The refusal to sign production sharing contract (PSC) by the US oil giant ConocoPhillips for carrying out hydrocarbon exploration in the shallow water block, SS-07, in the Bay of Bengal was a piece of frustrating news. The negative response on the part of the US oil company would surely upset the future programmes of the Petrobangla (the state-owned national oil, gas and minerals corporation) centring around exploration activities in both shallow and deep waters of the Bay.
The ConocoPhillips' decline to sign the final PSC, as was reported in this paper last week, has caught the corporation by surprise, particularly when the US company had inked an initial deal last September and made commitment to spend $40 million on exploration activities in the block concerned. It has reportedly declined to sign the final PSC on the ground that the financial terms of the proposed contract are not favourable and the block is located in deep waters, not in shallow waters. The Petrobangla authorities, however, are not ready to accept the pleas on the ground that the oil company had inked the initial PSC after going through all the financial terms and knowing about the actual location of the block offered under the deal.
The argument being made by the Petrobangla appears tenable for a large international oil company like the ConocoPhillips would never participate in bidding for any hydrocarbon block, onshore or offshore, without examining the details of the terms and conditions of the offer and the prospects of hitting any reserve. The company is otherwise expected to be more cautious while signing any exploration deal. Moreover, the terms and conditions offered in the case of all shallow-water blocks by Bangladesh in December 2012 bidding were very attractive, in terms of the right to sell oil and gas and repatriation of profits.
There could be something more behind the scene that has prompted the US oil giant to retreat from the final PSC. The Petrobangla should again request the ConocoPhillips to sign the final PSC and wait for response from the latter. In the meanwhile, the government should try to gather information as to why the ConocoPhillips has backtracked on signing the final PSC. Getting such information might also help the government understand many other relevant issues and devise its future strategies in the greater interest of the country. It is highly unlikely that street protests against awarding contracts to foreign oil companies have prompted them to withdraw from the deal. International oil companies (IOCs) are very much familiar with this kind of agitation.
There is no denying that the refusal by the US oil company would compel the Petrobangla to start all over again the bidding process for this particular block. The latest bidding for shallow blocks was carried out in the final month of 2012 after a long delay. The country can hardly afford any more delay in conducting exploration in the offshore oil and gas blocks because of the severe energy problem it has been facing in recent years. It needs to strike deposits of gas or oil in both its onshore or offshore areas to keep the wheels of the economy moving at a reasonable pace. But it is impossible to meet that objective ever without the help of IOCs.
Refusal to sign PSC by ConocoPhillips
FE Team | Published: April 16, 2014 00:00:00 | Updated: November 30, 2025 06:01:00
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