Analysis of Investment of Deepwater Drilling Market

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Analysis of Investment of Deepwater Drilling Market in Myanmar
Oliver Massmann – Partner, General Director
Southeast Asia Offshore Summit
Yangon 10-12 Sep 2015

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Features
 India’s Oil & Gas outlook
 Oil & Gas Scenario - Myanmar
 Deepwater Drilling Opportunities - Myanmar
 Investment Analysis of Myanmar Deepwater Drilling
 Conclusion

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• Oil and Natural Gas Corporation Limited (ONGC) is an Indian
National Oil Company (NOC) under the administrative control of
the Ministry of Petroleum and Natural Gas (MOP&NG).
• It was founded on 14 August 1956 by Govt of India, which currently
holds 68.94% equity and spreads from Domestic E&P to Global Energy
Chain.
Shareholders Shareholding
Government of India 68.94%
Government Companies 10.09%
Banks, Fin Inst. & Insurance
co.
09.69%
Foreign Institutional
Investors
06.27%
Private Corporate Bodies 01.83%
Individual shareholders 01.65%
Mutual Funds and UTI 01.13%
Employees 00.11%
Total 100.0%
Introduction
ONGC also spreading in renewable energy sectors like solar, wind, tidal, thermal etc.

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• The company's domestic operations are structured around 11 Assets and 7
Basins spreading throughout India in onshore, offshore and deepwater areas.
Domestic E&P
ONGC
69%
Others
31%
CrudeOil
ONGC
62%
Others
38%
NaturalGas
Mumbai Offshore
KG Offshore
* excluding JV share
India : 37.8 MMT India : 35.4 BCM

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• ONGC Videsh Limited (OVL) is the international arm of ONGC. It was
incorporated in 1965 and rechristened in 1989. It operates in 17 countries
(Brazil, Colombia, Cuba, Venezuela, Vietnam, Myanmar, Russia, Kazakhstan, Libya,
Nigeria, Sudan, South Sudan, Mozambique, Azerbaijan, Iran, Iraq, Syria)
Overseas E&P
•Myanmar
OVL has been awarded two onshore blocks namely
B2 (Zebyutaung-Nandaw) and EP-3 (Thegon-
Shwegu) in the Onshore Bidding Round 2013.
It already has a presence in Myanmar with stakes in
A-1 and A-3 offshore blocks and Shwe Gas pipeline.
8.36 MMTOE $3.5 Billion $0.7 Billion

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• Profit making PSU : India’s 1st (INR 0.22 trillion / US$ 4.1 billion)
• Market capitalization : India’s 2nd (INR 2.6 trillion / US$ 48.9 billion)
• Global E&P Co. : World’s 3rd (after Conoco-Phillips & CNOOC)
• Global Energy 250 : World’s 21st (by Platts)
• Global Fortune 500 : World’s 424th (annual revenue of US$ 27.6 billion)
Performance
India E&P sector

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 India’s Oil & Gas Outlook

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 Indian Economy is the third largest economy in the world and reaching to TOP by 2050
 India’s need for more oil & gas leads to more thrust from Govt for Deepwater Exploration
India Story
15% of the World’s population
0.5% of the World’s Oil & Gas reserves
ENERGY
Regaining GDP

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 26 Sedimentary Basins identified
Offshore (Shallow / Deepwater) = 8
Total Sedimentary Area : 3.14 MM Sq KM
 Onshore : 1.39 MM Sq KM
 Offshore (Shallow) : 0.40 MM Sq KM
 Deepwater : 1.35 MM Sq KM254 blocks awarded in 9 rounds
India Sedimentary Basin

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India Oil Update
Import Gap
(83%)
2013-14
World’s largest refinery is in India (RIL)

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India Gas Update
I bcm = 2.74 mmscmd
Import Gap
(LNG)

