Interra renews oil production contracts in Myanmar

Singapore

OIL exploration and production firm Interra Resources has renewed its oil production contracts in Myanmar, in what is expected to be a major boost for the firm's future production.

With greater certainty, the firm can now put in new capital expenditure to bolster oil production in these fields, said its chief executive Marcel Tjia.

Interra holds 60 per cent of Goldpetrol Joint Operating Company, which has 100 per cent interest in the onshore Chauk and Yenangyaung fields under Improved Petroleum Recovery Contracts (IPRCs) and operates both fields.

Interra had earlier said on March 28 that Goldpetrol had been negotiating with state-owned Myanma Oil and Gas Enterprise (MOGE) to extend the terms of the IPRCs for both fields. On Aug 8, MOGE informed Goldpetrol that this has been approved by the relevant authorities, and asked the firm to arrange to sign the supplemental agreements upon which the extension will take effect.

The extension is important for the firm given how Myanmar is the largest contributor to its overall oil production, Mr Tjia told The Business Times in a phone interview. Interra generated a combined shareable production of 70,096 barrels of oil from both fields in the first quarter, out of a total of 80,115 barrels.

The firm plans to update its reserves and resources for both fields once the agreement has been signed. Interra's reserves base should increase significantly with the update as it will take into account how the firm can produce much more over 11 years, said Mr Tjia. Interra's shareable production in Myanmar has fallen over the past few years due to lower oil prices and the uncertainty over the renewal of the contract.

With the extension secured, the group will start new drilling work in existing oilfields, which will have an immediate impact on production. It will also conduct additional seismic work and introduce enhanced oil recovery methods; these will boost oil production in future.

The firm had previously been reluctant to invest in these given the long lead time they require, Mr Tjia explained. "These things we haven't been able to do because the contract was up for renewal. Now that we have secured the extension we can re-start what we wanted to do."

Interra returned to the black for the first quarter of this year, thanks to higher gross profit margins. Net profit for the three months ended March 31 stood at US$503,000, compared to a loss of US$634,000 a year ago.

The group's revenue rose 5 per cent to US$3.26 million. As cost of production fell 38 per cent, gross profit almost tripled from US$616,000 a year ago to US$1.72 million.

"We have been very, very disciplined in managing our costs," said Mr Tjia. With the low oil price regime, the firm has been able to negotiate for much lower rates for equipment and with third-party contractors.

The firm's contract expiry in the Tanjung Miring Timur (TMT) concession in South Sumatra, which led to decreased oil production, also took out "a large cost base", he added.

The group is still in talks on the TMT contract extension, but as the Indonesian government is making changes to its oil and gas laws there is a lot of uncertainty about new contracts in the sector, said Mr Tjia. "Things are a little bit in limbo so we just have to wait and see."

Shares in Interra, which have been on a trading halt since Tuesday afternoon, rose 0.7 Singapore cent, or 11.7 per cent, to close at 6.7 Singapore cents after they resumed trading.