ConocoPhillips, Statoil JV agree to explore 2 deep water blocks

The joint venture (JV) of US oil and gas giant ConocoPhillips and Norwegian Statoil has agreed to ink production-sharing contract (PSC) for two deep water blocks, instead of chosen three, in line with a government decision, a top official said Tuesday.
"ConocoPhillips-Statoil JV has agreed to ink PSCs for two deep water blocks out of three," Energy and Mineral Resources Division Secretary Md Abu Bakar Siddique told the FE Tuesday.
State-owned Petrobangla has been asked to select the two deep water blocks to be offered to the ConocoPhillips-Statoil JV, he said.
Earlier, the Petrobangla evaluated the JV as technically fit to be awarded all the three deep water blocks - DS-12, DS-16 and DS-21.
But the Energy and Mineral Resources Division (EMRD) under the ministry of power, energy and mineral resources (MPEMR) later decided to offer two deepwater blocks from among the proposed three in line with a decision of the government high-ups.
The ConocoPhillips-Statoil duo jointly submitted bids for all the three blocks deep in the Bay of Bengal which were put on bidding under Bangladesh's 2012 licensing round.
They appeared as the single bidder for all the three blocks offered under that bidding round.
The EMRD will place a proposal with the cabinet committee on economic affairs to approve awarding two of the blocks after getting Petrobangla recommendation, said the EMRD official.
In its bids, the JV was committed to invest $327 million for all the three deep water blocks, which are expected to run five years for initial exploration and three years for a subsequent exploration.
US ConocoPhillips in October decided to pull out from two other deepwater blocks previously awarded alone due to 'poor' fiscal terms.
The pullout from the two deep water blocks -- DS-10 and DS-11 -- is set to become effective from the middle of this month.
The joint venture is, however, still hopeful to secure the latest three Bay blocks where the fiscal terms are better.
"We wish to emphasise that our decision on blocks 10 and 11 was based on technical and commercial merits of the blocks and PSC terms only and does not reflect any change in the ConocoPhillips' strong interest in continuing investment in exploration in Bangladesh and development of any commercial discovery that may be made," said ConocoPhillips Managing Director,  Bangladesh operations, Thomas J Earley told the FE.
The blocks the ConocoPhillips quit were offered under the 2008 offshore bidding round where fiscal terms were worse than those of 2012.
Under the new terms valid for blocks under the 2012 round, deepwater contractors would get a higher price for gas produced from their blocks. They would get a waiver from paying a gas transmission fee to the Petrobangla and be allowed to sell up to 50 per cent of their gas production to third parties without having to go through the Petrobangla and would be exempted from 37.50 per cent corporate tax.
The price of gas from the three blocks would be pegged to high-sulfur fuel oil (HSFO) prices with the floor price for HSFO fixed at $100 per tonne and ceiling at $200 per tonne.
It works out to around $6.50 per Mcf (1,000 cubic feet). The gas price will be 130 per cent of HSFO price ex-Singapore with biddable discounts.
Earlier, the ConocoPhillips in April had backed out from signing a deal for shallow-water block SS-07 as the fiscal terms were deemed not supportive. The government 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 natural gas output.
Gas production at present is running at about 2,440 million cubic feet per day (mmcfd) against demand for around 3,000 mmcfd.
Bangladesh revised fiscal terms in the model production-sharing contract for the three blocks to make the 2012 bidding attractive to international oil companies.
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