Re-tendering for off-shore oil, gas likely after Eid as first one finds no bidder

Infograph: TBS

Bangladesh is preparing to launch a second international tender for petroleum and natural gas exploration in 24 offshore blocks in the Bay of Bengal out of 26, following a disappointing first attempt. 

The re-tender, expected after Eid-ul-Fitr, will also include separate calls for 2-D and 3-D seismic surveys.

The initial tender process, launched in March 2024, failed to attract bids from any of the seven international oil companies (IOCs) that purchased tender documents. The IOCs cited several concerns, including low tariffs, insufficient survey data, absence of wheeling charges, and the 0.5% workers' profit participation fund (WPPF) as stipulated in the Bangladesh Labour Act 2006.

Talking with different level officials of the Ministry of Power, Energy, and Mineral Resources and the Bangladesh Oil, Gas, and Mineral Corporation (Petrobangla), The Business Standard has learned that the government will float the second international tender after addressing the issues raised by the IOCs.

As soon as the IOCs declined to submit the bidding paper for maiden deep sea hydrocarbon exploration, the ministry asked Petrobangla to get feedback from the companies that bought tender documents and send an evaluation report incorporating the recommendations placed by the IOCs.

Md Altaf Hossain, Petrobangla director (Production Sharing Contract), said, "The ministry asked us (Petrobangla) to send an evaluation report finding the reasons for not dropping bid documents and what actions could lead the IOCs to participate in the future tender process."

The report has been sent to the ministry, he said. "Future tender will be floated upon the directives we receive from the ministry."

In response to the question of what went wrong with deep sea exploration, Muhammad Fouzul Kabir Khan, adviser to the Ministry of Power, Energy, and Mineral Resources, said, "IOCs raised several issues with us, and we are working to resolve them."

The adviser added, "After addressing the issues, we will go for bidding again after Eid [Eid-ul-Fitr]. Petrobangla has been instructed to prepare bidding documents. In the fresh bidding, we will launch separate tenders for 2-D and 3-D seismic surveys too."

Energy and Mineral Resources Division Secretary Mohammad Saiful Islam told TBS yesterday that the ministry received Petrobangla's evaluation report.

"We received the report from Petrobangla on Monday and it will be scrutinised thoroughly so that the next bidding becomes more lucrative to the IOCs," he said, adding, "There were some weaknesses in our first bidding. We are trying to overcome those issues."

Petrobangla officials said they were quite upbeat, following the interest of some oil and energy giants like ExxonMobil and Chevron in the first tender.

"In our maiden bidding process, two global energy giants bought tender documents, which gave us a sense that this time it would work, but we got frustrated when they declined to submit bidding documents from their end," a Petrobangla official, wishing not to be named, said.

To buy tender documents, each company had to spend $10,000, which gave an impression to the officials that they would submit their bids.

There was much fanfare among the officials given the premise of further sweetening the model Production Sharing Contract (PSC) that was tilted towards future IOCs which will explore hydrocarbons in the Bay.

In the revised PSC-2023, the share of the extracted oil and gas in the deep sea was determined to be 40% for Bangladesh and 60% for IOCs which was 70% for Bangladesh in the old PSC-2019.

In the PSC-2023, the tariff was determined for per Metric Million British Thermal Unit (mmbtu) gas to be 10% of the Brent crude.

Why first tender failed to lure IOCs 

After the maritime boundary in the Bay was resolved with India in 2012 and with Myanmar in 2014, policymakers of the government were very vocal about the prospect of exploring oil, gas and rare minerals from the sea bed.

After several rounds of Production Sharing Contracts (PSC) revision, Petrobangla finally floated an international tender on 10 March 2024 to explore hydrocarbons but the plan faltered

When Bangladesh called for international tender, the price of per barrel Brent crude was $82.23 but the price plummeted to $76.40 yesterday.

On the gas price issue, ExxonMobil categorically said, "As the crude price is falling in the international market, the present tariff mechanism-aligning the gas price with 10% of the Brent crude is not up for grabs."

When Mohammad Saiful Islam, Energy and Mineral Resources Division secretary, was drawn attention to the price issue, he said some companies are seeking 12% of Brent and some are satisfied with 10%.

To address the concern on WPPF, the Energy and Mineral Resources Division wrote a letter to the Ministry of Labour and Employment seeking how to deal with this issue, he said.

The issue of WPPF will also be resolved, Saiful said.

Issues like lack of sufficient survey data and absence of wheeling charge are also dampening the companies' interest.

Saiful said, "We have data which may not be sufficient. Many companies didn't even buy the data we have."

ExxonMobil and Chevron both raised the issue of the wheeling charge. The wheeling charge is a kind of payment made to the exploration company for carrying oil and gas from the extraction point to the landing station onshore.

"Lack of survey data, we can't draw a clear picture about the probable reserve of the oil and gas in the sea bed. On top of that, there is no infrastructure (pipeline and rig) in the sea. Investing billions of dollars in infrastructure is a risky venture if gas price is not made further lucrative and proven reserves are not determined," said a Petrobangla official quoting ExxonMobil and Chevron officials.

"We will address the wheeling charge issue in the second bidding," said the energy secretary.

Of the 26 offshore blocks in the Bay, 11 are in shallow water and 15 are in deep sea. Twenty-four of these blocks (15 deep sea and 9 shallow water) are being offered for hydrocarbon exploration.