Oil, Gas... And The Riches That Follow!

While in Yangon, I met with U Moe Myint, who started and runs two oil companies in Myanmar. One is an oil field services company. And the other is an oil and gas exploration and production company. He is going to be a very rich man soon.

Untapped natural resources are a big part of the Myanmar story. They also tie in to some interesting geopolitical considerations and tell us something about the future of the oil and gas markets. Let’s take a look…

I met U Moe Myint in his office along with his two sons, who work in the business. We began with the big picture. Myanmar, it may surprise you to know, is an old producer. It exported its first barrels before Lincoln was president, back in 1853. As late as 1941, Myanmar was the 14th largest oil-producing country in the world.

In 1963, the military junta nationalized the industry. Today, Myanmar doesn’t rank in top 50 of oil-producing countries. Much less endowed countries like Chad and Belarus produce more oil than Myanmar today.

The potential for a return to form, though, is great.

It’s hard to know how much oil and gas Myanmar holds. “Myanmar is a proven oil province,” U Moe Myint told me, “but very much unexplored.” There are 17 sedimentary basins, 14 onshore. Estimates for how much oil and gas might be here vary all over the map. Let’s just say it’s a lot. And knowing how these things tend to work, whatever estimates come out now will surely prove too low.

This is yet another spear that pierces the oft-repeated idea that somehow we’re reaching a peak in oil production anytime soon. Here in Asia is another yet vast untapped oil province to add to the growing list of new potential supplies to come online in the next few years.

In any event, Myanmar has many of the oil majors salivating at getting a crack at Asia’s last big frontier. It also has attracted the attention, of course, of the oil-needy Chinese. U Moe Myint and I talked about how Myanmar can solve a long-standing strategic worry for China.

Currently, most of China’s oil comes to China through the Strait of Malacca. This is one of the most important shipping lanes in the world. It handles an estimated one-quarter of the world’s traded goods — including oil. The problem for the Chinese is that the U.S. Navy controls the strait. They have long sought an alternative route.

Myanmar (or Burma) is that route.

There is a major transportation hub under construction now at the southern city of Dawei in Myanmar. The centerpiece is a deep-water port. Once completed, the port will have a capacity to rival that of Singapore.

Transporting goods through Dawei instead of the strait will lead to dramatic cost savings and reduced shipping times. It will also provide, via pipelines, a land bridge to China that skirts the strait. The Dawei hub will not only connect with China, but also Thailand, Cambodia and Vietnam. Already, Myanmar supplies Thailand with about 25% its natural gas; Thailand relies on natural gas for 70% of its energy needs.

Beyond Dawei, there are other ports that will get or are getting face-lifts. The Chinese have two 500-mile pipelines under construction that will take oil and gas from the Kyaukphyu port on Myanmar’s west coast to Ruili in China’s Yunnan province. A direct oil drip into the veins of Chinese commerce.

So Myanmar’s importance in Asia as a new transportation hub and oil and gas supplier is another reason the country has gotten so much attention. Geography, in this case, is destiny.

U Moe Myint’s firms are both in great position. As the oil majors come in, they will need local, experienced partners. Investment laws, too, may well require some local labor and material content. So I would expect U Moe Myint will have more business than he knows what to do with. He will need capital, and he told me he is exploring a public listing to raise money for his efforts.

U Moe Myint has another important feather in his cap: his reputation. There is a WikiLeaks on him, written by the U.S. Embassy. Here is a relevant snippet:

“U Moe Myint is one of Burma’s most successful businessmen, and perhaps the most legitimate… U Moe Myint readily admits that the Burmese government places pressure on him to ‘become a crony,’ offering him vehicle import permits in exchange for donations to government causes. According to U Moe Myint, he continues to turn down the offers, noting that he does not need to curry favor with the regime to be a success… U Moe Myint is a legitimate and respected businessman, who earned his success through hard work and ingenuity, rather than ties to the regime.”

I asked him if he knew there was a WikiLeaks cable on him. He laughed and said he found out about it only when he read a story in The Wall Street Journal about him that referenced it. But this points to another challenge in doing business here. Most people won’t want to do business with the corrupt regime or its cronies. “Clean” business partners will go for a premium. And U Moe Myint is really in the catbird seat on that front.

I think the oil and gas story in Myanmar will be a game for the majors. And truthfully, I’m not interested in investing directly in the extraction of oil and gas. As always, such projects are in the spotlight, costly and full of risk. (Having said that, I would like to have a look at U Moe Myint’s companies — but they are privately owned, for now.)

I am more interested in thinking about the effects of all that money sloshing around. Oil and gas companies will bring billions of dollars of investment money into Myanmar. They will bring armies of workers. They will need housing. They will need food. They’ll want restaurants and medical care and wireless connections. The oil companies will hire thousands of locals. They’ll have more money in their pockets for groceries and clothes and nights out.

Myanmar has the potential for the kind of transformational change that you just don’t find in world markets today. Let me give you one chart that I thought was pretty stunning. It shows you the number of Internet users and cellphone subscribers per 100 people.

Now, traveling through the country, I can tell you that getting a decent connection was a challenge. But this table starkly shows you the potential of Myanmar. I mean, Myanmar has a fifth of the Internet users of Cambodia! Just to get where Laos is, Myanmar’s Internet users would have to grow 35-fold; and cellphone users would have to increase 54-fold.

I can show similar upside in a number of other categories: per capita incomes, fertilizer use, hotel rooms, office space and more.

I led off with a quote from Alisher Ali, who recently started Myanmar’s first investment bank, Mandalay Capital, with $1 million of his own money. (Ali started Eurasia Capital in Mongolia, which has won success in that country.) Mandalay too is staying away from extractive industries. Instead, it will focus on “fast-growing sectors more likely to be free of cronyism, corruption and political baggage,” as an AP story put it. These include technology and telecom, as well as real estate and financial services.

I think these are all potential big stories for investors to keep an eye on.

Sincerely,

Chris Mayer