Santos starts offshore exploration next week

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M Azizur Rahman Australian firm Santos will finally start the much-awaited hydrocarbon exploration in the new offshore structures in the Bay of Bengal from next week in a major boost to the country's energy sector, officials said Monday. Santos's predecessor Scottish Cairn Energy had put on hold the much needed exploration activities in the past two years since October 2009 over a row with the government for allowing the firm to sell gas output to private users at higher prices. Santos will, however, be able to sell natural gas output from the new offshore structures directly to private buyers at market price as the government has already bowed down to Cairn's plea, a senior energy ministry official said. "The three-well drilling programme in Block-16 in the Bay of Bengal will begin on September 17-20, 2011," Santos Bangladesh president John Chambers told the FE Monday. He said Santos would spend around US$ 128 million in the new offshore gas wells a couple of weeks ahead of its previous schedule of October, 2011. Offshore drilling company Seadrill has already mobilised jack-up drilling rig 'offshore resolute' and other necessary equipment to start the drilling programme, he said. Petrobangla Chairman Dr Hussain Monsur also confirmed the commencement of Santos's drilling in the new wells by next week. The new wells will target pools of gas not intersected by the existing Sangu field development, which is now operated by Santos, a top official of the company said. One of the wells, Sangu-11, will be drilled from the Sangu platform, 60km (37.2 miles) off Chittagong, he said. The other two wells will target prospects approximately 5km from the Sangu platform, he added. If the wells proved successful, more platforms would be required, which would take up to two years to complete and would require further significant investments, John chambers said. "It is possible that a fourth exploration well may be drilled on the Magnama prospects, should time permit it in the upcoming drilling season," he said. Santos is the only international oil company (IOC) in Bangladesh that has been allowed to sell natural gas directly to private buyers at market price from its new offshore fields in Block-16 of the Bay of Bengal. State-owned Petrobangla signed an amendment to previous gas purchase and sales agreement (GPSA) with Santos in May allowing the Australian firm to sell its gas directly to private companies bypassing Petrobangla. Santos will first offer state-owned Petrobangla the option to buy gas produced from its new offshore structures at market price. And if Petrobangla refuses, the Australian company will then offer the gas to private buyers. Santos has already set US$ 4.50 per Mcf (1,000 cubic feet) as the baseline price for its gas from Block-16, which is 55 per cent higher than the previous price of $2.90 per Mcf. Other international oil companies operating in Bangladesh sell their gas output to Petrobangla first, which then sells it to state-owned gas distribution companies to reach end-users. Santos has already received expressions of interest from large privately owned industries in Chittagong that are willing to buy gas from its offshore fields in Bangladesh at market price. The potential buyers include fertiliser factories and power plants. Private entrepreneurs in Chittagong are keen to buy the gas, even at market price, as many factories run by gas-fired power plants are unable to even start operations due to gas shortage in the country, a Chittagong-based businessman said. Santos's predecessor Cairn had found presence of gas in the new offshore structures following a 3D seismic survey in 2008, but could not figure out the reserve, said a senior Petrobangla official. Santos acquired Cairn Energy's interests in Bangladesh in November 2010 and following the acquisition, Santos became the operator of Bangladesh's only offshore operating gas field Sangu. Santos has a 75 per cent stake in Sangu, while Halliburton Energy has 25 per cent stake. Sangu's natural gas output is now around 15 million cubic feet per day (mmcfd). Santos is the lone owner of Magnama and Hatiya structures in Block-16. The country requires new energy sources as the gas demand has surpassed the supply by at least 500 mmcfd. Overall gas supply is now around 2,000 mmcfd against the demand for over 2,500 mmcfd. Petrobangla forecasts that the country's current gas reserves will run out by 2014-15 at the current consumption rate.