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 RANGOON 00000011 001.2 OF 002 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 RANGOON 00000011 002.2 OF 002 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