No gas export, off-shore block bidding by late October

Oil companies that would explore oil and gas in the Bay in future will not be allowed to export gas.

Petrobangla will invite tenders by the end of October to allot 12 offshore blocks, nine in the shallow sea and the rest in the deep sea, said Nurul Karim, the Cabinet Division’s additional secretary.

According to the government’s plan, the interested international oil companies will be asked to submit their bids by February 2013, and Petrobangla will award contracts to them by June so that they can start exploration in the Bay by November next year.

Under a new model production sharing contract (PSC) approved yesterday, the companies will, however, get higher price than in the past for selling oil and gas to the government, Petrobangla sources said.

The PSC for offshore block bidding round 2012 was approved by the Cabinet Committee on Economic Affairs yesterday at a meeting chaired by planning minister AK Khandker.

As part of the bid, Petrobangla plans to hold a pre-bid meeting in Dhaka inviting interested oil and gas companies.

“We had a lack of serious participants in the 2008 offshore block bidding. Most of the bidders lacked confidence because of the maritime boundary dispute with Myanmar and India. Now that we have resolved the Myanmar boundary issue, we are cautiously optimistic about a good participation this time,” said the Petrobangla official.

The model was modified in the light of the experience of 2008 offshore block bidding as well as the present international trend, and protection of environment.

In the new PSC, some major changes from the 2008 model PSC include fixing the floor price of high sulphur fuel oil (HSFO) at $100 a barrel as against $70 previously, and ceiling price at $200 from $180, considering the international oil price trend.

Petrobangla has also included two discovered gas fields at Kutubdia and Teknaf in the model Production Sharing Contract 2012 for which different agreements with Petrobangla will have to be signed by the IOCs.

To get the gas-fields at Kutubia and Teknaf, the IOCs will have to give free an additional 10 per cent of the gas to Petrobangla under separate contracts.

In all production sharing arrangements until 2008, the authorities offered Kutubdia gas-field to the IOCs, asking them to provide Petrobangla 15 per cent additional share of the gas besides $18 million as it discovered the gas-field.

The IOCs will have to pay corporate tax which has been paid by Petrobangla in the previous contracts.

The Energy Division on 6 April, 2011 decided to float international tenders for oil and gas exploration in the Bay.

In 2008, the government floated international tenders for oil and gas exploration in the Bay and awarded two contracts to US oil company ConocoPhillips for Blocks 10 and 11 in the deep sea.

Considering the high oil price in the world market, the new PSC asks the contractors to pay Petrobangla's PSC Research Fund US 10 cents per barrel instead of three cents previously on the contractor's share of profit gas and condensate every year.

The operating contractor will have to follow a certain direction to change ownership of a block. There is no specific guideline now.

To finalise this model, two inter-ministerial meetings were held at the energy ministry in February and April. The draft was then vetted by the law ministry.

Following the 2008 block bidding, the government could sign just one PSC with US Company Conoco Phillips to explore two deep sea blocks -- 280 km off Chittagong.

Petrobangla sees its next bid as a test case. “Based on the response that we get from the upcoming bid, we can tell the government whether our model PSC is competitive and attractive enough and whether we need to put some more incentives to attract oil companies,” said a Petrobangla source.

He notes that banning gas export will not be a disincentive. “The present PSC has the provision of exporting gas in the form of liquefied petroleum gas (LNG). To export LNG, the bidder needs to find a massive field and invest several billions of dollars.

That provision is almost as good as a total ban,” the source said, adding, “On the other hand, the oil companies are getting a better sale price offer under the new PSC, which is a big incentive.”