Energy & Power

Cover Report

Deepwater Dream
Khondkar Abdus Saleque

Exploration in deepwater is always a great gamble. When you decide to play it you should be mentally ready to keep plugging away without bothering for easy success. It is very likely that you will lose many and yet win some significant success. It was not different for our nextdoor neighbors in their exploration mission in the deepwater of the Bay of Bengal. India, Myanmar, Thailand, all achieved significant successes after years of relentless efforts. Petroleum resources in deep below the bed of ocean water is like the beautiful virgin princess of the fairy tale. One must take risk and demonstrate the determination of a courageous prince to win her along with the empire. Deepwater exploration is very much different than onshore and shallow water drilling. More risks, more money and more chances of dry holes. But nevertheless significant successes are also there every now and then.

Bangladesh deepwater is believed to have enormous prospect. All our neighbors are very focused and active in the deepwater adjacent to Bangladesh territorial water. But unfortunately Bangladesh, despite its finite onshore energy resources and potential extensive unexplored offshore frontiers, failed to initiate meaningful exploration efforts after initial campaign of early seventies by visionary Bangabandhu Government. After his brutal killing by the traitors and ungrateful black ships subsequent governments did not make any effort to take up the deepwater drilling. This happened principally due to poor sector vision and unnecessary apprehension that powerful neighbor may be offended.

Bay of Bengal is the northern extended arm of the Indian Ocean. It is located between latitudes 5Degree N and 22 Degree N and longitudes 80 Degree E and 100 Degree E. It is bounded in the west by the east coasts of Sri Lanka and India, on the north by the deltaic region of the Ganges-Brahmaputra-Meghna river system and on the east by the Myanmar peninsula extended up to the Andaman-Nicober ridges. The bay receives many large rivers including Ayearwady, Ganges-Brahmaputra, Mahanadi, Godavari, Krishna and Kaveri, all forming fertile, heavily populated deltas. The major ports are Visakhapatnam, Paradip, Chennai, Kolkata, Chittagong and Sitwe. The Bay occupies an area of about 2.2 million sq km and average depth is 2600 m with a maximum depth of 5258 m. Baqngladesh is situated at the head of the Bay of Bengal.

It will be pertinent to take some clues from a very exhaustive write up of Mr Harun ur Rashid in a Bangladeshi daily in 2006. According to that:

There are international laws for demarcating maritime boundary and exclusive economic zone. Under the 1982 UN Law of Sea Convention, a state is entitled to claim 200 nautical miles within its jurisdiction. The first 12 miles are known as territorial sea and the next adjoining 188 miles as its Exclusive economic zone. The sea bed (continental shelf) of a state can go further depending on the geo-physical characteristics of the sea bed.
In 1974 Bangladesh allocated few blocks of the Bay of Bengal to some foreign companies. India vigorously objected and sent letter to the foreign companies, without even communicating with Bangladesh. The letter stated that the companies would be at risk because the sea boundary between the two countries remained unsettled. The companies did some exploratory works and found some prospects. But after the brutal incident of August 15, 1975 the companies gradually withdrew to the disappointment of Bangladesh. Bangladesh felt let down by India.

India in the recent past floated its sixth licensing round under the New Exploration Licensing Policy, 24 marine blocks for exploration in the Bay of Bengal .Two marine blocks are very close to the Sundarbans of Bangladesh in the Bay of Bengal. The published block acreage of the Indian government, earmarked as Blocks D-22 and 23 in the Bay of Bengal, appears to overlap Bangladesh territory. We believe Indians have not forgotten their action of 1974. If they thought Bangladesh did not do it correctly in 1974 now the same question logically arises then. India should have consulted Bangladesh before letting out invitation for this block.

It may not be out of place to mention here that in July 1974 Bangladesh was the first country in South Asia to declare its jurisdictions on territorial waters, economic zones and continental shelf through legislation in the parliament, known as the territorial and Maritime Zones Act 1974. The economic zone under the law is extended to 200 nautical miles from the baselines and the continental shelf goes to a distance of 350 miles. The baseline from which the territorial sea, economic zone is measured has been described in geographical coordinates (latitudes and longitudes) through a gazetted public notification of the government so that other nations around the Bay of Bengal could know the exact claim of Bangladesh. The author believes Petrobangla is well aware of the situation described above.

