The Burma-Thailand Gas Debacle

When MOGE exercised its option to take a 15 percent stake in Yadana for $178 million(15 percent of the $1.184 billion cost of the project, presumably facilitated through concessionary finance provided by Total and Unocal), it temporarily forwent its royalty revenue (it also owed about $27 million to Unocal and Total for urea fertilizer and diesel supplied on credit during the mid-1990s). MOGE should have paid off its Yadana shareholding (and fertilizer and diesel bills) by year-end 2001.

From 2002, based on a gas price of $3.70, MOGE’s royalty payment would have been $50 million (10 percent of gas sales). Revenue from its 15 percent equity stake in Yadana would have been around $68 million. But MOGE would have to deduct its share of the Yadana operating costs, around 12 percent of revenue, which would leave it with about $60 million. MOGE would have received a total of about $107 million in 2002 from royalties and equity share and similar amounts in following years. Rangoon will get a further revenue boost when the consortium partners become liable for 30 percent corporate income tax.

For the first three years starting 1998, Total:Unocal:PTTEP had a tax holiday. Following that period, they were permitted to charge accelerated depreciation of up to 25 percent against their tax liabilities (the Burmese financial year starts April 1). The three partners’ deductible share of the project cost at July 1, 2001 was just over $1 billion (85 percent of the $1.184 billion cost).

The Total:Unocal:PTTEP share of revenue totals about $386 million a year. Even after deducting operating costs it would still be at least $340 million, which, in the absence of the accelerated depreciation tax shield, would put their combined tax liability at about $102 million.

Because of the tax shield, Burma will not see any tax from the consortium partners until financial year 2008 but in the meantime there are revenues from Yetagun.

The heating value of the Yetagun field is 1,040 BTU/cf with a current DCQ of 260MMcf/d and a current price of $3.70, making for $1 million a day, or 365 million a year, in revenue. MOGE should have paid for its 20.45 percent stake in Yetagun by mid-2004. Starting February 2005, PTT is obliged to take 400MMcf/d from Yetagun, but all amounts above 300MMcf/d are to be at a 10 percent discount. This would bring yearly gas revenues to about $550 million for that year, of which Rangoon’s take would be $55 million in royalties and a little less than $90 million from its equity stake, making for about $145 million.

MOGE can expect more than $250 million in revenues from Yadana and Yetagun in 2005, even assuming that gas prices are not adjusted up. Additionally, MOGE gets a cut of the $200 million in annual revenues (at current oil prices) from more than 11,000 barrels a day equivalent in oil condensate recovered from Yetagun.