New Model PSC has potential to attract IOCs

Deputy Managing Director of Cosmos Group, Masud Khan, has said the updated Bangladesh Offshore Model Production Sharing Contract (PSC) should attract international oil companies to explore the country's offshore areas.

Though the updated Model PSC has created some challenges for investors, he believes that its latest features will provide them more opportunities to enjoy full scale benefits compared to the past.

"Under the Bangladesh Offshore Model PSC 2023, successful bidders will enjoy benefits such as full profit repatriation, uncapped gas prices linked to international markers, and competitive oil prices based on prevailing market values," he said in an exclusive interview.

Petrobangla, the oil, gas and mineral corporation, floated the offshore bidding on March 10, inviting international oil and gas companies to explore in the Bangladesh maritime area, in the Bay of Bengal, giving six months' time until September 9, 2024 for submission of the bids.

As per the floated tender, a total of 24 offshore blocks - of which nine are shallow blocks and 15 deep sea blocks - are available for the bidding round.

Cosmos Group, one of the leading private sector conglomerates in Bangladesh, has successfully completed numerous supply, turnkey and service contracts on behalf of its respective principals with utmost sincerity and efficiency.

Representing Cosmos Group, Masud Khan said that Bangladesh has launched the offshore licensing round in more than a decade as the energy deficient South Asian nation seeks to attract upstream players back after improving its production sharing contract and fiscal terms.

Appreciating the government's initiative to officially launch the 2024 Offshore Bid Round, he said this offers a slew of incentives designed to attract international investors.

"The engagement of international oil companies (IOCs), albeit belated, opens doors for acquiring valuable data and identifying new growth opportunities," he said.

He mentioned that after lacklustre responses to prior licensing rounds and the subsequent exodus of almost all overseas players, Petrobangla appointed the international consulting firm, Wood Mackenzie, to advise it on beefing up its PSC terms in an attempt to reignite exploration.

According to Masud Khan, the mandatory work programme for the acreage on offer comprises only 2D seismic surveying and companies can get proportionate relief from their work commitments by purchasing the data for the relevant block(s) from the TGS and SLB joint venture, while exploration over and above that minimum obligation is biddable.

With limited existing offshore Bangladesh data, this new high-quality seismic, combined with the revised PSC 2023, is a critical component for companies to evaluate and submit competitive bids for the blocks on offer in the bid round.

Responding to a question on the contractual framework and the attractive incentives for the investors, the Cosmos DMD said, there are no signature bonuses or royalties, and equipment imports for petroleum operations incur no duty. Additionally, Petrobangla assumes the corporate income tax liability of contractors, further enhancing the attractiveness of investment in Bangladesh's offshore sector.

About the key features of the contract, Masud Khan mentioned that the contractual framework also includes provisions for bank guarantees for the performance of exploration programs, provision for assignment of interest and share transfer, 100 percent cost recovery with a yearly cap of 75 percent, minimum work obligations and biddable work program commitments.

Responding to a question, Masud Khan said that while the initiative holds immense potential for Bangladesh's energy security and economic prosperity, concerns have been raised regarding potential over-reliance on IOCs and future gas pricing dynamics.

"Critics caution against the risk of financial burden and loss of sovereignty over-extracted resources," he said.

He believes that despite challenges, experts foresee opportunities for Bangladesh to leverage offshore exploration to build domestic capacity and negotiate better terms in the future. The engagement of IOCs, albeit belated, opens doors for acquiring valuable data and identifying new growth opportunities.

Although Bangladesh has been predominantly a gas province, if oil were to be discovered and exploited, the price would be determined on the basis of the fair market value prevailing in South and Southeast Asia, he said.

About the implications of the latest discovery for Bangladesh's energy future, he said the discovery of an energy reservoir in the Bay of Bengal by the United States has sparked interest in Bangladesh's untapped natural gas reserves. As one of the largest deltas in the world, Bangladesh has the potential to fully exploit its gas discoveries.

Responding to another question on Cosmos Group's role in this offshore bidding round and its contribution to the development of Bangladesh's energy sector, he said that Cosmos is proud to be associated with all the major successful explorations and production ventures in onshore and offshore structures for both the IOCs and the NOCs through its international partners in Bangladesh for over the last three decades, and provided all in-country services through one-stop-solutions with services encompassing business development to logistics solutions.

"We look forward to continuing the legacy of serving the nation with all our efforts, with the highest integrity, to be a proud partner in the development of Bangladesh," Masud Khan said.

"We are honored to serve the nation, ensuring its energy security through partnering with TGS and Wood Mackenzie for providing the long-awaited Multi-Client Seismic Study in the Bay of Bengal and for the upgradation of the Offshore Model PSC, which are the two vital prerequisites for a successful bidding round," Masud Khan said.