Chevron shelves $65m project

American oil-major Chevron has deferred its $65-million Jalalabad compression project in northeastern Bangladesh following nonpayment of $220 million in overdue gas bills, market sources said.

Chevron Bangladesh wrote to state-run Petrobangla on Thursday about its decision not to execute its natural-gas-compression station near Jalalabad gas field in time.

This is for the first time that Chevron deferred any of its projects due to government default on payment of gas bills.

The US oil-and-gas explorer, the largest natural-gas producer in Bangladesh, approved a budget worth $65 million last year to build the compression station within 2025. It was doing the preliminary work to initiate the construction of the station this year to complete it by next year.

A compressor station is a facility which helps the process of transporting natural gas from one location to another.

Jalalabad gas field currently produces around 156 million cubic feet per day (mmcfd) of gas against around 270-mmcfd capacity.

Chevron Bangladesh, however, is carrying out drilling works under the ongoing Bibiyana optimisation project.

The company has so far invested $200 million and completed the drilling of BY28 well.

It is now drilling BY27 well, according to a senior Petrobangla official.

Chevron has employed US-based Parker Drilling Company to carry out the job of drilling Bibiyana gas wells and pays $50,000 daily as its rig rent.

Petrobangla has not been able to pay regularly to Chevron for the gas produced and supplied from wells in this country since September 2022.

The corporation owes an estimated $220 million to the international oil company, according to market sources.

According to the gas purchase and sales agreement between Chevron and Petrobangla, the IOC has the liberty to shut production if non-payment exceeds a five-month period, says the official.

According to article 14.3 of the agreement, the seller shall not be obligated to supply gas if the buyer defaults on payment for over five months from the date payment is due.

In this event, the seller does have the right to defer delivery of gas without violating this agreement or the PSC until all unpaid payments for gas delivered to the buyer are three months' dues, it says.

"All quantities of gas for which seller shall defer deliveries hereunder shall be deemed to have been delivered to the buyer for purposes of calculating ACQ, DCQ, take-or-pay volume, deficiency volume and other relevant provisions hereunder. Each day of deferral shall extend the production period by one day," reads the deal.

It means, according to sources, Chevron can halt supplies anytime under the PSC (production-sharing contract).

Market sources say Petrobangla has, however, never defaulted in paying Chevron gas bills before and used to make payment within one month of gas supply into the national gas grid.

Chevron has invested in Bangladesh's hydrocarbons sector for more than 30 years.

Chevron has a total output of around 1,297 mmcfd, accounting for around 63 per cent of the total output from local gas fields, according to the official data of Petrobangla as on 03 April 2024.

The multinational has three operating onshore fields--Bibiyana, Jalalabad and Moulvibazar--located in blocks 12, 13 and 14 respectively.

Bangladesh's overall natural gas output currently hovers around 2,648mmcfd, including 600 mmcfd of regasified LNG, according to Petrobangla data.

With the payments stalled, sources say, Chevron is not being able to carry out jobs like optimisation of the Bibiyana gas field, installing the compression station and drilling new wells to ramp up the fuel output.

The company usually funds its development works with the revenue generated from gas sales.

Expecting increased engagement in oil-gas exploration activity by Chevron, Bangladesh recently approved the expansion of the Bibiyana gas field by an additional 60 square kilometres as a "flank" area.

"Petrobangla is trying to clear all dues to Chevron as soon as possible," says the corporation official.

"We discussed with the finance ministry, the central bank and the power, energy and mineral resources ministry the matter of facilitating payment to Chevron."

Pointing to the significance of gas production from Chevron-run fields, sources reminded that an abrupt fall in gas supplies from Bibiyana triggered a countrywide gas crisis that affected industries, power plants and household consumers in early April 2022.

Chevron had to shut a damaged onshore gas well at Bibiyana, located in the country's gas-rich north-eastern region, along with five other onshore gas wells in the field on April 03.

According to official data, gas output from the Chevron-operated Bibiyana field had dropped by about one-third to around 800mmcfd due to the shutdown, from about 1,275mmcfd earlier.

The well was damaged when sand started flowing out with natural gas following production glitches.

Although the five gas wells at Bibiyana came back online within four days on April 07, Petrobangla had to impose 10-day gas rationing from April 12 to 21 for local industries.

It also asked industrial consumers not to consume gas for four hours daily to tide over the severe energy shortage.

The damaged onshore gas well at Bibiyana resumed operation after three weeks on April 28.

About the deferment of Jalalabad compression station, Chevron Bangladesh communications manager Shaikh Jahidur Rahman says, "Chevron Bangladesh can confirm it has deferred a planned investment in a project designed to increase gas output at Jalalabad Gas Plant pending resolution of overdue payments from Petrobangla."

The US company hopes the situation will be resolved quickly to enable future investment in the growth of Bangladesh's energy resources, according to a statement.

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