India’s intended exploration in the Bay of Bengal is in all probabilities will lay hands on the blocks of marine areas claimed by Bangladesh as early as 1974. By all canons of international law and legal precedents as well as domestic law, we must strongly argue that the areas under question fall within Bangladesh territory.

Moreover as far international law Article 76 and 82 of the UN convention on the Law of the Seas lay down methods of delimitation of sea boundary between adjacent states (distinct from opposite states, such as Sri Lanka and India). First the states shall settle the boundary through negotiations. If negotiations fail, the principle of equity will apply, implying that justice and fairness must be the hallmark of settlement. Since the areas in the Bay of Bengal have yet to be delimited, legally and politically, India’s action is contrary to the spirit of good neighborliness and mutual trust.

In 37 years since independence we failed to demarcate our territorial water. We do not have strong 3 Dimensional Naval Force and capable coast guards to protect our territorial water. Neighbouring countries fish in our water almost freely. Foreign war ships bother little to encroach our territorial water. This is a reality. Even recent incidents bear testimony to this. Some people feel that we should try to feel the pulse of the neighbors before we let out bids for deep water drilling. Why should we do that? Did India or Myanmar bother for us when they initiated several such bidding? Myanmar discovered fields are close to our territorial water near Teknaf coast. India is drilling right below Satkhira and Khulna. We must establish our legitimate right on our sovereign territory by any means.

Bangladesh gas supply situation is now extremely critical. For several years we have witnessed non-professionals or wrong professionals to dominate our gas sector. The neither had any vision nor the required technical or managerial flair. Competent junior or mid-level professionals kept the sector moving. But due to uncertain career planning and inappropriate job environment and job evaluation many of the accomplished well-trained professional left the sector. No comprehensive planning, no appropriate strategy was followed for integrated development of the gas sector. These culminated in a situation where we cannot say about the ultimate recoverable reserve of gas with any amount of conviction, we do not have exploration strategy, depletion policy, integrated reservoir management or proper gas utilization plan. We cannot move our stranded gas to growth centers for lack of transportation facilities, we have not explored in potentially large unexplored frontiers and the gas market in the entire southeast is starving.

Engr. Mahmudur Rahman was the first and the only gas professional to remain in control of gas sector for a while when he assumed the role of Energy Advisor to the immediate past alliance government. On the very first meeting with senior gas sector executives in June 2005 (author was present) he announced his roadmap for his duration in the office. One of his top priority agenda was to let out bids for deepwater drilling. He tried his level best and advanced to a great extent. He may be in a better position to state why he ultimately could not make it happen in almost 16 months of his time in the office. But he had very courageously voiced protest against India’s action to explore in blocks potentially encroaching Bangladesh territory.

The present Caretaker Government initially did not make any change in Energy sector. EMRD Secretary Mr Nasiruddin was retained. This gentleman in September 2007 announced several initiatives to meet the emerging and future energy crisis. He announced that as a part of a measure to resolve future gas crisis, the government in October 07 may announce the third round bidding of blocks for oil and gas exploration in the offshore and deep-sea areas of the Bay of Bengal. It was told “The amended production sharing contract (PSC) for the block bidding is now under law ministry’s scrutiny and the government’s committee marking maritime boundaries has almost completed its task”. It was also announced that by end September or early October the ministry would be ready to announce the schedule for the third round bidding which exclusively would focus on the off-shore blocks for the first time. Government also announced that following announcement that it will hold road shows in Dhaka and Singapore promoting the bid round.

It was September 2007.In 3 months since then law ministry vetting was complete. The document was sent to eminent energy lawyer and Energy Minister of Bangabandhu government as well as the originator of first PSC , Dr Kamal Hossain. A Dutch PSC expert also opined on the document. Now what makes us weight?

