Govt scraps negotiation with JV to develop four onshore fields

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M Azizur Rahman The government has scrapped the ongoing negotiation with the joint venture (JV) of Chinese Sinopec-Shengli and US-based Longwood Resources to develop four onshore fields in a major blow to the gas-starved Chittagong region, a top energy official said. "We have scrapped the negotiation and decided not to award the work to the JV as the representation of state-owned oil and gas firms in the JV was very nominal," Petrobangla chairman Hussain Monsur told the FE Tuesday. He said the private oil and gas companies own the majority stake of around 90 per cent in the proposed JV, which prompted the government to scrap the negotiation. Besides, the government has a decision not to award any onshore gas block to international oil companies, said Mr Monsur. The government scrapped the negotiation almost three years after initiating a move to form a JV between foreign firms and state-owned Bangladesh Petroleum Exploration and Production Company Ltd (BAPEX) to carry out drilling in four gas fields in Chittagong Hill Tracts area. "We had a plan to select state-owned foreign firm to establish a joint venture with BAPEX, a wholly-owned subsidiary of Petrobangla, to develop four wells jointly in the country's southeastern hilly region," he added. BAPEX in January 2011 had invited several state-owned international oil companies to develop the four fields, bypassing a bidding process, and found the Sinopec-Shengli-Longwood joint venture as the lone respondent. The invited pool of state-owned international oil companies to develop these fields included Russia's Gazprom, Thailand's PTTEP, Malaysia's Petronas, India's ONGC, China's CNPC, Sinopec-Shengli and CNOOC. Although several firms had communicated with us to develop the four gas structures only the Chinese Sinopec-Shengli submitted a concrete proposal, a top Bapex official said. BAPEX held several rounds of negotiations with the JV partners and its board of directors had also approved the negotiation last year before its scrapping, the official said. As per the negotiation the JV was seeking sales rights to third party for its gas to be produced after developing four onshore fields in the country's southeastern hilly region, said the BAPEX official. Currently, only Australia's Santos has the third party sales rights in Bangladesh under the terms of a PSC with Petrobangla. The JV and BAPEX had agreed to develop four onshore fields in Chittagong region under 70:30 ratio with BAPEX, said sources. The JV had agreed to sell natural gas at $2.70 per Mcf (1,000 cubic feet) after initially seeking $3.60 per Mcf from Petrobangla. The four fields the JV was supposed to develop were Kotia, Joldi, Kafalong and Shitapara all located in block 22, which spans 13,900 square kilometres of the Chittagong Hill Tracts region. The JV had agreed to fund the exploration and drilling programme, with Bapex receiving 30 per cent of the output or the sales revenue it generates without any upfront investment. The block 22, where all the four gas structures are located, had been awarded to US-based United Meridian Corp. in February 1997 after country's first international bidding round for oil and gas exploration, then passed to Houston-based Ocean Energy when it bought over UMC. The government took back the block in 2006 after Ocean Energy failed to drill any well in seven years, as required in the contract. When contacted, BAPEX Managing Director MA Baki said the ongoing negotiation with the Chinese Sinopec-Shengli and US' Longwood Resources has been scrapped in line with a decision from BAPEX board of directors with Energy Division secretary Md Mozammel Haque Khan in the chair. Mr Baki, however, failed to say why the BAPEX board had earlier opted to continue negotiation for long three years with the JV firm. Scrapping of the negotiation means the development of the four gas fields would be delayed, which would add further woes to the already prevailing gas crisis in the port city Chittagong, said a leader of Chittagong Chamber of Commerce and Industries. The 'Chittagoneans' were eyeing possible gas production from these fields in the past several years, he said. The country urgently needs new energy sources and unless new gas fields are discovered, the country's recoverable gas reserves of 16.36 trillion cubic feet (Tcf) is set to be exhausted within next one decade, he pointed out. The country's economy has been growing at an average of 6.0 per cent since 2003-2004, the highest rate since independence in 1971, and expanded industrial activities have raised the demand for energy causing a daily shortage of around 500,000 Mcf per day. This has forced Petrobangla to suspend gas supplies to new industries and ration gas use.