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India Deepwater Update
RIL MA-D6, D1 and D3
(Bay of Bengal)
• Water depth 600-1700m
• 60 KM from shoreline
• 6 oil wells tied to FPSO
• 18 gas wells connected to CRP
• Started in 2009
• 60 MMm3 gas
ONGC KG-DWN-98/2
(Bay of Bengal)
• Water depth 450-2800 m
• 60 KM from shoreline
• 3 oil and 8 gas discoveries
• Production to start in 2018-19
• Waxy crude 25 Kbpd
• 40 MMm3 gas
GSPC KG-OSN-2001/3
(Bay of Bengal)
• Water depth 400 m
• 30 KM from shoreline
• FDP plans 15 wells
(HPHT)
• Prod to start in 1-2 year
• 6-8 MMm3 gas
 These activities are at KG Basin at East Coast
 Deepwater Basins which are yet to exploit :
 Kutch-Saurashtra, Mumbai Offshore, Kerala-
Konkan at West Coast
 Bengal, Mahanadi NEC, Cauvery, Andaman-
Nicobar at East Coast
ONGC drills world’s deepest well NA7-1 in
2013
Block : KG-DWN-2004/1 (East Coast)
Rig : DDKG-1 (Transocean) hired from
RIL in 2009
WD : 3165 m (TD 5625 M)

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 Oil & Gas Scenario - Myanmar

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 Area : 676578 sq-km
 Population : 53.3 Million (0.1%)
 Male : 25.7 Million (48.2%)
 Female : 27.6 Million (51.8%)
 Age Average : 29.9 Years
Introduction
 1948 : Independence from British
 1948 – 1962 : Democratic Country
 1962 – 2010 : Under Dictatorship
 2010 : Elected Government
Borders : India, Bangladesh
China, Laos, Thailand
Coastal Line : 2832 KM

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Oil and Gas Business
 The regulation of the oil and gas sector in Myanmar has undergone rapid change since the
introduction of political reforms.
 The Constitution of the Republic of the Union of Myanmar 2008 stipulates that the State is
the ultimate owner of all natural resources.
 Myanmar Oil & Gas Enterprise (MOGE) is the national oil and gas company of Myanmar
which also serves as the energy sector's regulatory agency.
 All foreign participation in oil and gas activity takes place through joint venture
arrangements with MOGE.
 The MOGE falls under the auspices of the Ministry of Energy.
Ministry of Energy
Energy
Planning
Department
(EPD)
Myanma Oil
and Gas
Enterprise
(MOGE)
Myanma
Petrochemical
Enterprise
(MPE)
Myanma
Petroleum
Products
Enterprise
(MPPE)

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14 Onshore Basins, only 3 explored thoroughly
4 Offshore Basins, only 3 explored thoroughly
Sedimentary Basin
STATUS OF EXPLORATION
(Offshore)
A. Thoroughly Explored Basins
1.Rakhine Offshore
2.Moattama Offshore
3.Tanintharyi Offshore
B. Not Explored Yet
1.East Andaman Basin
STATUS OF EXPLORATION
(Onshore)
A. Thoroughly Explored Basins
1.Central Myanmar
2.Pyay Embayment
3.Ayeyarwady Delta
B. Explored to Some Extent
1.Chindwin
2.Rakhine Coastal
C. Very Little Explored
1.Hukaung
2.Shwebo-Monywa
3.Bago Yoma
D. Not Explored Yet
1.Hsipaw-Lashio
2.Namyau
3.Kalaw
4.Sittaung Valley
5.Mawlamyine
6.Mepale (Oil Shale)
1
2
3
4

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Sedimentary Blocks
 53 Onshore Blocks
currently 20 blocks are under operation
(15 companies – 10 countries)
 51 Offshore Blocks
(shallow 26 and deepwater 25)
currently 25 blocks (shallow 18 and
deepwater 7) are under operation
(12 companies – 7 countries)
Bidding Offered Awarded PSC
2011 18 11 onshore
2013 18 16 onshore
2013 30
(11S+19D)
20
(10S+10D)
offshore
Mainly Production Sharing Contract (PSC) of $17 billion
 Shallow Water
 Rakhine - 7
 Moattama - 11
 Tanintharyi - 8
 Total - 26 Blocks
 Deep Water
 Rakhine - 16
 Moattama - 3
 East Andaman - 6
 Total - 25 Blocks