The exploration world is extremely busy. Following the oil surge exploration companies are concentrating more and more on deepwater prospects for petroleum. The prospect of easy gas and oil is diminishing. Exploration is getting more and more expensive as the limited numbers of deepwater rigs are remaining committed for more prospective regions having greater incentives. If Bangladesh fails to invite bidding soon it may not get major drilling companies to explore. Incompetent drilling companies may prove counter productive.

Deepwater exploration has become more pressing now for Bangladesh. The known reserve of mostly onshore fields is fast depleting. The present known reserve is apprehended to run out in not too distant future unless we venture to discover more very soon. The greatest prospect is the deepwater – Bay of Bengal. India and Myanmar discovered major reserve in similar geological structure in our adjacent water. Why not us? The Bay of Bengal holds enormous prospects for oil and gas discovery. In the last two years, India discovered at least 100 tcf of gas – mostly in the Bay adjacent to Bangladesh territory Myanmar recently discovered a 7tcf reserve close to Bangladesh boundary.

Hydrocarbon Exploration History of Bangladesh:
As a background of discussion on the draft PSC for deep water let us revisit the hydrocarbon exploration efforts and track records. In Bangladesh hydrocarbon exploration activities commenced in 1910 when this part of the world was still under British Colonial rule. Indian Petroleum Prospecting Company drilled the first exploratory well at Sitakunda in Chittagong. In four years they drilled four wells without success. Following success in Dighboy Burmah Oil Company drilled another three wells at Patharia in the Sylhet region during 1923 to 1933. But it also did not prove successful. So in the first few attempts of pre-liberation days from British empire no success was made in the first phase of hydrocarbon exploration. The exploration method was primitive.

The most successful phase of hydrocarbon exploration is the period from 1951-70 when we were part of Pakistan. Burmah Oil Company drilled several oils in the eastern part and discovered the first two gas fields, Sylhet (Haripur) in 1955 and Chhatak in 1959. The first well at Haripur was a blow out. The gas and oil is still seeping through the cater and the pond still retains the rig used at that time. Another 6 wells at Haripur has been drilled in Haripur since then. Well 3 & & are still producing. Well 7 for while produced oil. Chhatak produced gas for Chhatak cement factory till the production was suspended. This field along with a virgin structure was illegally leased out Niko in a dubious deal. Niko caused two successive blowouts at Tengratilla.

Standard Vacuum Oil Company drilled three wells in the northwestern part of the country in 1959-60 without any success. However, the Anglo-Dutch command made major success in its efforts to explore for gas and oil. In 1960s it discovered prolific gas fields Titas, Habiganj, Bakhrabad, Rashidpur and Kaillashtilla. Before liberation of Bangladesh Titas and Habiganj were developed. Bakhrabad was then thought to be the largest gas field in the then Pakistan. Following the liberation of Bangladesh Petrobangla was formed by the Government of Bangabandhu with the same vision and mission of Petronas, which started journey almost at the same time. The fields owned by Shell were taken over for a mere 10 million US dollars.

Petrobangla was formed in 1972. In 1974 PSCs were signed with 6 foreign oil companies to exp-lore in the offshore blocks in the Bay of Bengal. Nippon Oil Company of Japan drilled three wells in the Southern Bay Of Bengal. ARCO drilled one well and Ina –Naphtha drilled two wells in the central part. Union oil was the only one to report gas discovery in 1977 in the northern Bay of Bengal. All the foreign companies left by 1978 relinquishing their assigned blocks. Gas was not the fuel of choice or preference at that time. Some of our senior Chemical Engineers at that time told us that the IOCs had significant gas shows in some structures yet they did not aggressively explore for reasons unkown. May be market access was not considered profitable at that period. Exploration in the onshore area was conducted by National Oil Company under Petrobangla, which discovered the Begumganj gas field in Noakhali in 1977.

