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Partnership with Santos could cause Bapex to collapse

  • Published at 07:05 pm January 26th, 2016

The country’s lone state-run oil and gas exploration company Bapex could face financial ruin if it enters into a joint venture to drill the offshore Magnama structure with Australian firm Santos, experts said.

Australian oil and gas exploration company Santos is preparing to drill a new well in the Magnama structure, under the shallow Block 16 in the Bay of Bengal, following a two-year hiatus in its activities.

After failing to find international partners for the project Bangladesh Petroleum Exploration and Production Company Limited (Bapex) decided to partner with Santos, going so far as to sign a confidential agreement with the firm.

“I do not understand why Bapex agreed to become a partner. They have even signed a confidential agreement, which I think is foolish,” Dhaka University geology Professor Badrul Imam said while talking to the Dhaka Tribune.

“Bapex has already become financially weakened because of some of its bad decisions. If it becomes a partner with Santos, Bapex will collapse,” he said.

A Bapex general manager, asking not to be named, told the Dhaka Tribune recently: “In this partnership, Bapex will have to pay $93 million of the $186 million which Santos has spent for 2D and 3D surveys and other services since 1994.

“Bapex has never conducted offshore oil and gas exploration before.”

The Petrobangla company recently inked the confidential agreement with Santos to form a joint venture to drill the Magnama structure.

Sources said the joint venture may be a 50-50 partnership and the financing may be borne by the government.

Santos submitted a proposal to Petrobangla to drill a well in Magnama with an investment of $4 million one and a half years ago.

The company was seeking a partner to drill the Magnama structure when Bapex decided to get on board.

“Because Santos found no international partner to drill the Magnama structure – a site that is not believed to have a very good potential for gas – the company approached Bapex,” the high official said.

“Santos has already drilled a well in the Magnama structure but found no gas. If Bapex becomes a partner for the same kind of work, there will be a strong financial risk.

“Bapex is doing this because government high-ups are interested. Bapex will submit a work plan on the progress of the confidential agreement to the Ministry of Power, Energy and Mineral Resources this week,” the official said.

Santos recently mapped mean gas initial in place (GIIP) for Magnama at 1.5 trillion cubic feet (Tcf), showing 16 to 17 gas layers.

“On the same structure, 500bcf gas was extracted from Sangu Gas Field. So, 1.5Tcf gas mapped in the Magnama structure seems unreal,” the Bapex official said.

On October 1, 2013, Sangu, the first offshore gas field under the shallow Block 16 operated by Santos, was shut down permanently after its reserves rapidly dried up.

Sangu was discovered by British oil and gas firm Cairn in 1996, who handed over ownership with assets and liabilities to Dutch company Shell in 1998.

After a steady production of gas for six years from Sangu, Shell gave all of its upstream assets and undertakings back to Cairn Energy in 2004.

On October 2007, Santos acquired a 37.5% interest from Cairn Energy in the Sangu Development Area and a 50% interest in the Block 16 exploration acreage, located in the Bay of Bengal.

In December 2010, Santos acquired the remainder of Cairn’s interests in Bangladesh and became operator of the acreage.

Santos is considering conducting a 3D seismic survey and drilling another exploration well at the Magnama structure in the Bay of Bengal, 60km (37 miles) south of the port of Chittagong.

The water depth of Magnama ranges from onshore Kutubdia Island to 20 metres.

One discovery well was drilled in the Block 16 exploration area in 2007-08 by Santos’ predecessor Cairn Energy, subsequent to which Santos acquired 213 square kilometres, transition zone and onshore 3D seismic early in 2010.

An interpretation of the survey indicated that the Magnama consists of a number of stacked structural-stereographic reservoirs with at least four zones marginally intersected in Magnama 1 discovery well.

Santos earlier said it was keen to retain exploration rights over the offshore Magnama structure.

“We have signed a confidential agreement and we are now scrutinising it. If the partnership does not prove beneficial, we will drop the agreement,” Bapex Managing Director Md Atiquzzaman told the Dhaka Tribune recently.

Santos Bangladesh spokesman Mahmudul Karim did not reply to this correspondent’s queries via e-mail.

On March 12, 2014, Bangladesh signed a production-sharing contract with a joint venture of Australia-based Santos and Singapore-based Kris Energy to start oil and gas explorations in offshore shallow Block 11 in the Bay of Bengal.

The contract period for the block is eight years, with the first five years for initial exploration and the rest for subsequent exploration.