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Current Onshore Activities
Blocks : 20, Companies : 15
Countries (10): Russia, China, Indonesia, UK, India, Singapore, Hong Kong, Switzerland, Malaysia, Thailand
Countries in 2013 for 16 Blocks (10): India, Canada, Pakistan, Italy, Brunei, Russia, Singapore, Malaysia,
Thailand, Luxembourg
India
Essar : PSC-L
Jubilent : PSC-1
----------------------
ONGC (OVL) : PSC-B2,
EP-3
Block Country
Without
bidding
7 4
1st (2011)
bidding
8 (11) 10
2nd (2013)
bidding
16 (18) 10

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Current Offshore Activities
Blocks: 25 (18S + 7D), Companies : 12
Countries (7): France, Malaysia, South Korea, Thailand, China, Singapore, Vietnam
Countries in 2013 for 20 Blocks (8): UK, USA, Australia, India, Malaysia, Netherland, Italy, France
India
OVL(STAKE) : A1, A3
OIL +
Mercator +
Oilmax : M4, YEB
Reliance : M17, M18
Block Country
Without
bidding
13S
+
4D
7
1st
(2013)
bidding
10S (11S)
+
10D (19D)
8

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Oil & Gas Production
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
22000
24000
26000
28000
30000
32000
34000
1974-75
1975-76
1976-77
1977-78
1978-79
1979-80
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
Crude Oil Production (BOPD)
"Onshore"
"Offshore"
0
100
200
300
400
500
600
700
800
900
1000
1100
1200
1300
1400
1974-75
1975-76
1976-77
1977-78
1978-79
1979-80
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
Natural Gas Production (MMSCFD)
"Onshore"
"Offshore"
1200 MMSCFD = 36.0 MMSCMD
20000 BOPD = 1.0 MMTPA
Y – axis : ‘000 BOPD
Current Production
Oil : 15-20000 BOPD
Gas : 2055 MMSCFD
: 61.7 MMSCMD
: 372,000 BOPD
Offshore
Oil : 50%
Gas : 97%

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Oil & Gas Business Prospects
Political and economic reforms
• New political reforms introduced in 2011 have seen sanctions lifted by the European
Union and United States, allowing international players to re-enter the market.
Tenders announced
• In 2013 - 2014, the Government of Myanmar awarded 20 offshore blocks to
international companies and accordingly offered them the preliminary rights to explore
and produce from offshore blocks, with exploration likely to start in 1-2 years.
A hotspot for exploration
• Myanmar is one of world’s hotspots for exploration: according to research firm IHS
Global Insights, Myanmar is estimated to possess 3.2 billion barrels of oil and 18
trillion cubic feet (tcf) of natural gas reserves. Its unproven resources may be vastly
greater.

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Potentially valuable resources
• Myanmar’s proven reserves are almost on a par with those in India, which possesses
5.7 billion barrels of oil and 18 trillion cubic feet (tcf) of natural gas and is ranked 16th
globally in terms of the value of its resources by British Petroleum’s 2013 statistical
review of world energy.
Limited local capacity
• At present, Myanmar’s local capacity is limited, which means there is a demand for
international suppliers across the entire supply chain.
• The Government of Myanmar is keen to work with responsible international
businesses to ensure that international standards in health, safety and the environment
are met.
Oil & Gas Business Prospects

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 Deepwater Drilling Opportunities - Myanmar

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Offshore Blocks
Shallow Blocks : 26Offshore Blocks : 51 Deepwater Blocks : 25
Myanmar offshore Crude oil & Gas Reserves are estimated to be 540 MMBBL & 17 TCF respectively
Without Bidding : 4 1st Bidding : 10 Yet to Award : 11

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Deepwater Blocks
4 Blocks without bidding, 10 Blocks awarded, 7 Blocks open and 4 Blocks yet to offer
The oil discoveries in deepwater area off the east coast of India (e.g. MA-D6 Field in K-G Basin) in the Bay of
Bengal, indicated that deepwater area of Rakhine Basin has very high commercial oil potential in Miocene to
Paleocene sediments and wet gas and condensate in Mesozoic sediments.
Sl. Blocks Company
1 AD-2 BG + Woodside
2 AD-3 Ophir Energy
3 AD-5 BG + Woodside
4 AD-9 Shell + MOECO
5 AD-10 Statoil + ConocoPhillips
6 AD-11 Shell + MOECO
7 MD-2 Eni
8 MD-4 Eni
9 MD-5 Shell + MOECO
10 YWB Total
11-
13
AD-1,6,8 CNPC
14 AD-7 Daewoo

