Australia's Woodside Petroleum and its partners have deferred gas exploration plans in Myanmar until 2018 after some disappointing drilling results, according to four people familiar with the situation.(Reuters Photo/Woodside Petroleum)
Woodside Delays Myanmar Gas Drilling as Early Results Disappoint: Sources
BY :SHOON NAING AND ANTONI SLODKOWSKI
OCTOBER 17, 2017
Yangon. Australia's Woodside Petroleum and its partners have deferred gas exploration plans in Myanmar until 2018 after some disappointing drilling results, according to four people familiar with the situation.
Woodside and its partner, French oil and gas major Total, have targeted Myanmar as a key source of growth, as it is rich in gas and sits next to rapidly growing markets, including Thailand and China.
Woodside said in August it planned to drill wells in two exploration blocks off the coast of Myanmar in the second half of this year. It said both blocks could hold "multi-trillion cubic feet" of gas.
But the Australian company cancelled a tender for seismic work 10 days ago, after drilling at Blocks A-6 and AD-7 did not hit as much gas as hoped, the sources said.
"They drilled [in A-6] [...] and found the gas but had to stop now because the company needs to evaluate commercial viability of the project... The results from two wells are not sufficient to decode whether the project is commercially viable or not," said a senior government official in Myanmar.
The official said Woodside "didn't find the gas" they had expected in Block AD-7, so decided to re-appraise the situation and decide on further action next year.
Woodside said the drilling had been completed, but declined to comment on whether a seismic tender had been cancelled. The company is due to give a quarterly update on Thursday.
"Woodside has completed all of its planned drilling for 2017 and is continuing planning for 2018 activities, consistent with the advice provided in Woodside's 2017 half-year report," a Woodside spokeswoman said.
Woodside chief executive Peter Coleman told analysts in August the company expected to know after drilling in Block A6 that month whether the field was commercial.
"We've already had some initial discussions on it, but assuming a success case on the current well in Block A6, we'll be ready to be inputting development proposals in front of government as to the pathway forward," Coleman said then.
A person involved in bidding to carry out seismic exploration work said Woodside had sent a letter in early October cancelling the tender as it had failed to receive joint venture approval, and was deferring the work to the second or third quarter of 2018.
The person declined to be named as the tender process is confidential.
Woodside's partners in Block A-6 off Myanmar's southwest coast are France's Total and local firm MPRL E&P. Total did not respond to requests for comment.
Its partner in Block AD-7 is South Korea's Posco Daewoo. Posco Daewoo said there had been no change to plans for AD-7.
The sources contacted for this article said the delays were unrelated to the violent refugee crisis of Rohingya Muslims fleeing Myanmar, for which the government has come under international criticism.
Yet analysts said the political crisis may have been a factor.
"The worsening Rohingya crisis is an additional factor in an overall quite problematic operating environment now," said Jan Zalewski, head of Asia at risk consultancy Verisk Maplecroft.
"Aside from challenging fiscal and commercial contexts for energy majors, regulatory capacity constraints, growing resource regionalism and unclear energy and economic policies create uncertainty," he added.
The terms include income tax royalties on income and production, research and development payments and profit sharing with local companies.
The delay is a potential blow to Myanmar's ambitious plans to develop its nascent energy sector, which struggles to keep up with demand.
Energy consultancy Wood Mackenzie says that Myanmar has one of the lowest per capita electricity consumption rates in Asia, with around half the over 50 million population having no access to electricity.
Wood Mackenzie said the Myanmar's difficult environment may mean more oil firms will pull out.
Other companies active in Myanmar's waters are Royal Dutch Shell and China National Petroleum Corporation (CNPC).
Neither Shell nor CNPC were immediately available for comment.
"Other operators will be in a similar position to Woodside and will have to decide on reducing, delaying or dropping drilling commitments [i.e. Blocks AD-5, AD-2, A-7 and A-4]," said Adrian Pooh, senior analyst for Southeast Asia at Wood Mackenzie.