In early 2019, the Ministry of Electricity and Energy (“MOEE”) announced that it would soon be calling a new round of international tenders for 18 onshore and 15 offshore oil and gas blocks expected to take place in early 2019. The tender round was subsequently delayed and is now anticipated to occur in Q3 or Q4 of 2019.
Complicating the backdrop to the new tender was the public release of a draft bill entitled “The Exploration Prospecting Development and Production of Petroleum Bill” (“Petroleum Bill”). This seeks to comprehensively reform Myanmar’s upstream petroleum sector. Much criticism has been leveled at the Petroleum Bill and no timeframe has been set for its adoption, thereby causing much uncertainty as to which regulatory regime will apply to the upstream petroleum sector during and after the new round of tenders.
Below we give a brief description of the current regulatory regime, a discussion on the proposed regulatory regime and DFDL’s predictions on how the regulatory regime is likely to govern the forthcoming bidding process.
Current regulatory regime
The regulatory regime governing the upstream petroleum sector consists of outdated laws based on British Legal Codes dating from the colonial era. Although a patchwork of laws have been promulgated since 1948, few have sought to comprehensively regulate this sector.
At present, the sector is almost entirely governed by administrative fiat and production sharing contracts (“PSCs”) entered into between interest-holders and the Myanma Oil and Gas Enterprise (“MOGE”), the state-owned enterprise responsible for all activities related to the upstream petroleum sector. The MOGE plays the dual role of both counterparty and de facto regulator. At present, all new PSCs are based off the 2012/2013 model PSC.
In these dual roles, the MOGE holds the responsibility for any amendments to the PSC as well the issuance/declining of numerous different approvals that interest-holders may require throughout the life of the project, such as farmouts, farm-ins, extensions, gas sales, transport and export etc.
The regulatory regime in its present form has served Myanmar’s upstream petroleum sector satisfactorily since the last bidding round. Nonetheless, the Myanmar government now proposes bringing regulation of this sector under the purview of the MOEE.
Proposed regulatory regime
In late 2018, the Legal Drafting Committee of the Pyithu Hluttaw (Myanmar’s lower house of parliament) tabled the Petroleum Bill which seeks to comprehensively regulate the upstream petroleum sector. The Petroleum Bill touches on matters as various as the tender process for oil & gas blocks, labor issues, environmental issues, and occupational health & safety. It was the original intention of the Legal Drafting Committee and others that the Petroleum Bill would be promulgated in time for the 2019 tender round, although that now appears to be very unlikely.
The Petroleum Bill has introduced uncertainty and has been the target of much criticism from the public. The most far-reaching changes proposed by the Petroleum Bill includes a revision of the period structure presently used in PSCs, the reallocation of administrative and regulatory functions from the MOGE to MOEE, and a highly controversial tender procedure interposed before and after each different period.
Owing to significant criticism of this Petroleum Bill, the MOEE and relevant legal drafting committees are looking into revising the draft. It is our view that the Petroleum Bill will take many more years to finalize and will play no role in the 2019 tender.
Predictions for the 2019 Tender
As a result of the hiatus placed on the Petroleum Bill, the government of Myanmar will have to conduct the 2019 tender in line with the existing regulatory regime. We anticipate that the MOEE and MOGE will publish a set of tender rules in due course along with an updated and revised model PSC which will form the basis of selecting a successful bidder.
The revised model PSC is likely to include better financial terms than older model PSCs with a more favorable production sharing breakdown having been mooted by the MOGE as recently as January 2019.
As to the blocks will be up for tender, only four shallow water blocks are available, the tender is heavily skewed in favor of onshore and deepwater blocks.
The following blocks are expected to be put up for tender in 2019:
|Onshore||Shallow Offshore||Deepwater Offshore|
DFDL has been actively involved in Myanmar’s oil & gas industry since 1995. DFDL’s extensive experience has ensured that it remains the market leader in the field, having played a pivotal role in all of the largest oil & gas transactions in Myanmar over the course of the last 24 years.
DFDL has broad experience on a wide variety of oil & gas transactions, acting for local and international buyers, sellers, banks, traders, exporters, developers, and other key stakeholders. In-depth understanding of the domestic and regional oil & gas industry across Southeast Asia, including upstream, midstream and downstream sectors, means the team provides guidance throughout the lifecycle of a project, from inception, tender, finance, acquisition, structure, exploration and construction of infrastructure, to production, extraction and offtake.
With local knowledge and business acumen, we take into account broader commercial and socio-political issues in the process of formulating optimal solutions for a given project. DFDL advisers have the sophisticated legal training, complex deal background and high level of technical expertise needed to structure deals effectively and draft documents clearly, concisely and quickly.
Jacobus du Plessis is a legal adviser in DFDL’s Myanmar office who specializes in the upstream oil & gas sector. He advises a broad subset of clients from E&P companies, to project developers, offtakers and lenders in relation to oil & gas project developments and acquisitions and disposals. Jacobus’ practice has a particular emphasis on the unique, complex and fast-developing regulatory environment in Myanmar. Most recently, Jacobus advised on the upcoming Exploration Prospecting Development and Production of Petroleum Bill which is set to be the biggest regulatory overhaul in the Myanmar upstream petroleum sector’s 133 year history.
Partner, Managing Director
The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.