The period from 1981-2000 witnessed several drilling efforts and some discoveries. Petrobangla drilling division discovered Beanibazar, Kamta and Feni gas fields in 1981. The lone oil field was discovered while drilling for gas at Sylhet 7 in 1986 by National Oil Company. Shell oil was active in the Chittagong Hill Tracts and another dubious company Scimitar was illegally handed over the Sylhet area for exploration. Shell left Bangladesh quitting the assignment after their crew was kidnapped for ransom. The unpopular contract with Scimitar was cancelled for not fulfilling exploration obligations and fraud. But they however discovered Jalalabad Gas field. Jalabad became Petrobangla gas field after departure of Scimitar till it was again handed over illegally by Petrobangla to another weak company Occidental as a bonus to block 12,13 & 14 which was also given without any competitive bidding.

The next round of PSC bidding was announced in 1993. Do not know why this round is called the first round. The first round was announced in 1974. Some people for some reasons fail to recognize it. Anyway in this round PScs were signed with Occidental Exploration, Shell-Cairn-Holland Sea Research, Rexwood International and United Meridian Corporation. Cairn discovered the Sangu offshore gas field in 1996 in the northern Bay of Bengal while Rexwood drilled a dry hole in the Southern Bay in 1998. Occidental had a major blow out at Moulvibazar in 1996 and later discovered a gas field there. Occidental sold its interest to its partner Unocal. In 1998 Unocal discovered one of the largest fields Bibiyana in Nabiganj area of Sylhet. Unocal’s operation in Bangladesh was later on bought over by Chevron. Chevron and Cairn are active in Bangladesh. In the next round of Bidding Shell-Cairn won block 5 and 10 and Unocal won block 7. But for 5 years since getting assignment they did very little activities in these block. A tiny company Tallows politically favored over other major giants to award the most prospective block 9. It however discovered Bangura gas field and subsequently developed it. However, a major portion of its share has been bought by the controversial company Niko. It also has own a controversial contract for developing Feniand Chatak gas fields including Tengratilla unexplored structure. Niko caused two successive blow out at Tengratilla. This company could not qualify as a competent bidder in the Petrobangla assessment during evaluation for PSC operator in the third round bidding. But it managed to win the contract through back door. The Feni and Chhatak gas fields were illegally declared marginal despite of having significant unrecovered gas. Bapex was turned into an E& P Company to make it Junior Partner and give sugar coating to the deal. Anyway the matter is now under scrutiny and investigation.

Review of the Salient Features of Draft PSC Document:
The author somehow managed access to the final draft of the PSC that may be let out in not too distant future. An attempt is made here to objectively analyze the document.

The document targets to invite bids for 28 off-shore blocks categorizing these into type A and Type B. The blocks situated north of 20 degree north latitudes are categorized as Type-A and those situated south of 20 degree north latitudes are categorized as type-B.

The document includes the following main features.

Full repatriation of profit.
No signature Bonus or royalty.
15 years corporate tax holiday.
No duty for equipment and machinery imported for petroleum operations during exploration.
Production & development phases.
Provision of assignment.
Carried stake of 10% for the government.
10% cost recovery
Mandatory seismic program and 1 (one) well for each block exclusive of biddable work program for type-A blocks.
Seismic –only option type –B blocks below 20 degree north latitude
For type –B blocks situated below 20 degree north latitude, two contiguous blocks may be allowed under single contract.
Evaluation based on technical and financial capabilities of the bidder.
Biddable profit petroleum shares expected by the bidder
Biddable percentage of annual production expected to be allocated towards cost recovery.
Minimum work obligation in each of the exploration phases.
Bank guarantee for performance of Minimum Exploration Program
Biddable discount on gas sale, discovery and production bonuses and annual contract service fee.
Local marketing subject to government’s first right of refusal.

The prospective bidders may singly or in association with other companies, bid for one or more blocks.

Announcement also includes bid terms, basis of bid evaluation, evaluation of bids and rejection criteria It also indicates the availability of data.

Intending bidders will be required to bid for, among others

Biddable work program commitment over and above the mandatory program
Profit petroleum shares expected by the contractor at various trenches
Percentage of annual production expected to be allocated towards cost recovery
Bank guarantee towards minimum work obligation.
Bonuses and fees.

The document also states that apart from the biddable items and relevant sections, the main body of MPSC inclusive of the appendices and annexure shall not be negotiable.

