US embassy cable - 02RANGOON1233

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 001233 
 
SIPDIS 
 
STATE FOR EAP, EB 
COMMERCE PASS ITA JEAN KELLY 
TREASURY PASS OASIA JEFF NEIL 
CINCPAC PASS FPA 
 
E.O. 12958: DECL: 09/24/2012 
TAGS: EPET, EINV, BM 
SUBJECT: PREMIER DIVESTS, PETRONAS DIGS IN 
 
REF: RANGOON 1053 
 
Classified By: DCM RONALD MCMULLEN FOR REASONS 1.5 (B,D) 
 
1. (C) Summary: Premier Oil's decision to pull up stakes here 
seems based more on financial necessity than the pressure of 
boycotts.  Petronas, Premier's partial owner and business 
partner in Burma, agreed to sell back its shares in Premier 
in exchange for the British firm's position in the Yetagun 
gas field, worth about $150 million.  This makes eminent 
sense considering the Malaysian state-run oil firm's desire 
to solidify its already influential position in Burma's up- 
and down-stream energy markets.  End summary. 
 
Premier's Loss, Petronas' Gain 
 
2. (SBU) Premier Oil's announcement on September 15 that it 
would sell its shares in the offshore Yetagun gas field came 
as no surprise to local energy industry sources.  According 
to one western oil man, Premier, a relatively small 
independent energy producer, had "bitten off more than it 
could chew" in operating the Yetagun field.  He speculated 
that Premier's operating partners -- notably Malaysia's 
Petronas and Thailand's PTT -- were increasingly unhappy with 
the way Premier was operating the field.  In addition, 
difficulties working with the local government increased the 
operating costs of the Yetagun field. 
 
3. (SBU) These comments tally with Premier's assertion that 
it liquidated its position here to reduce overall company 
debt levels, to focus on other core investments, and to rid 
itself of the 25 percent foreign ownership (by Malaysia's 
Petronas and Amerada-Hess from the United States) that had 
made outside acquisition -- a stated Premier objective -- 
unlikely.  Industry sources here say that the complexities of 
unwinding Premier's investment, and the transfer of 
operations to Petronas, will likely keep the British firm 
here until after November. 
 
4. (SBU) Petronas was more than happy to buy out its 
erstwhile partner.  The Malaysian energy parastatal will 
become the field's operator after absorbing Premier's 26.7 
percent share in Yetagun, upping to nearly 60 percent 
Petronas' total stake in the $600 million investment.  This 
acquisition fits well with other evidence that Petronas is 
here for the long haul.  Aside from holding a majority stake 
in Yetagun, Petronas also recently inked understandings with 
the Burmese government to survey and possibly develop 4 
blocks near the Yetagun field. 
 
5. (SBU) Petronas is also heavily involved in the downstream 
side of the energy game here in Burma, despite the economic 
hazards.  A top-level Petronas official told us that the 
company has, for four years, held the sole supply contract of 
petroleum and diesel fuel oil for the Ministry of Gas and 
Energy -- though the military's Myanmar Economic Holdings 
Limited also imports quantities of diesel fuel for domestic 
consumption.  This $200 million a year deal is paid 50 
percent cash and 50 percent in agricultural products, with a 
year's credit for all payments.  These are extremely generous 
terms, considering the Burmese government's chronic foreign 
exchange shortage.  Nevertheless, Petronas has made them work 
out, at least thus far. 
 
Government's Reaction: Huh? 
 
6. (C) One sad anecdote, which speaks volumes of the 
country's dismal investment climate, came during a courtesy 
call to the Ministry of National Planning and Economic 
Development's Directorate for Investment and Company 
Administration -- the main contact for foreign investors. 
During the course of our conversation with the Deputy 
Director General we asked for the government's reaction to 
the news reports of Premier's decision.  Blank, embarrassed, 
stares indicated that the news of the $150 million investment 
shuffle had not yet trickled down to the office which must 
"approve" such decisions. 
 
Comment 
 
7. (C) We think the international divestment lobby played no 
more than an incidental role in Premier's decision.  From all 
we have heard, it was simply a business move.  On the other 
hand, the transfer of Premier's assets to Petronas will add 
to the substantial stake that Malaysia (through Petronas) has 
already established in Burma's energy sector.  It is now 
Burma's major oil product supplier as well as one of the 
largest investors in Burma's offshore gas fields.  As others 
have chosen to shy away from Burma, Malaysia has bought in 
and has now solidified a position that should give it 
significant influence for years to come.  End comment. 
Martinez