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 Study Period 2 Years
seismic acquisition, processing and interpretation / geological
studies
 Exploration Period 3 years with extension (1 year x 2 times)
seismic and drilling program
 Production Period 20 years
each commercial discovery
 Domestic Requirement 20% of crude oil and 25% of natural gas of Contractor’s share at
90% of market price
 Governing Law Laws of the Republic of the Union of Myanmar
 Arbitration UNCITRAL Arbitration Rules
 Training Fund Exploration Period = 50,000 US$ p/a
Production Period = 100,000 US$ p/a
 R & D Fund 0.5% of contractor’s share of profit petroleum
Deepwater PSC – Key Terms
Exploratory / Drilling for Deepwater to start from 2016-17

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 Royalty 12.5% of all available petroleum
 Cost Recovery 50% (Depth ≤ 600 ft)
70% (Depth over 2000 ft)
 Profit Split
(MOGE –
Contractor)
60 - 40% to 85 – 15%
55-45% to 80 – 20%
 State
Participation
20 - 25%
 Income Tax 25% on the contractor's net profit
(5 years tax holiday )
Deepwater PSC – Revenue Structure
Crude oil ≤ 600 ft Over 2000 ft
BOPD MOGE CONT. MOGE CONT.
0 – 25,000 60 40 60 40
25,001 – 50,000 65 35 65 35
50,001 – 100,000 80 20 75 25
100,001 - 150,000 85 15 80 20
> 150,000 90 10 85 15
Natural gas ≤ 600 ft Over 2000 ft
MMCFD MOGE CONT. MOGE CONT.
0 - 300 65 35 55 45
301 - 600 75 25 65 35
601 - 900 85 15 75 25
> 900 90 10 80 20

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Drilling Contractors in Myanmar Offshore
Semi SubmersibleJack-up Rig Drillship
Top 5
179
Others
46

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Supply Vessels in Myanmar Offshore
• Most of untapped oil and gas resources in both shallow water and deep water areas
will not be suitable for fixed platform and require support vessel like Oil FPSO,
LPG-FPSO, FLNG(LNG-FPSO) and FDPSO.
• After signing the PSC for 2013 Bidding Round, operating blocks in Myanmar
offshore will be (14) deep water blocks and (23) shallow water blocks. That will
create rapid growth of considerable amount of giant and smaller marginal fields in
Myanmar offshore within next seven years.
• Myanmar offshore will be a hot spot for FPSOs investment in Asia by year 2020.
Signed PSC
2014 2015 2016 2017 2018 2019 2020
Discovery
First Oil/ Gas
(FPSOs)
 Currently, E & P in deepwater blocks activities will be at very initial stage in
Myanmar offshore. Less demand within country will also attract FPSOs.
 Only one Supply Base operating at present will not be adequate to cater the
activities of all the deepwater blocks.

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Opportunities in Myanmar Offshore
• Huge size & stock of natural resources – oil & gas
• 20 newly awarded blocks – 10 shallow & 10 deepwater
• 7 Open Blocks (deepwater)
• Next round of Offshore Bidding shortly
• Strategic Location – Long Coast Lines
• Excellent Supply Chain Opportunities
• New Service Areas including new Supply Bases
• Capacity Building
• Attractive Foreign Investment Schemes
• Appreciated GDP growth
• Knowledge & Technology Transfer
• Educated nationals returning to Myanmar
• Government’s keenness to diversify commercial partners
• Many International Companies’ interest to work with
trusted local partners
Recent low crude oil prices seems to be conducive for carrying out drilling activities
at low cost and when the production will start, the anticipated higher crude oil prices
will be advantageous to the operators
Decline of Deepwater Dayrate

