New PSC drafted to woo investors for deep-sea gas exploration in Bangladesh, ExxonMobil alone offers to explore all 15 blocks even before tender

Black_cats · Mar 18, 2023

New PSC drafted to woo investors for deep-sea gas exploration in Bangladesh

ExxonMobil alone offers to explore all 15 blocks even before tender

Emran Hossain | Published: 00:17, Mar 18,2023 | Updated: 10:43, Mar 18,2023

The sudden interest shown by one of the world’s largest oil companies in exploring Bangladesh’s all deep-sea hydrocarbon blocks alone affirms the view held by energy experts and economists that the next production-sharing contract would be too lucrative for the investors.

The government, amidst a crippling energy crisis, accommodated in the new PSC model, now in the final stage of being updated, changes covering price, profit sharing, and cost recovery with a proclaimed aim to make a breakthrough in gas exploration, which was almost nonexistent over the past decade.

The government has always said that PSC models lacked incentives to attract big investors needed to carry out the expensive and highly technical task of gas exploration in the deep sea.

The last time a deal was signed for deep-sea gas search was in 2017 based the 2012 PSC model. The deal eventually yielded no result as the assigned foreign company left the exploration halfway through demanding higher profits.

Three PSC models were developed from 2008 before the one now under development — the first in 2008, the second in 2012 and the third in 2019 — but exploration success remained elusive.

But the upcoming PSC formula, which is being finetuned now, drew widespread attention when the news broke in early March, prompting US-based oil giant ExxonMobil to offer exploring all the country’s 15 deep-sea hydrocarbon blocks.

‘No decision has been taken regarding the offer made by the ExxonMobil,’ Shaheenur Islam, director, PSC, Petrobangla, told New Age about a week ago, adding that the offer was being considered.

The offer came just in time, with the PSC model, being updated on the recommendation of the UK-based Wood Mackenzie, a multinational research and consultancy group, and likely to be ready to invite international tender in a month.

‘The new PSC model has been designed by a multinational company to be lucrative for giant world corporates,’ said Anu Muhammad, an economist and also the member secretary of the National Committee to Protect Oil, Gas, Mineral Resources, Power and Ports.

An enormous gas exploration potential opened up between 2012 and 2014 after Bangladesh won over 20,000sq km in the Bay of Bengal following the settlement of the maritime disputes with India and Myanmar.

Immediately after losing its maritime dispute with Bangladesh, Myanmar, in accordance with a multi-client survey, awarded 20 offshore blocks, mostly in the Rakhine basin off the Arakan coast, south of Teknaf, to international oil companies by 2014.

But Bangladesh is yet to complete a multi-client survey of its sea area, let alone having the hydrocarbon blocks explored. There were a few botched attempts that saw foreign companies leaving deep-sea blocks halfway through explorations.

State-owned Petrobangla chairman Zanendra Nath Sarker said that he would brief the media on the overall government plan of exploration in the deep sea before inviting tenders under the new PSC formula by April.

The Production-Sharing Contract Wing at the Petrobangla, which drafted the update, described three important changes in it.

The first change has lifted the price cap, according to which the maximum price was set at $7.25 for each thousand cubic feet in the 2019 PSC formula, with a provision of 1.5 per cent yearly increase. That formula limited the minimum price at $4 per thousand cubic feet.

In the 2012 PSC model, the maximum price cap was set at $6.5 per thousand cubic feet, more than double at which Bangladesh buys from existing international oil companies, who have been producing since 1993.

The upcoming PSC allows the gas price to be set in accordance with the price on the international market, based on the price of brent crude oil. A unit of gas price will thus be equal to 10 per cent of a unit of brent crude oil.

An energy expert, having connection with a well-placed source in the power and energy ministry, said that the new formula was developed to keep the gas price always above $10.

‘It could be even $12 or $14,’ said the energy expert on condition of anonymity.

On the Asian spot market, each metric million British thermal unit, or MMBtu, of gas was sold at $14 on March 10. Under long-term contracts with Qatargas and Oman Trading International, Bangladesh imports an MMBtu at about $10.50.

The profit-sharing model has also been changed in the next PSC.

In the previous PSC model, the share of profit varied, depending on the amount of daily gas extraction. There were six steps of profit sharing entitling Bangladesh up to 80 per cent of the profit. The lowest profit was 55 per cent.

The new PSC model would entitle Bangladesh to a maximum 65 per cent profit. The minimum profit can drop to as low as 35 per cent.

It will ensure the return on investment in maximum four years, said Petrobangla officials who were directly involved in drafting the new PSC formula.

The yearly cost recovery has been increased to 75 per cent in the fresh PSC model from 70 per cent in the previous one. Cost recovery means recouping the cost of any expense.

The fresh PSC model retains the provisions of gas export after meeting the domestic demand in Bangladesh and income-tax exemption for the investor.

Dhaka University economics professor MM Akash said that gas exploration must be offered through bidding with local bidders — the government, private companies, or joint ventures between private companies, or between private and foreign companies — getting first preference in the bidding.

The profit should be shared equally, and determined based on estimated cost and price, he said.

Akash also called for fixing a rate of extraction to narrow down gas export prospect.

‘Excessive production has to be prohibited and there has to be a mutually determined rate of extraction,’ said Akash.

Bangladesh has 26 open offshore, including 15 in the deep sea, and 22 onshore hydrocarbon blocks. Currently, Bangladesh has PSC for two shallow sea blocks — blocks SS-04 and SS-09, which ONGC Videsh Ltd and Oil India Ltd are jointly exploring.

In the deep water, no active hydrocarbon exploration is going on, particularly after the South Korean Posco International exited from the block DS-12 in 2020, three years after inking the PSC, seeking changes in the PSC for what the company said making the exploration feasible.

The South Korean company was given the price of $6.50 per thousand cubic feet of gas with a 2 per cent annual price escalation which the company said was not enough.

Before exiting, Posco carried out a two-dimensional, or 2D, seismic survey over about 3,580-kilometre area, double the area it committed for the survey, detecting half a dozen potential gas spots.

US-based ConocoPhillips got out of the PSC signed under the 2008 bidding after completing a survey of 5,750-km area in the deep sea blocks DS-10 and DS-11.

In the 2012 round of bidding, ConocoPhillips and Norwegian Statoil jointly made proposals for the DS-12, DS-16 and DS-21 blocks but no PSC was signed.

‘Global corporate giants have long been out to get their hands on Bangladesh gas fields. The energy crisis offered them and their agents in the country a golden opportunity,’ said Anu Muhammad.

Of the onshore blocks, US oil giant Chevron has been producing natural gas in three onshore blocks — 12, 13 and 14 — while Singapore’s KrisEnergy has been producing in block 9. These companies have been producing at the price of $3 per thousand cubic feet of gas.