US-based ConocoPhillips along with its Norwegian partner Statoil is set to shelve the decision to sign PSCs for three new deepwater blocks in the Bay of Bengal citing non viability of the fiscal terms of the contracts, industry insiders said.
The joint venture of ConocoPhillips and Statoil, two international oil companies (IOCs) has sought early execution of the production sharing contract (PSC) provision of annual 2.0 per cent hike in natural gas price. Earlier, it was to take effect from first production to ensure economic viability from exploration in the deep water blocks before signing of the PSCs.
It will be a major blow to the government's drive to ensure the country's future energy security, they said.
"We have proposed that escalation of the gas price begins earlier than at first production, which is similar to what is in place in neighbouring countries like Myanmar and Thailand," ConocoPhillips managing director for Bangladesh operations Tom Early told the FE Thursday.
"It will take quite a few years to achieve first production from a deepwater development and fixing a gas price today for such an extended period will threaten the economic viability of the project," Mr Early added.
When contacted, director for PSC of Petrobangla Md Quamruzzaman spoke of limitations to accommodate new demand from the JV saying, "There is no scope for changing PSC terms to accommodate the demand of the JV."
The ConocoPhillips along with the Statoil had submitted bids, under a joint venture for hydrocarbon exploration in all the three deep water blocks - DS-12, DS-16 and DS-21 -- put on offer under 2012 bidding round.
The annual hike of natural gas price by 2.0 per cent from first gas production was one of incentives under the revised provisions made by Petrobangla to lure international oil companies for oil and gas exploration in three deep water blocks under the 2012 bidding round.
Other provisions included significant fiscal and commercial improvements from the previous 2008 PSC, such as, higher price for gas, enhanced annual cost recovery limits, tax waiver for contractors for the entire life of the project, no transmission tariff and scope to sell gas to a third party within the country.
The price of gas from the new deepwater blocks has been pegged to high sulfur fuel oil (HSFO) prices and the floor price for HSFO has been fixed at US$100 per tonne and the ceiling price at $200 per tonne.
It worked out the price at around $6.5 per Mcf (1,000 cubic feet).
The JV was committed to invest US$327 million to explore three new deep water blocks --DS-12; DS-16 and DS-21 -- during the period for exploration, which would have taken eight years with a five-year initial exploration period and a three-year subsequent exploration period.
It had proposed to provide bank guarantee of the same amount against its committed investments and work programmes.
In its bid proposal, the JV also pledged to carry out a 3,412 line-kilometre two dimensional seismic survey in block DS-12, 2,775 line-kilometre survey in DS-16 and 3,376 line-kilometre survey in block DS-21.
The ConocoPhillips alone ceased operations from two other deepwater blocks -- DS-08-10 and DS-08-11 - from December 15 last year showing 'poor' fiscal terms.
Earlier, in April last year, the ConocoPhillips had backed out from signing a deal for shallow-water block SS-07 as the fiscal terms were deemed not supportive.
Officials said, Bangladesh has been trying to develop resources offshore in the Bay of Bengal, but has made little progress so far.
The country is currently dependent on onshore fields for its entire natural gas output.
Overall gas production is currently hovering around 2,460 million cubic feet per day (mmcfd) against the demand for above 3,000 mmcfd.
azizjst@yahoo.com
