IOCs get extension despite failure to keep commitment

The government has extended the tenure of production-sharing contracts with the international oil companies (IOCs) engaged in shallow water exploration in the Bay of Bengal despite the latter's alleged failure to carry out 'committed' contractual jobs.
Contractors involving all the shallow water blocks under PSCs -- SS-04, SS-09 and SS-11 -- got a two-year extension though IOCs carried out less-than-expected exploration jobs, a senior Petrobangla official told the FE on Tuesday.
The IOCs were initially committed to completing their contractual exploration job within five years after signing the PSCs and thereby deposited bank guarantee.
Energy experts term it a 'sheer negligence' on the part of the government to carry out oil and gas exploration in the country's territory.
Officials said the joint venture (JV) of India's ONGC Videsh Ltd and Oil India Ltd is the contractor for shallow water blocks SS-04 and SS-09.
The JV of Santos and KrisEnergy is the contractor for shallow water block SS-11.
State-owned Petrobangla inked PSCs with the Indian JV on February 17, 2014 with a five-year exploration period, which was set to expire on February 16, 2019.
For SS-04, the ONGC and Oil India JV was committed to carrying out 2,700 line km 2D (two dimensional) seismic survey, 200 sq km 3D and drilling two wells during the contract period.
The Indian JV was committed to carrying out 2,850 line km 2D seismic survey, 300 sq km 3D seismic survey and drilling three wells in block SS-09 during the contract period.
But according to Petrobangla, the ONGC and Oil India JV only carried out 2D seismic surveys on both the blocks during five years of its initial contract period.
With the extension of the PSC tenures, the JV now got two more years to carry out its 'committed' exploration jobs in the Bay of Bengal, said the official.
The JV of Santos and KrisEnergy inked PSC with Petrobangla on March 12, 2014 with a five-year exploration period, which was set to expire on March 11, 2019.
The Santos and KrisEnergy JV committed to drilling an exploration well, carrying out 1,876 line kilometre 2D seismic survey, 300-square kilometres 3D survey during the five years' contractual period.
But the JV carried out only 2D and 3D seismic surveys during five years of its initial contract period.
With the extension of the PSC tenures, he JV now got the opportunity to carry out its 'committed' exploration jobs in the Bay of Bengal by March 2021, Petrobangla officials said.
Extending PSCs with 'non-performing' IOCs would slow down further the country's hydrocarbon exploration activities, said energy expert Prof Dr Badrul Imam.
"It proves that the government was not monitoring the exploration of jobs of the IOCs. On the contrary, t was more interested to import expensive LNG," he said.
The government should 'discontinue' PSCs with them in retaliation, said Mr Imam of Geology Department of Dhaka University.
"It reflects the government's sheer negligence to carry out exploration," said Dr Ijaz Hossain of Bangladesh University of Engineering and Technology (BUET).
The government should award exploration jobs to 'sound and quality' firms, letting 'non-performing' ones exit, he said.
Terms of PSCs could also be updated to attract globally reputed and efficient IOCs for carrying out exploration inside the country, said Mr Hossain, also an energy expert.
According to the PSC with these contractors, he wellhead gas price is pegged to high sulphur fuel oil (HSFO) prices in the international market.
The floor price for HSFO has been fixed at $100 per tonne and the ceiling price at $200 per tonne to fix gas price.
It works out a price to around $5.50 per Mcf (1,000 cubic feet).
Other features of the PSC are: the licence older will have right to full repatriation of profits; will not be charged any signature bonus or royalty; would not need to pay duty on equipment and machinery imported for operations during the exploration, development and production phases; will have 100% cost recovery; and production bonuses, the official said.
The contractor can also sell gas independently to third parties instead of going through state-run Petrobangla.
The company will be allowed to market gas domestically as well, but Petrobangla will have the first right of refusal.

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