Int’l court asks BAPEX to pay $42m to foreign oil company

Bangladesh stands to lose around US$42 million to a breakaway foreign oil-and-gas company following an international-court verdict on a dispute over payment for gas-well drilling.

The Singapore International Arbitration Centre (SIAC) in its 'partial final verdict' has asked state-run Bangladesh Petroleum Exploration and Production Company Ltd (BAPEX) to make the payment in favour of the Azerbaijan-based firm, Socar AQS LLC, BAPEX managing director Md Fazlul Haque told The Financial Express Tuesday.

"BAPEX will file an appeal against the SIAC verdict soon," he said about their plan for overturning the order passed following hearings from both BAPEX and Socar.

If the SIAC keeps its verdict unchanged in its final verdict, BAPEX might have to pay an additional US$3.16 million to the company, which is deemed cost for arbitration, said sources.

The Azerbaijan firm was paid around US$11.8 million against its drilling of Semutang South-1 gas-well in Khagrachhari under Chattogram division.

Semutang is the lone well that Socar AQS drilled among the three BAPEX-owned gas-wells.

The well was found dry after the drilling.

Losing in the final verdict means BAPEX's payment to the Azeri company will be around US$57 million against an unsuccessful gas drilling.

This will be the first-ever incident in the country's history that Bangladesh lost to an international oil company (IOC) in an international court following a dispute over well drilling.

Socar's local agent in Bangladesh is all set to get windfall profit out of this defeat of BAPEX in the SIAC.

Officials have said the company lodged a lawsuit against BAPEX with the SIAC in 2020 for settling disputes over payment for the drilling of one of three gas wells that were awarded to them eight years back in 2017.

Socar sought compensation worth around US$72.96 million on claim for compensation against 11 issues, including performance guarantee, rig detention, demobilization, consequential damages and sub-contractor claims.

The international arbitrator fully upheld two of Socar's claims, partially upheld its five claims and dismissed four before awarding its 'partial final verdict'.

Sources say Socar AQS LLC was appointed by Bapex in 2017 for drilling three onshore gas wells at a cost of around US$33 million. It was paid 'lately' around $11.8 million against the drilling of its first well in Semutang South-1 zone.

Begumganj-4 in Noakhali and Madarganj-1 in Jamalpur were the two other gas-wells that Socar was bound by deal to drill.

The dispute surfaced as the firm claimed that at least half of the amount of the drilling cost of the first well should have been paid within 15 days of signing the contract.

It also claimed it was not paid due amount ahead of starting the drilling of the Semutang well against its invoice placed on June 14, 2018.

Also claimed was delayed payment against its invoice placed on January 23, 2019.

Socar subsequently issued 'early notice of termination' of its contract with BAPEX later on March 26, 2019. In a letter thereafter BAPEX was informed of the company decision to terminate the contract.

Thereafter, BAPEX tried to settle the dispute amicably through discussion. But Socar stuck its guns and lodged a compensation suit with the SIAC in 2020.

A senior Petrobangla official, preferring anonymity, says the dispute between Socar and BAPEX emerged ahead of drilling its second well, in Begumganj.

"Socar took almost double its stipulated time to complete the drilling of its first well," he says about foot-dragging practice in the hired company's job.

"The Azeri company in connivance with its local partner had offered lower-than-expected costs to grab the three-well-drilling project and subsequently was awarded it," he says.

There were also some 'faulty' clauses in the contract inked between Socar and BAPEX and no vetting from the law ministry was carried out before the deal-making during the previous Awami League government, the official alleges.

"Socar left the country without finishing the drilling job it was assigned for by terminating contract unilaterally," the official says.

It also happens to be first incident in the country's oil-and-gas sector that an IOC left its drilling job unfinished.

Energy-expert professor M Tamim gets astonished over BAPEX losing the arbitration against Socar in the international court.

"Socar should have been penalised by the international court as it left the country without finishing its contractual job," he says.

"It's true that the payment might have been delayed, but BAPEX might not have said that the payment will not be made to them," says Mr Tamim, who is currently Vice-chancellor of the International University of Bangladesh (IUB).

"I think BAPEX did not engage good lawyer to fight in the SIAC."

The state-run company should take initiative to appeal strongly against the SIAC verdict, suggests Mr Tamim, who was a special assistant to the Chief Adviser of the previous caretaker government.

Separately, state-run Petrobangla and its subsidiary Bapex have a pending case against Canadian oil-and-gas-exploration firm Niko Resources in the International Centre for Settlement of Investment Dispute (ICSID).

"Final verdict from the ICSID is expected soon," says a senior Petrobangla official.

Azizjst@yahoo.com