15 points is allocated for Technical and Financial capability of the bidder, 25 for work program and 60 for the fiscal package with the provision for negotiating on discount on gas price, discovery and production bonuses.

Evaluation Criteria for Assessment of Bids as included in the PSC document has three distinct parts.

A. Technical and Financial Capability : 15 Pts

Intending bidders must demonstrate experience in exploration in comparable geological and logistical settings by financial and technical capabilities to follow up with development either internally or with partners in case of discovery. The technical capability is state to be evaluated on the basis of bidders experience as operator ( in terms of years ,acreages holding, production etc) in oil and gas sector in South and Southeast Asia and also experience in worldwide exploration and production>Bidders have to produce authentic documents evidencing their claims for operators hip and holding of acreage.

Financial capability of the single bidder or joint venture will be evaluated on the basis of the documents showing the capital to carry out the petroleum operations. For joint venture each company constituting it must submit separate evidencing documents. The last 3 years Annual reports or financial reports certified by a Chartered Accountant firm must be submitted. A certificate from the company’s statutory auditor(s) stating that the company has a net worth of not less than its commitment for the work program for initial exploration period including the mandatory and biddable work program must be submitted. If parent company provides the financial and performance guarantee, the certificate from parent company auditor should be submitted.

B. Work Program: 25 Pts.

Work program proposed by the bidding company or a joint venture will be evaluated on the basis of the volume of work proposed [2D line km or 3D area seismic acquisition, number of well(s) to be drilled, other surveys to be undertaken]. Only the committed minimum work program by the bidding companies over the mandatory work program will be taken into account. Any contingent/conditional work program will be ignored. 70% weightier will be given for the Work program for the initial Exploration period, 25% weight age will be given for the work program of the 1st Extension period and 5% for the 2nd extension period.

C. Fiscal Package: 60 Pts.

Percentage of Cost Recovery Allocation: Biddable but limited to maximum 50% and 55% for oil and gas respectably. Bidders offering lower cost recovery percentage will be evaluated more favorably.

Percentage of Profit Petroleum Allocation: Bidders will be evaluated on their offers based on a sliding scale of production level. Bidders offering higher profit petroleum share indicating better NPV to the government will be more favorably evaluated.

Discount on Gas Price, Discovery and Production Bonuses: Biddable and Negotiable.

The score obtained by any bidder will be calculated as: 100% points obtained for A + 70% of points for B1 + 25% for B2 + 5% for B3 + 100% for C

To be qualified for selection, the bidder in any block would be required to score more than zero in technical capability parameters on an aggregate basis. Bidders must provide a confirmed commitment to the mandatory work program given against the block. A bid not confirming the commitment to mandatory Work program shall be liable to be rejected.

All bids must be submitted in the Format for Submission of Bids covering all the detail information /details listed there in.

Bid (s) containing any conditions, assumptions and/or deviations, which are inconsistent or not complying with the contract terms will be liable for rejection.
Bangladesh government may take into account the past performance of bidding companies including the track record of the companies or the consortium in respect of court cases against it or any other basis and on this consideration, at the sole discretion of the government, it may accept or reject any or all bids.

The evaluation criteria appear all right. But another condition may be clearly established. Any bidder who previously won block(s) in Bangladesh but did not complete the minimum commitment and relinquished should not be considered for participation. Similarly companies owning blocks in Bangladesh and not doing exploration works for years must not be considered for bidding.

Gas Price Calculation:

The bid includes gas price calculation which will obviously form part of GPSA in case of discovery and development.

The Gas price will be computed on the basis of the flowing formula.
Gas Price = Fp /F h X Gh X 0.75
Fp= HSFO 180 CST FOB Singapore Price per metric ton.
Fh = HSFO 180 CST FOB Singapore Gross Heating Value MMBTU/metric ton
Gh + Gross heating Value of Gas in BTU/MMSCF
Ceiling = 180 Dollars /metric ton of HSFO
Floor = 70 Dollars /metric ton of HSFO.

Onshore Gas Price: = 180/40 X 1.00 X 0.75
= 3.375 Dollars/MSCF.

