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This Oil Frontier Just Became More Interesting For Oil Majors

This Oil Frontier Just Became More Interesting For Oil Majors

Now that Myanmar has opened up to foreign investment after more than 50 years of military rule, one of the first entrants in the country’s energy market appears on the verge of financial success.

Woodside Petroleum Ltd. of Perth, Australia, says it has made an “encouraging” discovery of gas at its first test well. Drilling found reserves of gas nearly 50 feet deep at the Shwe Yee Htun-1 exploratory well in the Rekhine Basin off the country’s west coast. This is not a huge find – yet – but the company plans additional exploration to get a better sense of the gas yield in the region.

“Further analysis will be undertaken to understand the full potential of the play, but this de-risks a number of leads which will now be matured,” said Peter Coleman, the CEO of Woodside, Australia’s second-largest oil producer. “This discovery is an encouraging outcome for future exploration and appraisal activity in the area.” Related: The New Cartel Running The Oil Sector

Analysts seemed to agree, even in a depressed energy market. One, Mark Samter of Credit Suisse, noted, “Myanmar is an area that has got a few of the international oil and gas companies excited, but life is tough for any new resource with oil at $38 a barrel.” He called the discovery “an improvement on the recent track record” of exploration by Woodside, which has had little success in recent years.

Adrian Prendergast of Morgans Financial Ltd. in Melbourne also cited the potential value of the discovery. “For a lot of the global players that rushed into the space, this confirms it is prospective and worth chasing,” he said. “But there’s still a long a way to go.”

Woodside doesn’t own the Shwe Yee Htun-1 well outright. It holds a 40 percent share in the project, as does France’s Total, while 20 percent is held by MPRL E&P Pte Ltd., a state-run energy company in Myanmar. Related: Oil Companies Shun South China Sea As Geopolitical Tensions Rise

Woodside and Total, along with Britain’s BG Group, were among the first foreign companies to invest in Myanmar’s energy resources since it resumed accepting such investments five years ago. The new question is how much further such enterprises can go now that Aung San Suu Kyi’s National League for Democracy has elevated its status from opposition to ruling party in November’s national elections.

Under pressure from Aung San Suu Kyi’s party and the international community, Myanmar’s military, which had ruled the country since a coup in 1962, introduced political reforms in 2011, prompting the United States and the European Union to lift sanctions, a move that led Yangon to open itself to foreign investment, including drilling rights to several giant multinational oil companies. Related: What Comes After The Commodities Bust?

Myanmar is rich in energy resources, including proven holdings of 3.2 billion barrels of crude oil and 18 trillion cubic feet of gas and unproven holdings even greater. And Woodside holds the rights to more exploration acreage than any other foreign investor, with permits totaling nearly 18,000 square miles, or about one-fifth of the company’s total acreage worldwide.

If the Shwe Yee Htun-1 discovery lives up to its promise, it could be a financial boon to Woodside, which like many other energy companies has severely cut back on capital spending during the plunge in energy prices during the past 18 months. Yet it still plans to open exploratory wells in the coming year, including a second well in Myanmar, called Tha Lim-1.

By Andy Tully of Oilprice.com

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