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Advising oil and gas companies in Myanmar

 

 

Introduction

  • 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

Petroliferous Basin of Myanmar

SEDIMENTARY BASINS

  1. Rakhine Coastal
  2. Hukaung
  3. Chindwin
  4. Shwebo-Monywa
  5. Central Myanmar
  6. Pyay Embayment
  7. Ayeyarwady Delta
  8. Bago Yoma Basin
  9. Sittaung Valley
  10. Mepale
  11. Mawlamyine
  12. Namyau
  13. Hsipaw-Lashio
  14. Kalaw
  15. Rakhine offshore
  16. Moattama offshore
  17. Tanintharyi offshore

STATUS OF EXPLORATION (Offshore)

Thoroughly Explored Basins

  1. Rakhine Offshore
  2. Moattama Offshore
  3. Tanintharyi Offshore

STATUS OF EXPLORATION (Onshore)

A. Thoroughly Explored Basins

  1. Central Myanmar
  2. Pyay Embayment
  3. Ayeyarwady Delta
    (Only Part of the Basin)

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)
Advising-Oil-and-Gas-Companies-in-Myanmar-Petroliferous-Basin-of-Myanmar

Product Sharing Contract (“PSC”)

  • The Energy Planning Department (“EPD”) is responsible for negotiating PSC’s with foreign oil companies
  • Three types of PSC’s are awarded: onshore blocks, shallow water offshore blocks, and deep water offshore blocks
  • The government takes a royalty from the total gross production revenue as well as an economic rent from the remaining revenue available for sharing.
  • The remainder is the contractor’s revenue entitlement.
  • For the contractor, the entitlement consists of cost recovery plus the contractor’s share of remaining revenue available for sharing.
  • Cost recovery may include capital, operating or other expenses

Typical PSC Calculation

Advising-Oil-and-Gas-Companies-in-Myanmar-Typical-PSC-Calculation

Myanmar PSC Calculation

Advising-Oil-and-Gas-Companies-in-Myanmar-Myanmar-PSC-Calculation

Myanmar PSC’s – Key Terms (Onshore Blocks)

  • Initial term of the Exploration Period (3 years)

    Year 1 – G&G study and seismic acquisition, processing and interpretation

    Year 2 – to drill minimum one (1) well

    Year 3 – post- well evaluation & to drill one (1) well

    (or) to drill two (2) wells during Year 2 & 3

    Contractor will have the option to back-off

  •  

  • 1st Extension (2 years)

    Year 4 – prospect evaluation

    Year 5 – to drill one (1) well

    (or) to drill two (2) wells during Year 2 & 3

    Contractor will have the option to back-off

  •  

  • 2nd Extension (1 year)

    Year 6 – to drill one (1) well

    Contractor will have the option to back-off

  • Production Period
20 years from the date of completion of developmentin accordance with development plan (or) according to petroleum sales agreement, which ever is longer
  • Signature Bonus
Payment within 30days after signing of the contract.
  • Royalty
12.5% of all available petroleum
  • Domestic Requirement
20% of crude oil and 25% of natural gas of the contractor’s share of profit petroleum
  • Training Fund

Exploration Period = 25,000 US$ p/a

Production Period = 50,000 US$ p/a

  • Research & Development Fund
0.5% of contractor’s share of profit petroleum
  • State Participation
15% undivided interest and MOGE has the option to extend up to 25% at its own discretion.
  • Income Tax

25% on the contractor’s net profit.

(5 years tax holiday starting from the date of production.)

  • Governing Law
Laws of the Republic of Union of Myanmar

Bidding Process (On-shore)

  • Letter of Expression of Interest to be sent to the Director General of the Ministry of Energy and to include*: –
    1. Copy of Memorandum and Articles of Association
    2. Copy Certificate of Incorporation
    3. Copy Latest Annual Report
    4. Copy Detailed Track Record

    * Documentation to be endorsed for authenticity by the respective Embassy of the Republic of the Union of Myanmar in the applicant’s county of incorporation (or nearest Embassy),

  • Bidders who pass “pre-qualification” i.e. those who demonstrate they have the technical competency, financial capability, experience, expertise and technical know-how to conduct petroleum exploration and development work, will be presented with a General Overview of each block
  • Proposal Standard Terms and Conditions explained to potential bidders
  • Bidders submit up to three proposals together with proposed Terms and Conditions
  • Bidders proposed Terms and Conditions are assessed
  • Bidders must cooperate with a local company (list of companies will be provided by the Energy Planning Department)

Oil Production Split (Onshore Blocks)

