Sangu-11 takeover from Santos to cost Petrobangla Tk 150m a year
Saturday, 6 October 2012
M Azizur Rahman
State-owned Petrobangla will incur losses amounting to Tk 850 million (US$10.4 million) annually if it has to take over the offshore Sangu-11 well from Australia's Santos and operate it, a top official of Petrobangla has estimated.
Petrobangla or its subsidiaries would not be able to operate the gas producing Sangu-11 well in block 16 in the Bay of Bengal due to lack of expertise, Petrobangla Chairman Hussain Monsur said.
"We shall have to engage a third party to operate Sangu-11, which will cost around $11 million a year," he said.
Australian Santos is no longer keen to continue its operations in Bangladesh as Sangu-11 would not be economically viable for long and the company was not awarded exploration rights to the offshore Kutubdia gas field, which it says would have made further exploration in block 16 commercially viable.
Santos, therefore, has said it saw no incentive to drill in the Magnama structure in block 16 and make further investments in Bangladesh.
Santos is set to wind up operations in Bangladesh from late December, 2012.
On September 24, it served a 90-day notice on the Petrobangla explains its decision.
In addition to concern over the lack of expertise, Petrobangla would have to sell Sangu-11 gas at much lower prices than Santos to state-owned Bangladesh Power Development Board (BPDB) for electricity generation by the 150 MW Shikalbaha gas-fired power plant, said a Petrobangka official.
Santos has directly negotiated with BPDB, and has been selling Sangu-11 gas to the utility at $4.5 per unit (1,000 cubic feet).
Petrobangla would have to sell Sangu-11 gas at less than a quarter of Santos' price, at around $1 per unit, which makes the operation unprofitable, said another Petrobangla official.
Petrobangla and its subsidiaries are supplying gas at an average price of around $1/Mcf to state-owned power entities for electricity generation.
Santos has urged Petrobangla to take over the offshore Sangu platform, processing plant, pipelines and other infrastructure within 90 days.
Monsur said that it was important to maintain operation at Sangu-11 to supply much needed gas to Chittagong city, where numerous industries have been affected and forced to shut plants due to the country's ongoing gas shortages.
Even though Santos has said it would wind up its Bangladesh operations, a change in Petrobangla's decision on Kutubdia could see Santos continuing operations in the country, a ministry official suggested.
This could not be confirmed with Santos.
The Kutubdia gas field, discovered in 1977, has recoverable gas reserves of around 45.5 Bcf, according to Petrobangla's initial estimates of the size of the field in 1985.
Santos was initially seeking to develop Kutubdia along with the nearby offshore Magnama structure in 2013.
Petrobangla instead decided to offer Kutubdia for competitive bidding in a licensing round in October.
Kutubdia along with another discovered offshore gas field Teknaf would be offered under "special packages," Petrobangla had decided earlier.
Santos entered Bangladesh in November, 2010 when it took over UK-based Cairn Energy's interests in the country, which included block 16 and the Kutubdia field.
The company later relinquished its rights to Kutubdia as it found the production sharing contract terms unfavorable, and decided to focus on the Sangu gas field.
Santos drilled the Sangu-11 well in the Sangu field after the other wells were depleted of gas, and brought it on stream in June this year.
The company was able to proceed with developing Sangu-11 after it won rights to bypass Petrobangla and sell the gas directly to BPDB at $4.50 per unit, a rate that is 55 per cent higher than the fixed gas price for older Sangu field.
Sangu-11 is currently supplying 23 million cubic feet (mmcfd) of gas per day, down from around 220 mmcfd of gas during its peak output in 2006.
If Sangu-11's output falls to 15 mmcfd, the well will no longer be economically viable, Santos officials said.
Moreover, the well is expected to run out of gas in two years.
In addition to owning 100 per cent of the Magnama and Hatiya structures in block 16, Santos has a 75 per cent stake in Sangu together with Halliburton Energy, which has a 25 per cent stake.
State-owned Petrobangla will incur losses amounting to Tk 850 million (US$10.4 million) annually if it has to take over the offshore Sangu-11 well from Australia's Santos and operate it, a top official of Petrobangla has estimated.
Petrobangla or its subsidiaries would not be able to operate the gas producing Sangu-11 well in block 16 in the Bay of Bengal due to lack of expertise, Petrobangla Chairman Hussain Monsur said.
"We shall have to engage a third party to operate Sangu-11, which will cost around $11 million a year," he said.
Australian Santos is no longer keen to continue its operations in Bangladesh as Sangu-11 would not be economically viable for long and the company was not awarded exploration rights to the offshore Kutubdia gas field, which it says would have made further exploration in block 16 commercially viable.
Santos, therefore, has said it saw no incentive to drill in the Magnama structure in block 16 and make further investments in Bangladesh.
Santos is set to wind up operations in Bangladesh from late December, 2012.
On September 24, it served a 90-day notice on the Petrobangla explains its decision.
In addition to concern over the lack of expertise, Petrobangla would have to sell Sangu-11 gas at much lower prices than Santos to state-owned Bangladesh Power Development Board (BPDB) for electricity generation by the 150 MW Shikalbaha gas-fired power plant, said a Petrobangka official.
Santos has directly negotiated with BPDB, and has been selling Sangu-11 gas to the utility at $4.5 per unit (1,000 cubic feet).
Petrobangla would have to sell Sangu-11 gas at less than a quarter of Santos' price, at around $1 per unit, which makes the operation unprofitable, said another Petrobangla official.
Petrobangla and its subsidiaries are supplying gas at an average price of around $1/Mcf to state-owned power entities for electricity generation.
Santos has urged Petrobangla to take over the offshore Sangu platform, processing plant, pipelines and other infrastructure within 90 days.
Monsur said that it was important to maintain operation at Sangu-11 to supply much needed gas to Chittagong city, where numerous industries have been affected and forced to shut plants due to the country's ongoing gas shortages.
Even though Santos has said it would wind up its Bangladesh operations, a change in Petrobangla's decision on Kutubdia could see Santos continuing operations in the country, a ministry official suggested.
This could not be confirmed with Santos.
The Kutubdia gas field, discovered in 1977, has recoverable gas reserves of around 45.5 Bcf, according to Petrobangla's initial estimates of the size of the field in 1985.
Santos was initially seeking to develop Kutubdia along with the nearby offshore Magnama structure in 2013.
Petrobangla instead decided to offer Kutubdia for competitive bidding in a licensing round in October.
Kutubdia along with another discovered offshore gas field Teknaf would be offered under "special packages," Petrobangla had decided earlier.
Santos entered Bangladesh in November, 2010 when it took over UK-based Cairn Energy's interests in the country, which included block 16 and the Kutubdia field.
The company later relinquished its rights to Kutubdia as it found the production sharing contract terms unfavorable, and decided to focus on the Sangu gas field.
Santos drilled the Sangu-11 well in the Sangu field after the other wells were depleted of gas, and brought it on stream in June this year.
The company was able to proceed with developing Sangu-11 after it won rights to bypass Petrobangla and sell the gas directly to BPDB at $4.50 per unit, a rate that is 55 per cent higher than the fixed gas price for older Sangu field.
Sangu-11 is currently supplying 23 million cubic feet (mmcfd) of gas per day, down from around 220 mmcfd of gas during its peak output in 2006.
If Sangu-11's output falls to 15 mmcfd, the well will no longer be economically viable, Santos officials said.
Moreover, the well is expected to run out of gas in two years.
In addition to owning 100 per cent of the Magnama and Hatiya structures in block 16, Santos has a 75 per cent stake in Sangu together with Halliburton Energy, which has a 25 per cent stake.