Chinese Sinopec, Bapex set to form JV for gas block in CHT

M Azizur Rahman Chinese state-run Sinopec Shengli Oilfield Services is set to invest around US$ 100 million under a joint venture (JV) with state-owned Bapex to develop four onshore gas structures in the hilly region of Chittagong, officials said Friday. The government approved last Thursday a draft of the joint venture agreement between Sinopec and Bapex, said a senior official of energy ministry. "We expect to start the final round of negotiation with the Chinese firm in mid- November next before signing a joint venture agreement," Bangladesh Petroleum Exploration and Production Company Ltd (Bapex) Managing Director Mortuza Ahmad Faruque told the FE. Details of the joint venture activities which include work programme, exploration, drilling and necessary seismic activities would be finalised during the next meeting, he expressed the hope. Sinopec will be the first Chinese oil and gas firm to be involved in Bangladesh's hydrocarbon exploration activities, he said. Sinopec Shengli and Bangladesh Petroleum Exploration and Production Company Ltd, or Bapex, had concluded primary negotiations in September, 2011 and decided to form the JV with 70 per cent stakes to Sinopec and 30 per cent to Bapex. Bapex had sent the draft of the JV to Petrobangla and energy ministry in September, 2011 for approval. The Bapex will have its 30 per cent stake in the proposed JV without any sort of its involvement in exploration activities or investment to develop the gas structures. If state-run Bapex infuses funds and participates actively in the JV exploration activities, its stake in the proposed JV will increase proportionately. The price of gas to be produced from new fields of Chittagong will also be a determinant factor of JV stakes or the ratio of benefits of the involved companies. The state-owned Petrobangla, the energy ministry and Bangladesh Energy Regulatory Commission (BERC) are set to fix the natural gas price to be produced from the four onshore fields. The Chinese firm has expressed its intention about investing around $100 million initially under the JV to develop four gas structures - Kotia, Joldi, Kafalong and Shitapara -- in Block 22 that covers around 13,900 square kilometres area, Mr. Faruque said. Investment from the Chinese firm might increase further, depending on the development activities, he said. The four gas structures are located in the Chittagong Hill Tracts (CHT) region, where a slow-burning insurgency left 2,500 people killed since 1980s, insiders said. These prospective gas block was originally awarded to the US-based firm, United Meridian Corporation (UMC) in February 1997 after the country's first round of international bidding for oil and gas exploration. Then Houston-based Ocean Energy won the rights to explore gas in block 22, after taking over the UMC. But as the company did not drill wells within seven years of its contract, the government took over the block from Ocean Energy in 2006. Energy experts forecast that all the four gas fields have significant gas reserves as gas was detected there during initial surveys. Acute gas supply shortfall in Bangladesh's port city of Chittagong will also somewhat ease off, gas is found in the joint venture gas fields. Bangladesh is now implementing programmes to import liquefied natural gas (LNG) to meet the increasing energy needs in Chittagong, where hundreds of industries have been kept shut and many more have squeezed operation due to gas supply crisis. The JV with Sinopec Shengli will be Bapex's second JV with a foreign firm for oil and gas exploration in onshore gas fields. Bapex currently has a 'controversial' JV with Canadian Niko Resources to develop some 'abandoned' onshore gas fields including Feni and Tengratila. Gas production from Feni gas field, however, remained suspended for more than a year since May 2010, following a row with Bangladesh government over payment of gas sales and compensation of gas field blowouts in Niko-operated another gas field in Tengratila. Bapex is a 'sleeping' partner in Niko-Bapex JV and has a carried-over stake of 20 per cent, while the remaining 80 per cent stake is with Niko. The row between Niko and Bangladesh government is now awaiting court verdict in ICSID. Unlike the previous JV with Niko, Bapex is interested to be an active partner with the Chinese Sinopec Shengli in the proposed JV. The Chinese company entered into the negotiation for the JV with Bapex after emerging as the lone international firm that responded to a Bapex proposal and expressed interest to develop four onshore gas structures in the CHT region under a JV with Bapex. Bapex had invited a selected pool of state-owned foreign firms including the Chinese Sinopec in January, 2011 to jointly develop the structures in the region, bypassing the process for competitive bidding.