Work on new contract model, survey fuel hopes for Bangladesh’s offshore gas exploration

With the work on a new model offshore production sharing contract and a survey at the final stages, Bangladesh is hoping to revive its chances of finding gas in the sea. 

The bolstered efforts to extract more gas from domestic sources amid an energy crisis have drawn interests from several foreign companies, including American giant ExxonMobil Corporation, in Bangladesh’s fossil fuel reserves. 

The government expects to call a tender by November to explore gas in the sea after finalising an attractive model contract aimed at benefiting both sides, said State Minister for Power, Energy and Mineral Resources Nasrul Hamid. 

As demand for gas increased along with economic activities, the demand for exploring Bangladesh’s own natural resources grew.

The current government, however, made little progress in using domestic gas in the past one and a half decade. 

It says falling gas prices on the international market before the coronavirus pandemic and the Russia-Ukraine war as well as poor contract models with less promising conditions made the foreign companies indifferent in exploring or extracting gas from the sea. 

NEW PSC 

The cabinet committee on economic affairs cleared the Model Production Sharing Contract 2023 by the end of July. 

Experts of the government's oil and gas exploration and production company Petrobangla prepared the contract in consultation with global research group Wood Mackenzie. 

The government has also approved the contract in principle and is finalising the papers now. 

Wood Mackenzie analysed the conditions of the Bangladesh Offshore Model PSC 2019 and compared them with those of India, Myanmar, Bulgaria, the Philippines, Malaysia, Vietnam, Sierra Leone and Papua New Guinea before making recommendations on the new PSC. 

Md Shaheenur Islam, director of PSC at Petrobangla, said the price mechanism and price factors have been changed in the new model PSC. 

The international companies’ production share has been raised by 5 percent. 

“It will be a win-win situation because both sides’ interests will be protected,” Shaheenur said. 

The new PSC will prevent the price of gas from being raised above the global price of liquified natural gas or LNG.

In deep sea drilling, Bangladesh will get a maximum 65 per cent of the gas after recovery of the investment. 

The foreign company will have to prioritise Bangladesh in selling its share of the gas even if other countries’ offers are more profitable, Shaheenur said. 

It may sell the gas to others if Bangladesh does not need the product at the time. 

The PSC also has early cost recovery provision and the pricing will be adjusted to Brent indexing. The price will be 10 per cent of Brent crude. 

Energy expert Badrul Imam described the changes as “justified”. 

“We can’t leave the sea unused forever. And if someone does not see profit, they won’t come,” he said.

EXXON’S OFFER AND SURVEY

Shaheenur said ExxonMobil has explicitly expressed interest in exploring Bangladesh’s gas and companies in China and other countries are also gathering information. 

“We’re preparing. A final decision may come anytime after September,” the Petrobangla director said, adding that the appointment of a contractor or the bidding process depends on the government. 

Petrobangla had estimated $5 billion would be needed for deep sea gas exploration, but Exxon says it may take at least $10 billion, according to him.

The cost recovery would take five to seven years if $5.0 billion is invested, Brent crude price remains above $70 per barrel and the internal rate of return stays at 12 percent, according to him. 

In this period, Bangladesh will get 35-65 per cent of the gas and it will be a minimum 65 per cent after the cost recovery, he said. 

State Minister Nasrul said ExxonMobil offered $10-30 billion in initial investment. 

The company has sent two letters seeking to start a survey, he said. 

“We are looking into ExxonMobil’s offer. We’ll form a technical committee to analyse their proposals before making a decision. It seems ExxonMobil is serious this time.” 

He said the government would call the tender after getting the results of the two-dimensional multi-client survey being conducted by a joint venture of Norway's TGS and US-based Schlumberger Limited. 

They started the survey with their own funds in January. 

Bangladesh will get the survey data for free while the companies that will explore gas will need to buy the report. 

Badrul Imam said ExxonMobil is very much experienced in offshore drilling, and noted its recent success in exploring oil in Guyana. 

“It will be better for Bangladesh to negotiate with them on the basis of the new model PSC. Because everyone would want their work to be done by a good company.”