Offshore bidding opens today with 'attractive' PSC

After eight years, Bangladesh will float a new international tender today for oil and gas exploration in a total of 24 blocks, with 15 located in deep waters and nine in shallow waters, in the Bay of Bengal.

Interested companies will have the opportunity to participate in the tender over the next six months. According to Petrobangla sources, 55 companies, including US multinationals ExxonMobil, Chevron, ConocoPhillips, and China's Sinopec, have been invited to take part in it.

"We have sent direct invitations to 55-56 companies. However, companies from any country in the world have the opportunity to participate as the tender is open," said Janendra Nath Sarkar, chairman of Petrobangla, a state-owned agency responsible for exploring, producing, transporting, managing, and selling oil, natural gas, and other mineral resources.

"After inviting tenders, we will conduct roadshows in different countries, which will be various seminars of a promotional type," he told The Business Standard.

"We have opened up everything this time; everything is being done transparently. We have amended the production sharing contract to attract multinational companies. Negotiations will be conducted with the companies in this regard."

Bangladesh has a total of 26 blocks in the Bay of Bengal. Currently, India's state-owned Oil and Natural Gas Corporation (ONGC) is working in two blocks in the shallow waters, where the depth is up to 200 metres.

"The deadline for the submission of proposals for oil and gas exploration in 24 offshore blocks is the first week of September. Afterward, they will be evaluated. We hope that it will be possible to enter into agreements in this regard by the end of this year," Sarker said.

He said companies can participate in the process from the day the tender is floated, and if any company wants, it can have a one-on-one direct meeting with Petrobangla later. "A company in Thailand has already expressed interest in having a one-on-one meeting with us."

Tawfiq-e-Elahi Chowdhury, adviser to the prime minister on power, energy, and mineral resources, told reporters on 7 March, "We expect a good response from the tender."

According to PretroBangla, the last tender for offshore oil and gas exploration was called in 2016.

A new Production Sharing Contract (PSC) was signed in 2019 but no bidding was called. After nearly four years, the cabinet gave final approval to the new PSC last July.

PSC made favourable to attract multinationals   

Currently, only ONGC is conducting exploration in the Bay of Bengal. However, the US company ConocoPhillips, British firm Cairn, and South Korea's Daewoo have abandoned exploration in the Bay of Bengal unfinished after their demand for increasing the price of deep-sea gas went unmet.

Since then, several initiatives to float international tenders have been taken, but there has been no response from foreign companies.

As Petrobangla has updated its production sharing contract (known as PSC-2023), many oil giants, including Chevron and ExxonMobil, have shown interest in investing in offshore oil and gas exploration. They have already held several meetings with Bangladesh.

According to PSC-2019, the price of every 1,000 cubic feet of gas was fixed at $7.25 for deep waters and $5.5 for shallow waters.

However, there is no set price for the new PSC. The price of gas has been fixed at 10% of the price of Brent crude oil – the most traded of all the oil benchmarks in the world.

If the price of fuel oil increases or decreases in the world market, the price of gas will also increase or decrease proportionally. Now the price of crude oil is $80 per barrel. According to this, the price of gas in the Bay of Bengal will be $8. But if the price of fuel oil is $100, the price of gas will be $10.

The formula for profit-sharing between multinational companies acting as contractors and Petrobangla has been changed this time. Previously, the two sides used to share profits after deducting investment and operating expenses.

Based on the amount of gas production, Petrobangla used to receive 55-80% of the profit. If production increased, Petrobangla's profit share would also increase.

However, this time, the total revenue earned from the gas field will be shared. Petrobangla will receive 35-65% of the revenue share.

The country's first production sharing contracts were signed in 1995 based on unsolicited negotiations with British Cairn for blocks 15 and 16. Cairn discovered the offshore Sangu field in 1996, and it produced gas until 2013.

The other PSCs for blocks 12, 13, and 14 were signed with the US company Occidental (later acquired by Chevron) in the mid-1990s, resulting in the discovery of the Bibiyana gas field, among others.

ConocoPhillips operated under PSC-2008 but left in 2015. Santos arrived in 2012 but departed in 2020, citing the winding down of their business in the region. South Korea's Posco Daewoo entered at the same time but also departed later.

Although the PSC was updated in 2019, tenders were not called due to a lack of interest from foreign companies.

Experts for 'transparent and efficient' negotiations 

The country's energy experts have suggested that the government ensure clarity and efficiency in negotiations so that multinational companies do not create new demands after being awarded the work and then leave the projects unfinished after 2-3 years.

Energy expert Professor M Shamsul Alam told TBS, "Foreign multinational companies often do not abide by contracts properly. After getting the job, they start presenting various excuses, such as 'expenses are increasing,' in the middle of the project. These matters must be clarified, and efficiency must be demonstrated in this regard."

"Bangladesh has always been weak in negotiations, still inefficient. Here, based on fairness through competition, the companies that are more in our national interest should be awarded contracts through bargaining," he added.

Shamsul Alam believes that the job should be awarded to companies that are the most qualified, have previous work experience, and are relatively large.

However, energy experts view the interest of the world's No. 1 company ExxonMobil in offshore gas exploration as positive for Bangladesh.

After settling maritime boundary disputes with Myanmar in 2012 and India in 2014 in the international court, Bangladesh established ownership of a total of more than 1.18 lakh square kilometres of sea area. A decade on, the success of the sea border has not materialised, especially in terms of mineral resources.

Energy experts believe that the solution to the country's dire energy crisis lies beneath this vast water body. Myanmar has found huge gas reserves next to Bangladesh's block, indicating potential opportunities through the new tender.

The gap between the demand and supply of gas in the country has led to a continuous crisis for several years. To address this crisis, Petrobangla is importing liquefied natural gas, and three more long-term LNG import contracts have been signed.

There is a danger that the existing reserves of gas in the country will be exhausted by 2033-34. Petrobangla aims to ensure the supply of local and imported gas before this reserve is depleted.

To achieve this, Petrobangla has initiated plans to drill 46 wells by 2025 to increase local gas production. An additional 100 wells are expected to be drilled by 2028.

Previous surveys on oil, gas reserves 

Between 1986 and 2001, nine globally recognised companies were engaged in exploring oil and gas resources in Bangladesh. These organisations conducted exploration activities across the country and in specific regions.

In 2001, the United States Geological Survey (USGS) and Petrobangla conducted a survey while the Hydrocarbon Unit and the Norwegian Petroleum Directorate conducted another survey.

The report produced by USGS and Petrobangla suggested a minimum estimate of 8.4 trillion cubic feet (tcf), an average of 32.1tcf, and a maximum of 65.7tcf of gas reserves.