What’s Behind Chevron’s Giant Myanmar Gas Sale?

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U.S. energy giant Chevron is offering up for sale its entire gas block stake in Myanmar, valued at an estimated $1.3 billion, Reuters reported in an exclusive earlier this week. Chevron has purportedly already started working with an American investment bank with regards to a potential sale.
If the deal goes through, it would mark the biggest sale involving Myanmar’s assets, eclipsing the previous record of Singapore’s Sea View Hotel Ltd’s $1 billion purchase of a hotel property in 2005. Analysts have argued that it could set the tone for future deals in Myanmar, boosting claims that the country is now more open for business under the new democratic government led by the National League for Democracy (NLD). In that vein, the deal is likely to be watched closely by state, institutional and corporate investors alike.
The Chevron assets that are up for grabs include a 28.3 percent ownership in the Yadana and Sein gas fields and a 99 percent stake in exploration Block A5 in the Rakhine Basin. These are designated as non-core assets by Chevron. Sources say that buyers would be keen to acquire all three assets bundled together.
Chevron’s move to pull out of Myanmar is not at all an indication of the latter’s dampened economic prospects. Rather, it is better understood as a bid to boost cash reserves and retreat from non-core assets in the wake of sliding oil prices. Prices of brent crude have declined by over 60 percent since June 2014. Depressed prices are also not likely to rise anytime soon since the OPEC producer cartel recently failed to reach an agreement to halt the glut in oil supply by freezing production at January levels.
More broadly, Chevron’s asset sell-off in Myanmar should be seen in light of the company’s strategy to sell off assets for hard cash and focus on high-risk high-return exploration projects. Chevron put up its geothermal energy blocks in Indonesia and Philippines, valued at about $3 billion, for sale in early April 2016. The sale, managed by Citigroup, saw the usual suspects – Japan’s Marubeni, a Chinese sovereign wealth fund China Investment Corp, as well as Malaysian (Malakoff), Filipino, and French companies (Engie) – expressing interest in bidding. In recent years, Chevron has also sought to sell its 50 percent stake in Caltex Australia as well as its assets in Hawaii.
Despite the doom and gloom in the oil market, Myanmar’s assets remain attractive not just because of export markets like China and Thailand, but also a growing internal domestic market, according to Singapore-based analyst Adrian Pooh at energy consultancy Wood Mackenzie. Australia’s Woodside Petroleum, Thailand’s PTT Exploration and Production, Japanese trading houses, and Chinese companies, among others, may feature in the potential buyer list.
Woodside, which already has 20 percent of its exploration acreage in Myanmar, has recently discovered gas in block A-6 of the Rakhine Basin near Chevron’s A-5 block and thus would reasonably be interested in enlarging its holdings. Power plants in Thailand primarily get their energy from the Yadana and Sein gas fields currently operated by French company Total SA, hence the Thai interest in vertical consolidation. The Japanese, flush with cheap capital, will be looking for more ways of securing energy. As for Chinese companies, some say they may hesitate to invest for various reasons including weak demand and corruption investigations which have slowed business decision-making. More generally, Chinese firms have also become more selective in recent years, preferring core assets.
Either way, the Chevron-generated buzz over energy-related M&A in the region has already been read as a positive signal of economic sentiment in general and a boost to Myanmar’s investment climate in particular. Some also hope that it might further encourage the new NLD government to move toward more investment-friendly reform, though that remains to be seen.

Credit: The Diplomat