Offshore Gas Exploration: Petrobangla drafts new negotiation guidelines
Petrobangla has prepared a draft of the Production Sharing Contract (PSC) for offshore gas exploration that improves the state-owned company's bargaining position when it sits down for negotiation with global oil companies.
The new PSC replaces the profit share model of the earlier version: it is based on the revenue share model.
In the 2019 PSC, profit was shared only after the recovery of the foreign company's exploration costs, with the Petrobangla's share of profit being 55 percent for shallow sea blocks and 50 percent for deep sea blocks.
In the new draft, profit will be shared based on total income from a gas field, according to Petrobangla officials involved with the proceedings. In other words, it is a revenue-sharing contract.
The contractors will now get a revenue share of up to 65 percent from the offshore gas field including the shallow and deep-sea blocks.
A revenue-sharing contract model would be better for Bangladesh, said Badrul Imam, honorary professor at the University of Dhaka's geology department.
"It is because under the profit-sharing contract model, as we know from past experience, the provision of cost recovery always makes Bangladesh a loser."
International oil companies (IOCs) show inflated exploration costs and recover excess money, according to Imam.
"And we have no mechanism or capacity to find out the true cost," he said, citing the case of Australian oil and gas exploration company Santos.
Santos was operating the Sangu-11 well in the Bay of Bengal.
In October 2013, the company ended production from the shallow water field and left Bangladesh.
"Santos/Shell which operated the offshore Sangu gas field left the country after getting 80 percent of the total revenue generated thanks to the provision of cost recovery," Imam said, adding that there are much fewer bureaucratic tangles under the revenue-sharing model.
He went on to seek a higher share of revenue for Petrobangla in the PSC.
In the new PSC, Petrobangla's income will initially be lower but it will gradually pick up, said one of the Petrobangla officials.
The move to draft a new PSC comes as the government is gearing up to resume offshore gas exploration after a pause of ten years.
Petrobangla was supposed to float a tender based on the 2019 PSC in 2020 but the global coronavirus version disrupted the plan.
Then in December 2020, the government-owned national gas company decided to review the PSC. The exercise took more than two years to complete.
The draft PSC is now sitting on the Prime Minister's Office for approval along with a proposal from the American oil and gas giant ExxonMobil for offshore gas exploration. Exxon's proposal came without any tender.
"Tender is required to get a better company with a lower cost. But ExxonMobil is one of the best companies in the world with huge experience and technology in deep-sea exploration," Imam said.
The new PSC based on the revenue-sharing contract must be used for all negotiations with Exxon.
"We need to negotiate with the company based on the new PSC and our national interest and not on their required clauses," he added.
In the new PSC, foreign companies will get three months to submit proposals after a tender is floated.
Another major deviation from the 2019 PSC is the gas price. Earlier, the price per thousand cubic feet was fixed at $7.25 for deep sea and $5.50 for shallow sea.
In the new draft, it will be fixed at 10 percent of the average Brent crude oil price for the month, they said.
If the Brent price of crude oil stands at $100 on average, the gas price will be $10 per cubic feet.
Imam appreciated the move as it will also attract more IOCs.
The last tender was issued in 2012. At that time, four companies joined the exploration work but left the country due to a comparatively lower price of gas.
The four companies are a joint venture of US company ConocoPhillips, Australian Santos, Singapore's KrisEnergy and South Korea's Posco Daewoo Corporation.
Bangladesh won a legal battle against Myanmar and India in 2012 and 2014 to fix the maritime areas of the respective countries.
"We need to let the companies start the exploration process now. If one discovery is made, the scenario will change and many IOCs will develop a keen interest to explore here. And when the ball is in our court, we may negotiate with terms more favourable to us," Imam said.