Crude oil MOGE Contractor
Between 0 – 10 ,000 barrels per day 60% 40%
Between 10,001 – 20,000 barrels per day 65% 35%
Between 20,001 – 50,000 barrels per day 70% 30%
Between 50,001 and 100,000 barrels per day 80% 20%
Between 100,001 and 150,000 barrels per day 85% 15%
In excess of 150,000 barrels per day 90% 10%

Gas Production Split (Onshore Blocks)

Natural gas MOGE Contractor
Up to 60 MMCFD 60% 40%
Between 61 and 120 MMCFD 65% 35%
Between 121 and 300 MMCFD 70% 30%
Between 301 and 600 MMCFD 80% 20%
Between 601 and 900 MMCFD 85% 15%
In excess of 900 MMCFD 90% 10%

Myanmar PSC’s – Key Terms (Shallow Offshore)

  • Exploration Period

3 years with Seismic and drilling program.

Extension (1 year x 2 times)

  • Production Period
20 years for each commercial discovery (or) according to the Petroleum Sales Agreement, whichever is longer.
  • Data Fee
Payment within 30 days after signing
  • Signature Bonus
Payment within 30 days after entering into the exploration period
  • Royalty
12.5% of all Available Petroleum
  • Cost Recovery
Maximum 50% of all Available Petroleum for water depth 600 feet less Maximum 60% of all available petroleum for water depth more than 600 feet
  • Domestic Requirement
20% of Crude Oil and 25% of Natural Gas of contractor’s share of fair market values
  • Training Fund

Exploration Period = 25,000 US$ p/a

Production Period = 50,000 US$ p/a

  • Research & Development Fund
0.5% of contractor’s share of profit petroleum
  • State Participation
Undivided up to 20% after commercial discovery and up to 25% if the reserves are greater than 5 TCF
  • Income Tax

25% on the contractor’s net profit

(3 years tax holiday starting from the date of production.)

  • Governing Law
Laws of the Republic of the Union of Myanmar
  • Arbitration
Myanmar Arbitration Act 1944

Oil Production Split (Shallow Offshore)

Crude oil 600 feet or less more than 600 feet
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 Production Split (Shallow Offshore)

Natural gas 600 feet or less more than 600 feet
MMCFD MOGE% CONT.% MOGE% CONT.%
0 – 300 65 35 60 40
301 – 600 75 25 70 30
601 – 900 85 15 80 20
> 900 90 10 90 10

Myanmar PSC’s – Key Terms (Deep Offshore)

  • Study Period

TEA Period – 2 Years

seismic acquisition, processing and interpretation / geological studies

  • Exploration Period

3 years with seismic and drilling program.

Extension (1 year x 2 times)

  • Production Period
20 years for each commercial discovery (or) according to the petroleum sales agreement, whichever is longer.
  • Data Fee
Payment within 30 days after signing the contract
  • Signature Bonus
Payment within 30 days after entering into the exploration period
  • Royalty
12.5% of all available petroleum
  • Cost Recovery

Depth ≤ 600 ft. – 50% of all available petroleum

Depth between 600 – 2000 ft. – 60% of all available petroleum

Depth over 2,000 feet – 70% of all available petroleum

  • Domestic Requirement
20% of Crude Oil and 25% of Natural Gas of CONTRACTOR’s share at 90% of fair market values
  • Training Fund

Exploration Period = 50,000 US$ p/a

Production Period = 100,000 US$ p/a

  • Research & Development Fund
0.5% of contractor’s share of profit petroleum
  • State Participation
Undivided up to 20% after commercial discovery and up to 25% if the reserves are greater than 5 TCF
  • Income Tax

25% on the contractor’s net profit.

(5 years tax holiday starting from the date of production.)

  • Governing Law
Laws of the Republic of the Union of Myanmar
  • Arbitration
UNCITRAL Arbitration Rules

Oil Production Split (Deep Offshore)

Crude oil Less than 2,000 feet Over 2,000 feet
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 Production Split (Deep Offshore)

Natural gas Less than 2,000 feet Over 2,000 feet
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

Myanmar PSC’s – Capital Gains

Applicable to both onshore and offshore (deep and shallow)

If the company formed under the provisions of the contract sell or transfer its Shares of the Company and if a profit is being made the contractor is liable to pay to the Government of the Union of Myanmar the following tranches out of the Net Profit made on the sale or transfer of the shares of the company, registered under the contract: –

If the amount of Net Profit is up to US$100 million 40%
If the amount of Net Profit is between US$100 million and US$150 million 45%
If the amount of Net Profit is over US$150 million 50%

