In the wake of a nagging primary energy crisis, US energy company ConocoPhillips, after six years of negotiation, has finally informed the government that it will not invest in drilling exploration wells in two deep-sea hydrocarbon blocks in the Bay of Bengal.
ConocoPhillips officially informed state-run Petrobangla about its decision through a presentation at the latter’s Dhaka office yesterday, terming the drilling work as a risky investment because of what it saw as little business prospect.
An official said ConocoPhillips would write to Petrobangla about the matter in a day or two.
According to the existing contract, the company was supposed to inform the government by June 2014 about what its plans were. Upon application, the government allowed the company six more months – that is up to December – to clarify its stance.
The company, after having conducted 2D seismic surveys, said blocks 10 and 11 had aggregate recoverable gas reserves of two trillion cubit feet. “They do not think that investment will be commercially viable for them,” a director of Petrobangla told the Dhaka Tribune yesterday.
The Dhaka Tribune Correspondent dispatched an e-mail to ConocoPhillips yesterday asking for details of the presentation that they had given to Petrobangla.
In reply, ConocoPhillips Bangladesh’s Managing Director Thomas J Earley wrote: “The initial phase of the PSC will terminate on December 15, 2014 unless ConocoPhillips commits to drilling one exploration well. Based on the results of the geological and geophysical work and our inability to migrate to the new deepwater PSC terms needed for a commercial development, we are unable to justify drilling an identified prospect. We have therefore decided not to continue petroleum operations and the PSC will terminate on December 15, 2014.”
In June 2011, ConocoPhillips Bangladesh Exploration 10/11 Ltd and Petrobangla signed a production sharing contract (PSC) for hunting hydrocarbon in the two blocks. However, progress have been very slow.
For two years, ConocoPhillips conducted 2D seismic surveys but have not properly disclosed the findings. The price quoted for every million cubic foot (mcf) of gas was $4.5 in the contract, but sources said ConocoPhillips had been looking to double that price.
Another Petrobangla official said: “Offshore exploration involves much higher investment and therefore demands better prices than onshore exploration. The company does not like the business prospects of drilling exploration wells in blocks 10 and 11. So, now they have sought tariff revision.”
In several recent meetings with Nasrul Hamid, state minister for power, energy and mineral resources, ConocoPhillips top bosses have put forward requests for higher tariff.
Nasrul Hamid yesterday told the Dhaka Tribune: “We will make a decision after receiving the letter from ConocoPhillips.”
Meanwhile in January, ConocoPhillips and Norway-based Statoil ASA jointly submitted bidding documents to explore hydrocarbon in three other deep-sea blocks namely 12, 16 and 21.
But because the deals for blocks 10 and 11 did not work out well, the government is now not quite sure about awarding these three blocks to the duo.
ConocoPhillips MD Earley wrote in e-mail: “We are in continuous contact and discussions with the Government. We wish to emphasise that our decision on Blocks 10 and 11 is based on the technical and commercial merits of the blocks and PSC terms only and does not reflect any change in ConocoPhillips’ strong interest in continued investment in exploration in Bangladesh and in the development of any commercial discovery that may be made. We look forward to the award of Blocks DS 12, 16 and 21 and to commencing exploration on these blocks with our partner Statoil as soon as possible.”
M Tamim, professor of Petroleum and Mineral Resources Engineering at Buet, told the Dhaka Tribune yesterday: “When the company took part in bidding [for blocks 10 and 11] in 2008 and inked the deal in 2011, it knew the terms of the then model PSC. But, proposing to increase the price of gas now is totally unethical and irrational.
“The government would have been able to take action against the firm if there was any clause in the PSC regarding what to do when a firm is unwilling to work. But now the firm is going away without taking the project any further. However, the data from its seismic survey will be helpful in case the government decides to invite fresh tender,” Prof Tamim said.
According to ConocoPhillips, it had completed two seismic acquisition projects totaling 5,900km of 2D data and invested approximately $20m.
In September last year, the government amended the model PSC to raise the tariff to $6.50 per mcf. There were allegations that the revision was made under pressure from the international oil companies (IOCs) operating in Bangladesh.
Asked what might happen if the government decided to increase tariff to keep ConocoPhillips, Prof Tamim said it would open a floodgate. “All the other IOCs operating in Bangladesh will then press the government for revising the terms of their PSCs as well,” he said.
Petrobangla is now gearing up to invite fresh tenders for new oil and gas blocks in the Bay of Bengal by proposing a multi-plan 2D seismic survey of the country’s underwater hydrocarbon resources.
“If anyone does not want to stay, we can not make them stay,” Petrobangla Chairman Istiaque Ahmad told the Dhaka Tribune yesterday.
In October, 2013, Sangu, the first offshore gas field in the country under shallow block 16, run by Australian IOC Santos, was shut down permanently with its reserves running out fast.
ConocoPhillips has recently refused to sign the PSC for oil and gas exploration in shallow sea block number 7.
A left-leaning citizens’ platform for “preserving the country’s oil, gas, mineral resources, electricity and ports” have always opposed the government’s deals with the IOCs saying they were not beneficial for the country’s interests.
Although bidding for deep-sea blocks 10 and 11 began in 2008, the then emergency government did not pen any deal. Eventually, three years later, the Awami League government inked the PSC.
