of condensed gas. Although GoldPetrol could not provide details of CNPC's PSC with the GOB, he acknowledged that CNPC has the right to contract the sale of gas not retained for domestic use. China, Bona emphasized, is the real winner in this find. Comment -------------- ¶7. (C) Eager to pump as much oil and gas as possible, the Burmese Government has done little long term planning for the development of its onshore fields, many of which have been in production since the late 19th and early 20th centuries. Instead, the senior generals focus on how to make a quick dollar, draining the country's resources in the process. While they would like to persuade foreign investors to find additional reserves, they have failed to make exploration and production attractive to prospective investors despite the potential. Even Chinese are unlikely to invest out of altruism, but only if they can make money. VILLAROSA