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ONGC, OIL get Bangladesh offshore blocks for exploration

Bangladesh's state-owned Petrobangla inked two production sharing contracts (PSCs) with the ONGC and OIL for two shallow water blocks called SS-04 and SS-09 at a ceremony joined by senior government leaders, including Finance Minister A M A Muhith and Prime Minister Sheikh Hasina's energy affairs adviser Tawfiq-e-Elahi Chowdhury.

‘We needed to proceed quickly to explore our energy... I hope they (ONGC and OIL) will carryout an aggressive exploration campaign though we may not expect any production in the next five years,’ Chowdhury told the ceremony.

Under the contract, the Indian companies would also have rights to explore an already discovered offshore gas field near Kutubdia beyond their allocated blocks but the contract obligated them to complete the exploration works in eight years after the seismic surveys. The ONGC Videsh and Oil are also obligated to spend $58 million for block 4 and carryout 2,700 km-long 2D seismic survey, 200 sq km 3D and drill two wells during the contract period.

For the other block, they will have to spend $85 million and conduct at least 2,850 km-long 2D seismic survey, 300 sq km 3D and drill three wells during the contract period, of which five years will be treated as initial period and the three years for subsequent exploration.

Under the profit sharing arrangement, Petrobangla would get minimum 70 per cent and maximum 90 per cent in regard to oil and condensate and minimum 60 per cent and maximum 85 per cent in cases of extracted natural gas.

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 the basis of a 'fair market value'.

Under the contract the floor price for HSFO has been fixed at $100 per tonne and the ceiling price at $200/tonne. According to the PSC, the exploration companies will have rights of 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 and will have 100 per cent cost recovery and production bonuses. The ONGC and OIL could also sell gas independently to third parties instead of going through state-run Petrobangla and companies will be allowed to market the gas domestically as well, but Petrobangla will have the first right of refusal.  The ONGC Videsh and OIL had jointly submitted bids for these two shallow-water blocks out of nine as Bangladesh offered floated its latest international tender in December 2012.

But the production sharing contracts were signed as Bangladesh’s offshore gas output turned ‘zero’ from 1 October last when the operation of the Sangu-11 gas well was shut permanently after years of production slumps. Officials said Bangladesh now produces 2,300 mmc ft gas every day against a demand of 2,700 mmc ft.
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