AUSTRALIAN COMPANY TO INVEST IN BURMA'S GAS SECTOR

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 000011

SIPDIS

SIPDIS

STATE FOR EAP/MLS; INR/EAP; OES FOR JMIOTKE AND ACOVINGTON;
EAP FOR JYAMAMOTO; EEB FOR TSAEGER
DEPT PLEASE PASS TO DEPT OF ENERGY
PACOM FOR FPA
TREASURY FOR OSIA:SCHUN

E.O. 12958: DECL: 01/09/2018
TAGS: ECON ENRG PGOV EPET BM
SUBJECT: AUSTRALIAN COMPANY TO INVEST IN BURMA'S GAS SECTOR

REF: A. 07 STATE 169643

B. RANGOON 003

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Classified By: Economic Officer Samantha A. Carl-Yoder for Reasons 1.4
(b and d)


1. (C) Summary. Australian-owned Danford Equities
Corporation will become the next foreign company to invest
heavily in the Burmese oil and gas sector when it begins
exploration of its offshore gas field in 2008. According to
Australian Embassy officials, Danford expects to spend up to
$40 million during exploration, and hopes to begin producing
oil and gas by 2010. Although the Australians imposed
sanctions on the Burmese regime in October, these sanctions
do not include a ban on trade and investment. End Summary.

Enter in the Australians
--------------


2. (SBU) Danford Equities Corporation, owned by Australian
company Twiza Oil, is a relative newcomer in the petroleum
industry. In November 2006, Danford entered into its first
ever production sharing contract (PSC),signing a joint
venture contract with state-owned Myanmar Oil and Gas
Enterprise (MOGE) for oil and gas exploration in Burma's Gulf
of Martaban. Under the PSC, Danford has a thirty-year
contract for the Yetagun East block, a 21,000 square
kilometer block located adjacent to the Yetagun oil fields
(found in the M12, M13, and M14 blocks). For the past 12
months, Danford has conducted preliminary analysis of the
block, performing seismic tests and analyzing data. The
company, concluding that the data showed positive findings,
announced on December 21 that it will begin exploring the
block in 2008.


3. (C) According to Australian Embassy DCM Simon Starr,
Danford will spend approximately $40 million over the next
two years on exploratory drilling. Danford officials (who
declined to meet with us) expect to drill up to six
exploratory wells in the shallow waters of the block. Starr
confirmed that the Yetagun East block holds crude oil
reserves of approximately 100 million barrels, and noted that
Danford plans to begin production of oil and natural gas by

2010. Danford officials will wait until 2009 before opening
discussions with MOGE on the sale of oil and gas, Starr
stated.

Is Production Possible?
--------------


4. (C) Bruce Leach, Daewoo Drilling Manager, informed us
that Danford's announcement is premature, noting that Danford
has little experience in offshore gas production. Danford
may have access to the latest technology, Leach continued,
but its engineers have little knowledge about the
difficulties of offshore production. Leach predicted that
Danford would have to look for more experienced partners once
it finds oil and gas reserves, and pointed to PTTEP of
Thailand and Petronas of Malaysia as the most obvious
partners since they are currently producing in the adjacent
Yetagun gas fields.


5. (C) Leach also expressed disbelief that Danford could
begin production within the next two years. Using Daewoo's
experience as a benchmark, he commented that it would take
Danford several years to build well head platforms and
procure a rig for long term production. Additionally,
Danford would have to build at least one new pipeline
(possibly two if both oil and gas are found) to the Burmese

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coast, as the existing pipeline from the Yetagun fields,
which pump almost 400 million cubic feet of gas to Thailand
daily, is at maximum capacity.

What About Australian Sanctions?
--------------


6. (C) Starr told us that while the Australians imposed
sanctions on the Burmese regime in October 2007, these
sanctions do not include a ban on trade or investment.
Although the Australian Embassy, following an unofficial
policy, discourages Australians from doing business in Burma
because of the regime's poor human rights record and bad
investment climate, Danford Equities has conducted business
in Burma for several years, Starr noted. Originally, Danford
entered Burma with an eye to the mining sector, but after
extensive surveys decided to opt out of the sector. Danford
also owns the Myanmar Consolidated Media Corporations, which
publishes the English-language Myanmar Times. Danford
officials understand the risks of working in Burma and
believe they can work well with the Ministry of Energy on
this endeavor, Starr concluded.

Comment
--------------


7. (C) The Australians are the latest to enter into the race
to tap into Burma's offshore oil and gas fields. Just as we
urged the Chinese and Thais to postpone future investments in
Burma's energy sector (Ref A),we should do the same with
others delving into Burma's oil and gas sector, particularly
Australia and Korea (Ref B). Than Shwe's main source of
funding comes from oil and gas. These companies are directly
helping to strengthen the military hold on power in Burma.

VILLAROSA