ConocoPhillips refuses to ink PSC on block SS-07

US-based ConocoPhillips has refused to sign any production sharing contract (PSC) with Bangladesh for oil and gas exploration in shallow-water block SS-07 in the Bay of Bengal in a major blow to the country's future energy security.
This is for the first time that an international oil company (IOC) has refused to sign any PSC with the country after being selected finally for a block.
In a letter to state-owned Petrobangla this week, ConocoPhillips has said that the fiscal terms for the shallow-water block are not favourable, Petrobangla chairman Hussain Monsur said Thursday.
The US-based firm has also argued that the block lies in deep waters in the Bay of Bengal, not in shallow waters, he said.
"This is unfortunate," said the Petrobangla chairman. The US firm took part in the bidding after going through the fiscal terms and water-depth of the block, which have been mentioned in bid documents, he added.
ConocoPhillips' refusal to sign PSC for the shallow-water block came at a time when Petrobangla was getting ready to fix a final date for the PSC-signing after completing all necessary preparations.
Petrobangla had also written to ConocoPhillips seeking a date for the PSC-signing.
ConocoPhillips had committed to spending $40 million for oil and gas exploration in the shallow-water block via an initial PSC inked with state-owned Petrobangla in September 2013.
It had agreed to conduct at least 2,347 line-kilometre 2D seismic survey, 500 sq km 3D seismic survey and to drill one well during the contract period in block SS-07.
ConocoPhillips had submitted its bid for one shallow-water block out of nine, which were offered by Bangladesh in the December 2012 bidding round.
Bangladesh in the past couple of months awarded three shallow-water blocks to the IOCs having similar fiscal terms.  
Shallow-water blocks SS-04 and SS-09 were awarded to a joint-venture of India's ONGC Videsh Limited and Oil India Limited, and SS-11 was awarded to a joint venture of Australia's Santos and Singapore's KrisEnergy.
For all these shallow-water blocks, state-run Bangladesh Petroleum Exploration and Production Company Ltd, or Bapex, holds a 10 per cent interest.
The contract period for exploration of the blocks is eight years and the contractor is allowed to operate and sell oil and gas for 20 years from an oil field, and 25 years from a gas field, according to the PSC.
The PSCs also allow the licence holder the right to full repatriation of profits, not paying any signature bonus or royalty on equipment and machinery imported for exploration, development and production.
Companies will also have 100 per cent cost recovery.
Contractors can sell gas directly to third parties, subject to Petrobangla's right to first refusal. Companies have to pay corporate taxes.
But hydrocarbon produced from the shallow-water blocks must be sold in the domestic market as exports are prohibited under the PSCs.
Separately, the US major ConocoPhillips along with Norwegian energy firm Statoil submitted bid in January, 2014, under a joint venture (JV) for hydrocarbon exploration in all the three deep-water blocks put on offer.
The JV has committed to invest a total of US$ 327 million to explore three deep-water blocks-DS-12; DS-16 and DS-21 during the period for exploration, which will be a total of eight years with a five-year initial exploration period and a three-year subsequent exploration period.
It has proposed to provide bank guarantee of the same amount against its committed investments and work programmes.
In its proposal, the JV of the US and the Norwegian firms also pledged to carry out a 3,412 line-kilometre two-dimensional seismic survey on block DS-12, 2,775 line-kilometre survey on DS-16 and 3,376 line-kilometre survey on block DS-21.
ConocoPhillips did not say anything about these deep-water blocks, and Petrobangla is currently evaluating the bids.
Under the PSC terms of these deep-water blocks that range from 200- 2000 metres, the prices of wellhead oil and gas would increase by at least 2.0 per cent annually with the start of commercial production.
Bangladesh, in its over 43 years' history, has awarded only two deep-sea blocks in the Bay of Bengal for exploration by the IOCs.
These two deep-water blocks-DS-08-10 and DS-08-11 were awarded to the USA's ConocoPhillips on June 16, 2012, under the PSC terms of 2008 bidding round.
ConocoPhillips has already started exploration in these two deep-water blocks.