Offshore Gas Price (For Type –A blocks) = 180/40 X 1.00 X 0.9375
= 4.21875 Dollars/MSCF

Offshore Gas Price (For Type – B blocks) = 180/40 X 1.00 X 1.00
= 4.5 Dollars /MSCF.

The gas price included in the PSC document is about the right price considering the risks, uncertainties and associated implications of deepwater exploration and rising costs of deep water drilling rigs and drilling professionals. But Bangladesh must also think about its domestic gas price. The end users price must be gradually adjusted to world level if we at all like to utilize the gas from deepwater prospect. But the wonderful recognition here is that the persons who prepared the bid also considered the onshore gas price as 3.375 Dollars. If this is applicable for any producer in Bangladesh it must be applicable for our national companies as well. Adding transmission cost and marketing companies margin the end users price may not be less than 5 Dollars. Gas at this price must not be indiscriminately burnt. We must abandon the luxury of uneconomic use and must now plan for economic utilization of this precious resource.

The document under Article 2 Scope states that in performing Petroleum operations, contractor shall provide all financial requirements and employ the advanced scientific methods, procedures, technologies and equipment generally accepted in the international Petroleum industry. It also states that the work done by contractor shall be subject to the general supervision and review of Petrobangla. These provisions were there in all PSCs. But Petrobangla hardly supervised. The blow out at Magurchara, Tengratilla may be avoided if Petrobangla supervision could be ensured at every stage. The exploration plan, development plan of the contractor must be approved by line professionals after through scrutiny.Petrobangla must share the responsibility if the approved program fails and there are any major problem. In the past Petrobangla was very casual in supervising and monitoring the works of the Contractor. PCD, Petrobangla do not have competent work force to supervise and monitor the works of IOCs. Sometimes they engage professionals from other companies without proper guideline. This time there must be specific provision in the PSC that All IOC activities that may eventually come under cost recovery must be supervised and approved by Petrobangla representatives at every stage. Petrobangla must also approve major procurement of materials and services as all these fall under cost recovery. IOCs must not be left on their own to go for expensive options when equally competent less expensive options are available. Once approved by Petrobangla. Cost control of PSC operation in a logical way is a must if Bangladesh and Petrobangla desires to squeeze maximum benefit out of PSCs. There must be complete transparency in the procurement of goods and services by IOCs. Professional petroleum accountants must be engaged by Petrobangla to carry out audits. All audit objections must be cleared within a given
time.

In Article 4 Contract Term., the initial exploration period has been stated to be 4 years from the effective date with two subsequent extension period of two years. The author feels that initial period should be 5 years with two 3 years each extension period. We have very narrow monsoon corridor to operate in our bay. So initial 4 years may be a bit tight. After all we do not have much seismic data available of our blocks. 500 bcf for a commercial discovery in the deep sea is a bit too less. It should be 1 tcf at least. No major IOC may propose to develop a tiny 500 bcf gas field in the deep sea.

Bangladesh needs to develop its own manpower and desperately needs technology transfer. It also intends to see its intelligent and accomplished professionals get experience of work in international companies. The PSC includes at least 20% Bangladeshi employment in the initial exploration period and at least 50% in the extension period. In the production phase 1st five years the local employment must be 60%, next 5 should be at least 75% and after 10 years at least 90%. This must be made mandatory. Local experts must get similar pay package as the expatriates. These percentages must be applicable in all categories of works. This provision was not followed in most cases before. This time this must be properly monitored. The expatriates must have work permits to work in Bangladesh. Each appointment of expatriates must get prior approval of Petrobangla. Expatriates may only be appointed for a position if the IOCs after extensive search fail to get anyone from Bangladesh.

The document also includes that in case of any damage or expenses caused by inefficient and careless activities of the contractor the contractor will not be allowed to recover the cost for such damage under cost recovery and contractor shall pay due compensation for such damage. This clause is very important inclusion. In absence of similar provision Petrobangla could not strongly establish its claim against Occidental and Niko for the blowouts and consequential damages. We may also think if provision of terminating the PSC without any financial implication to Petrbangla in such cases of gross negligence can be incorporated after getting the compensation from the defaulter.

