PSC signed: ONGC to start oil, gas exploration in Bay soon

India's ONGC Videsh Ltd along with its partner Oil India Ltd plans to initiate oil and gas exploration in two new shallow water blocks in the Bay of Bengal 'soon' after establishing an office, ONGC Chairman and Managing Director DK Sarraf said Monday.
ONGC and Oil India have 50:50 stakes in two shallow water blocks - SS-04 and SS-09, he said.
These Indian firms are looking forward to discover hydrocarbon from these blocks for energy security and mutual benefit of the two neighbouring countries, Mr Sarraf said.
The top official of India's most profitable government company was speaking at the production sharing contract (PSC) signing ceremony at Petrocentre in the city.
Finance Minister AMA Muhith was the chief guest at the PSC signing ceremony where Prime Minister's Energy Adviser Dr Tawfiq-e-Elahi Chowdhury and State Minister for Power, Energy and Mineral Resources Nasrul Hamid were the special guests.
Speaking at the function, the finance minister said the country is now diversifying energy resources to cope with the mounting energy needs.
"We inherited a severe energy crisis when we took office in 2009," he said.
"But we have tackled the crisis very well," said Mr Muhith.
Energy Adviser expressed the hope that the contractors would be able to carry out oil and gas exploration in two shallow water blocks effectively within the stipulated time.
"We shall be able to explore more oil and gas blocks after settlement of maritime boundary dispute with India," he said.
State Minister for Power, Energy and Mineral Resources said the country's energy demand is increasing at 8-10 per cent every year.
Mr Hamid hoped that the Indian firms would be successful and discover hydrocarbon in the Bay of Bengal.
Petrobangla Chairman Dr Hussain Monsur, Indian High Commissioner in Bangladesh Pankaj Saran and Energy Secretary Md Mozammel Haq Khan also spoke on the occasion.   
ONGC Videsh Ltd and Oil India Ltd inked two PSCs with the state-owned Petrobangla, Bangladesh Petroleum Exploration and Production Company Ltd (Bapex) and the government of Bangladesh during the function.
Under these PSCs, the Indian oil and gas exploration firms will also have rights to explore Bangladesh's first discovered offshore gas field, Kutubdia, as well.
Kutubdia was offered under a 'special package' and was tagged with SS-04 during the bidding round.
ONGC and Oil India joint venture has committed to spend US$58.4 million for block SS-04 and carry out 2,700 km-long 2D seismic survey, 200 sq km 3D and drill two wells during the contract period.
For block SS-09, ONGC and Oil India have committed to spend $86.4 million and conduct at least 2,850 km-long 2D seismic survey, 300 sq km 3D and drill three wells during the contract period.
The JV of ONGC Videsh and Oil India had submitted bids for these two shallow-water blocks out of nine that were offered by Bangladesh in the latest bidding round in December 2012.
With the signing of PSCs the Indian companies made entry into Bangladesh's oil and gas exploration activities.
The contract period for exploration will be eight years with a five-year initial period and a three-year subsequent exploration.
The contractors will be allowed to operate and sell oil and gas for 20 years from an oil field and 25 years from a gas field.
Wellhead gas prices in Bangladesh are pegged to high sulphur fuel oil (HSFO) prices in the international market, while oil prices are determined on a 'fair market value' basis as agreed by both contractors and Petrobangla.
The floor price for HSFO has been fixed 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 (1,000 cubic feet) besides a 37.5 per cent corporate tax that has to be paid by the contractor.
Other features of the PSC are: the licence holder will have right to full repatriation of profits  without any signature bonus or royalty and need not to pay duty for equipment and machinery imported for operations during the exploration, development and production phases with provision for 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.