Production Bonuses – Oil

Onshore Offshore -shallow Offshore – deep
Upon approval of Development Plan = 0.50 MMUS$ Upon approval of Development Plan = 1.00 MMUS$ Upon approval of Development Plan = 1.00 MMUS$
10,000 BOPD (for 90 consecutive days production) = 1.50 MMUS$ 25,000 BOPD (for 90 consecutive days production) = 2.00 MMUS$ 25,000 BOPD (for 90 consecutive days production) = 2.00 MMUS$
30,000 BOPD (for 90 consecutive days production) = 2.00 MMUS$ 50,000 BOPD (for 90 consecutive days production) = 3.00 MMUS$ 50,000 BOPD (for 90 consecutive days production) = 3.00 MMUS$
50,000 BOPD (for 90 consecutive days production) = 3.00 MMUS$ 100,000 BOPD (for 90 consecutive days production) = 4.00 MMUS$ 100,000 BOPD (for 90 consecutive days production) = 4.00 MMUS$
100,000 BOPD (for 90 consecutive days production) = 4.00 MMUS$ 150,000 BOPD (for 90 consecutive days production) = 5.00 MMUS$ 150,000 BOPD (for 90 consecutive days production) = 5.00 MMUS$
200,000 BOPD (for 90 consecutive days production) = 6.00 MMUS$ 200,000 BOPD (for 90 consecutive days production) = 10.00 MMUS$ 200,000 BOPD (for 90 consecutive days production) = 10.00 MMUS$

Production Bonuses – Natural Gas

Onshore Offshore -shallow Offshore – deep
Upon approval of Development Plan = 0.50 MMUS$ Upon approval of Development Plan = 1.00 MMUS$ Upon approval of Development Plan = 1.00 MMUS$
60 MMCFD (for 90 consecutive days production) = 1.50 MMUS$ 150 MMCFD (for 90 consecutive days production) = 2.00 MMUS$ 150 MMCFD (for 90 consecutive days production) = 2.00 MMUS$
180 MMCFD (for 90 consecutive days production) = 2.00 MMUS$ 300 MMCFD (for 90 consecutive days production) = 3.00 MMUS$ 300 MMCFD (for 90 consecutive days production) = 3.00 MMUS$
300 MMCFD (for 90 consecutive days production) = 3.00 MMUS$ 600 MMCFD (for 90 consecutive days production) = 4.00 MMUS$ 600 MMCFD (for 90 consecutive days production) = 4.00 MMUS
600 MMCFD (for 90 consecutive days production) = 4.00 MMUS$ 750 MMCFD (for 90 consecutive days production) = 5.00 MMUS$ 750 MMCFD (for 90 consecutive days production) = 5.00 MMUS$
900 MMCFD (for 90 consecutive days production) = 6.00 MMUS$ 900 MMCFD (for 90 consecutive days production) = 10.00 MMUS 900 MMCFD (for 90 consecutive days production) = 10.00 MMUS$

Advising The Natural Resources Industry

Charltons assists natural resource companies together with individuals, institutional investors and financial institutions and other professional parties involved in the natural resources industry with:-

  • Capital Raising – equity, debt and loan financing
  • Mergers & Acquisitions
  • Public Market Offers
  • Mining/Oil and gas Agreements
  • IPO’s and pre IPO enquiries
  • IP protection
  • Establishment of operations in Hong Kong and the PRC

Capital raising – Advising Natural Resources Companies

Charltons is committed to assisting natural resource companies to put in place the most suitable investment structure to accommodate their development plans. Charltons advises on the following: –

  • Placings to existing shareholders (where option is available)
  • Share sale / subscription agreements and shareholder agreements
  • Injection of PE capital via both incorporated and unincorporated joint ventures
  • Where applicable the drafting and/or review of “off-take” agreements
  • Due Diligence
  • The preparation of information memoranda or other investor “teasers”

Capital Raising – Advising Investors

Charltons is experienced in acting for private equity and institutional investors. We understand their objectives and the risk minimization strategies they employ in relation to: –

  • The cyclical nature of commodity demand,
  • Unpredictability surrounding exploration and production costs,
  • Access to transport infrastructure, management, to labour,
  • Changing national regulations,
  • Geo-political concerns,
  • Local inflation,
  • Environmental compliance
  • Currency volatility

Charltons is experienced in acting for private equity and institutional investors. We understand their objectives and the risk minimization strategies they employ in relation to (cont’d): –

  • Risks associated with sustainability and mine-rehabilitation,
  • Geographic remoteness
  • Community relations
  • Longer investment horizon

At Charltons we understand the factors that influence natural resource investors and are experienced in advising on the legal safeguards that should be put in place to protect them. We assist investors balance the goals of risk minimization and profit maximization