Article 12 Joint Management Committee:

If we try to visualize the Petrobangla members of JMC we find the present Director (Finance), Director (PSC) and Director (Operation) will be the members. None of them have the required technical flair, administrative ability to handle major oil companies. We need technical professionals of sound technical knowledge of petroleum reservoirs, drilling and exploration, we need professional Petroleum Accountant and Contract accountant to effectively interact with IOC representatives to examine, and approve proposals and monitor works. Unfortunately other than Director (Operation) the remaining persons are unfortunately not at all competent for their positions. The article also sates that the decisions of JMC on any matter must be unanimous .If not Secretary EMRD will be the next step to refer. In the past the Secretary EMRD and sometimes even other officials of EMRD exploited the situation. IOC lobby group always crowded the ministry and created pressure o from EMRD. Why Secretary EMRD should be interfering. He in most cases is not line professional. Government must think of setting up a truly representative three-member Bangladeshi team for JMC. An accomplished Petroleum/ Gas system expert, a professional accountant a energy lawyer must make the Bangladesh team. Line executives of Petrobangla team may do the desk works. Either Chairman Petrobangla of Chairman BERC should be the next step to fall back if JMC fail to come to any agreement.

The document at Article 15 includes provision for export in the form of LNG. Contractor may export gas in the form of LNG and in such case the export volume shall consist of:

Contractor’s Cost Recovery Natural Gas.
Contractor’s Profit Natural Gas.
Petrobangla’s profit gas.

For Petrobangla’s share of Natural Gas to be exported in the form of LNG, contractor will pay to Petrobangla, in dollars, a price equal to the value established pursuant to the calculation of gas price. Wherever applicable the Contractor shall also pay PB its share of the pipeline tariffs applicable to transport of natural gas.

For gas to domestic market Contractor shall offer such gas to PB, and PB shall undertake that it or its affiliates will purchase the gas. If a written notice of a market is not given by PB within 6 months after the date of submission of the evaluation report Contractor will be free to find a market outlet within Bangladesh. PB will cooperate with Contractor to facilitate such sale. Contractor has the option to sell Contractor’s share of Natural Gas in the domestic market to a third party, subject to Petrobangla’s right of first refusal.

Bangladesh must adjust its domestic gas price to appropriate level if it wants to be benefited from offshore gas in about 5 years time. It will be relatively expensive. The provision in the contract is logical. The IOCs will spent fortune. They will be required to recover costs and make profit. So no one may think that any commercial entity using borrowed money will wait to monetize the discovered resource. Bangladesh will need this gas to fuel its economy. So it must be ready to buy this expensive gas.

In this particular contract specific proviso is missing to properly define custody transfer point. It states that the contractor will build pipeline to transport petroleum from production area to measuring point(s). In modern gas transportation the measuring points can even be at the treatment facility at offshore platform. The better option is identifying custody transfer point in each case. The custody transfer point must the point of intersection of Contractors sales line with national Grid of the transmission operator. The measuring facilities may be installed at the interface. The custody of the petroleum may be transferred here. So no wheeling charge may come into play unless contractor use any of the transporters facility to transport petroleum. This matter must be very transparent to avoid probable disputes.

The PSC document appears very appropriately drafted. Now it will need deep thought and very strong diplomacy on the part of Bangladesh Government to overcome possible objections and protests from neighbors. The demarcation of maritime boundary and EEZ may also be completed as soon as possible.

If the deep water dream if even partially comes true Bangladesh will be in the comfort zone of energy security for the immediate future. We may then aggressively pursue regional gas grid to squeeze maximum benefit out of our resource. Just imagine a 10TCF addition to our present proven reserve of gas and some oil discovery may change our energy future completely. It is not very unlikely that this may happen if we can ink win-win contract with competent IOC s for deepwater drilling soon and can mange the PSCs in the most efficient and professional way. As we said our fortune may be lying buried deep below the Bay of Bengal. It is now up to us to go and dig out our fortune.