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Challenges in Myanmar Offshore
• Water Depth more than 2000 M
• No Adequate Shipyard / No Deepsea Port / No Logistic Base
• Need Deepwater drilling rigs largely from International players
• Need high capital investment from large investors creating
entry barriers for smaller companies
• Unstable Policy & Bureaucracy (Document System)
• Limited Information (Ministry to Ministry)
• Shortage of Talents (Weak Capacity)
• Poor Infrastructure
• Closed door for 20 Years (Red Tape)
• Limited Weather Windows in Myanmar
• Cooperation with Local Responsible Persons before Operation
• Dependence on Foreign Investors & Service Providers
Offshore Rigs – Worldwide Fleet
Deepwater starts in 1990 Africa leading in Deepwater

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 Investment Analysis of Myanmar Deepwater Drilling

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Criteria for Foreign Investment
 Safeguard of Environment Conservation
 Transparency and Accountability in Financial
Matters
 Create Job Opportunities
 Abide Existing Labor Law
 Support Corporate Social Responsibilities
consistent with Regional and International
Standard and Agreements
 Transfer of Technology
 Encourage and Create Level Playing Field among
Investors
Nine Laws largely based on
British Law Codes of the pre-
independence Indian Statutes
• The Oilfields Act (1918)
• The Petroleum Act (1934)
• The Oilfields Rules (1936)
• The Essential Supplies and
Services Act (1947)
• The Oilfields Labour and
Welfare Act (1951)
• The Petroleum Resources
Development Regulation Act
(1957)
• The Myanmar Petroleum
Concession Rules (1962)
• The Law Amending the
Petroleum Resources
Development Regulation Act
(1969)

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Scope for Foreign Investment
Oil & Gas
40%
Power
39%
Mining
7%
Manufacturing
7%
Hotel & Tourism
4%
Industry
1%
Agriculture
1%
Others
1%
Mature Growing Stars
Agriculture Education Garments & CMP Automobiles
Fishery Hotel & Tourism Oil & Gas Electronics
Forestry Hospitality Energy & Electric Biotech
Gems Healthcare IT & Telecom Insurance
Job Agencies Food & Consumers Banking & Finance Investment Firm
Commodities Mining & Minerals Logistics Real Estate
Pharmaceuticals Construction Industrial Supplies Infrastructure
Foreign Investors in
Offshore Oil & Gas
1. Australia
2. British Virgin
3. China
4. France
5. India
6. Italy
7. Japan
8. Malaysia
9. Netherlands
10. Russia
11. Singapore
12. South Korea
13. Thailand
14. United States
15. Vietnam

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Recommendations
Globally Deepwater Investment is steadily increasing
Offshore Oil & Gas Companies in Myanmar
BG, Woodside, Ophir Energy, Shell, MOECO, KMDC,
Statoil, ConocoPhillips, ENI, OVL, CNPC, CNOOC,
Daewoo, Total, PTTEPI, PETRONAS, Petro Vietnam,
Rimbunan Petrogas and MPRL E&P etc.

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Conclusion
 After 50 years of isolation, Myanmar doors have been unlocked & Sanctions have
also been moving away. Good market places are also nearby.
 Overwhelmed by the political and economical reform, Myanmar will be the biggest
treasury land for the investors.
 Myanmar is going to market economy system and the opportunity for exploration
and production is likely to be good future.
 Deepwater Blocks are the upcoming potential for Myanmar Offshore Area. Some
Deepwater Blocks are awarded in 1st Bidding Round. But also some potential
Exploration blocks are still opened in deepwater area.
 Deepwater Operators are motivated to sign PSCs, grabbing the opportunities and
ready to overcome challenges. Local and International Partnerships are also getting
stronger, although not essential for Deepwater Blocks.
 Recent low crude oil prices seems to be conducive for carrying out drilling
activities at low cost, since when the production will start, the anticipated higher
crude oil prices will be advantageous to the operators.
 The total investment including the investment for supply vessels (FPSO) will be
increased rapidly from 2015-16 onwards and the outlook for exploration/production
of oil & gas in Myanmar will have bright future.

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Thank you!
Oliver Massmann – Partner, General Director
omassmann@duanemorris.com;