Selected Legal Services

  • Due diligence
  • Placings to existing shareholders (where option is available)
  • Drafting share sale / subscription agreements and shareholder agreements
  • IP protection where investor / farm-in party contributes IP
  • Injection of PE capital via both incorporated and unincorporated joint ventures
  • Where applicable the drafting and/or review of “off-take” agreements
  • Exit strategies (including Hong Kong IPOs)
  • Representing PE investor as shareholder
  • Advising the PE investor’s board representative (where applicable)
  • Putting in place corporate governance policies and practices to protect investor / investment
  • Conflicts of interests with the invested company
  • Freedom to transfer interests
  • Investor rights
  • Anti-dilution provisions
  • Tag / drag along rights
  • Borrowing and charges
  • IP transfers

Capital Raising – Advising Lenders

We are experienced in advising lenders on the legal aspects of mining project financing, including senior, mezzanine, subordinated and convertible debt together with more traditional corporate debt financing arrangements. We can also advise on bridge financing and other credit facility arrangements and assist listed and private companies and financial institutions on debt purchases. Our services include advising on: –

  • proposed project structure (including where applicable SPVs established to facilitate debt arrangement)
  • primary financing documents
  • due diligence
  • provision of security and/or reviewing or drafting security documents as required

We are experienced in advising lenders on the legal aspects of mining project financing, including senior, mezzanine, subordinated and convertible debt together with more traditional corporate debt financing arrangements. We can also advise on bridge financing and other credit facility arrangements and assist listed and private companies and financial institutions on debt purchases. Our services include advising on (cont’d): –

  • insurance arrangements and review of insurance documentation
  • the legal aspects of life of mine plans and development plans
  • hedging arrangements
  • off-take agreements, infrastructure agreements, construction agreements, equipment agreements, operating agreements, maintenance agreements, and product purchase agreements

Capital Raising – Advising Borrowers

We are experienced in advising sponsors and borrowers on the legal aspects of natural resource project financing. We have advised some of the leading PRC and international natural resource companies on their debt offerings. We are also always happy to help junior resource companies who may be unfamiliar with the debt financing option, better understand the process so they can make the right choice as to what financing model best suits them. Among other things, Charlton’s assists borrowers with the following: –

  • Drafting and/or reviewing primary financing documents
  • The provision of security and/or reviewing or drafting security documents as required
  • Coordinating the due diligence process on behalf of the miner borrower
  • Reviewing and/or drafting off-take agreements, infrastructure agreements, construction agreements, equipment agreements, operating agreements, maintenance agreements, and product purchase agreements

We are experienced in advising sponsors and borrowers on the legal aspects of natural resource project financing. We have advised some of the leading PRC and international natural resource companies on their debt offerings. We are also always happy to help junior resource companies who may be unfamiliar with the debt financing option, better understand the process so they can make the right choice as to what financing model best suits them. Among other things, Charlton’s assists borrowers with the following (cont’d): –

  • Equity contributions (where the financing model combines both debt and equity)
  • The legal aspects of life of mine/project plans and development plans
  • Hedging arrangements
  • The Listing Agreement (where applicable)
  • Options, warrants, and similar rights
  • Convertible debt securities

Mergers And Acquisitions

We are frequently retained by major domestic and international natural resource companies, financial institutions and leading international law firms to provide strategic counsel in M&A transactions. We advise on: –

  • Takeovers, mergers and acquisitions in both private and public markets
  • Due diligence investigations
  • Management/leveraged buyouts
  • Privatisations
  • Group restructurings and reorganisations
  • Corporate finance and structuring

Mergers And Acquisitions – Acquisitions In The PRC

Charltons is experience in advising, in cooperation with PRC counsel, on acquisitions in the PRC and on disposals of natural resource assets by Chinese mining state-owned Enterprises (“SOEs”) including: –

  • Direct Equity Acquisitions
  • Offshore / Indirect Acquisition
  • Asset Acquisitions
  • Governmental Approval Processes for PRC Acquisitions
  • Documentation
  • Approval Process and Timing
  • Non-Governmental Consents and Approvals
  • Foreign Exchange Issues
  • Additional Information for Listed Companies

Mining Due Diligence – Some Key Considerations

Charltons is experienced in coordinating the legal due diligence process for natural resource companies contemplating an acquisition. We work closely with local lawyers, geologists and independent technical experts to help miners manage the due diligence process.

  • Site Retirement / Site Rehabilitation
  • Inventory
  • Exploration Equipment
  • Customers & suppliers
  • Risk Factors
  • Foreign Investment

Myanmar Oil & Gas Enterprise

Myanmar PSC

Ministry of Energy

Oil and gas Agreements

Myanmar PSC Calculation

Product Sharing Contract

Oil Production

Natural Gas Production

Myanmar Arbitration Act 1944

Yangon Myanmar

Oil and Gas News