India's ONGC Videsh Ltd. (OVL) will initiate drilling of an exploratory well in shallow sea block SS-04 this month to hunt for new hydrocarbon reserve.
The Indian firm will drill the well at Kanchan, buoyed by the findings of 2D, or two dimensional, seismic surveys.
The ONGC was expected to start drilling this well earlier, but complications over the payment of advance income tax on this work have led to the delay, said a senior official of Petrobangla.
Drilling a well in Block SS-04 by the Indian firm is mandatory as per the production sharing contract (PSC) between the consortium of ONGC and Oil India Ltd. and the state-run Petrobangla and the government, he said.
The ONGC will also have to drill another well in shallow water Block SS-09 by February 2021.
Petrobangla inked two PSCs with the ONGC, the operator of blocks SS-04 and SS-09, on February 17 in 2014, which was set to expire in February 2019.
Petrobangla, however, extended the tenure of the PSCs by two years to facilitate hydrocarbon exploration by the contractor, said the official.
Currently, there is no producing offshore gas well in the country and the entire natural gas output comes from the country's onshore gas fields as well as import of liquefied natural gas, or LNG.
Any fresh discovery of hydrocarbon in offshore field will boost the country's future oil and gas reserve.
The country's overall natural gas output is currently around 3,081 million cubic feet per day (mmcfd), of which 538 mmcfd is re-gasified LNG and the remaining 2,543 mmcfd is local gas, according to Petrobangla statistics as on October 8, 2019.
The OVL is the operator of these two blocks, having participating interest of 45 per cent. OIL holds 45 per cent participating interest and the Bangladesh Petroleum Exploration and Production Company Limited (BAPEX) holds the remaining 10 per cent interest.
The Block SS-04 covers an area of 7,269 sq km while the Block SS-09 stretches an area of 7,026 sq km. Water depths of both the blocks ranges between 20 and 200 metres.
The exploration term for both the blocks consists of eight consecutive contract years comprising five years as initial exploration period and three years as subsequent exploration period.
As per the PSC, OVL is committed to conducting 2,700 line-kilometre 2D seismic data acquisition and processing and one exploratory well in Block SS-04 and 2,700 line-kilometre 2D seismic data acquisition and processing and two exploratory wells in Block SS-09.
The ONGC will be allowed to operate and sell oil and gas for 20 years from an oil field and 25 years from a gas field.
The OVL has already completed around 3,100 line-kilometre 2D seismic surveys for both the blocks.
Wellhead gas prices in Bangladesh are pegged to high sulphur fuel oil, or HSFO, prices in the international market.
The floor price for HSFO has been set at $100 per tonne and the ceiling price at $200 per tonne to fix gas price. The latter works out to around $5.50 per Mcf, or 1,000 cubic feet.
Other features of the PSC are: The licence holder will have the right to full repatriation of profits; will not be charged any signature bonus or royalty; would not need to pay duty for equipment and machinery imported for operations during the exploration, development and production phases; will have 100 per cent cost recovery; and production bonuses. The contractor can also sell gas to third parties after Petrobangla's first right of refusal.