Offshore Gas Exploration: S Korean firm gets block-12

Bangladesh yesterday awarded an offshore block to Posco Daewoo Corporation of South Korea for gas exploration.

Senior officials of Posco Daewoo and Bangladesh's Petrobangla and energy ministry signed a production sharing contract for the deep-sea block-12 in the Bay of Bengal at the headquarters of Petrobangla in Dhaka.

As per the agreement, the two-dimensional seismic survey would begin this year, and based on the outcomes of the survey, the real picture of gas availability could be known by 2019, according to Petrobangla.

Posco Daewoo is also exploring gas at a block of neighbouring Myanmar and has discovered gas reserves last year.

 The block is adjacent to block-12 of Bangladesh.

Bangladesh has 26 blocks in the Bay. Of them 15 are deep-sea blocks and 11 are in shallow waters.

“We can find gas in Bangladesh as well, as the petroleum structure and geological setting is similar in the two blocks,” said Young-Sang Kim, chief executive officer of Posco Daewoo, at the signing ceremony.

He said if gas was found, the block would meet Bangladesh's energy demands and stimulate its economic growth.

The Korean company would spend $3-5 million for carrying out a two-dimensional survey, $5-7 million for a three-dimensional survey, and $50-100 million for drilling wells, said the CEO.

Ahn Seong-doo, ambassador of South Korea to Bangladesh, said offshore blocks could be a driving force for Bangladesh's development as it has limited natural resources.

Tajul Islam, chairman of the parliamentary standing committee on energy, said the settlement of maritime boundary disputes with neighbouring countries has offered Bangladesh a huge area to explore hydrocarbon resources.

Nasrul Hamid, state minister for power and energy, said the country has not been able to award offshore blocks for exploration for a long time. “It is good that it has happened at last.”

Bangladesh's efforts to attract international companies for deep-sea blocks explorations were delayed due to low oil price in the international market for more than two years. The low price discouraged oil companies from expanding in new territories. 

Nasrul said the government would hold more offshore block biddings in the next couple of years. The government is working to buy a survey vessel, he said.

Tawfiq-e-Elahi Chowdhury, energy adviser to the prime minister, said the government is working on four areas, including onshore, offshore and liquefied natural gas, to ensure the country's energy security.  

Posco Daewoo's achievement in Myanmar has encouraged the company to explore gas in Bangladesh, said energy secretary Nazimuddin Chowdhury.

“As the company has found gas in the adjacent block, we might get good news from our block,” he said.

Petrobangla Chairman Abul Mansur Md Faizullah said offshore accounts for a third of the hydrocarbon resources produced in the world. “So, we are focusing more on offshore resources.”

Block-12 is over 3,560 sqkm with depths between 1,000 and 2,000 metres. The initial exploration period is five years and the subsequent exploration period is three years, according to a Petrobangla press release.

In the initial exploration period, the 2D survey would be carried out in the first two years over an area of 1,800 sqkm, the 3D seismic survey in the third year over an area of 1,000 sqkm and one exploratory well will be drilled in the fourth and fifth year. 

This was the first time a production sharing contract was signed under the Prompt Power and Energy Supply (Special) Act-2010, which is used for speeding up the process of contract signing.

Bangladesh would get 65 to 90 percent of the profits from the sale of oil and condensate pumped out of the block. For natural gas it would be between 60 and 85 percent, according to a handout given at the programme by Petrobangla.

The Korean company could get a maximum of 70 percent of the available petroleum per year to recover its exploration costs.

In February last year, Petrobangla had sought expression of interest for gas exploration in block-12, -16 and -21 and received proposals from Singapore-based KrisEnergy (Asia), Posco Daewoo, and Norway's Statoil.

But when the final offer was sought from the companies, only Daewoo came up with a proposal for block-12.

Posco Daewoo now produces 500 million cubic feet per day of gas from wells in Myanmar and in South Korea.

The Korean company estimates that the Myanmar gas fields have 4.5 trillion cubic feet of gas reserves, enough to cover three years of liquefied natural gas supplies to South Korea.

In recent years, Bangladesh has raised its natural gas production and average production stands at 2,700 million cubic feet per day. However, the demand stands at over 3,300 million cubic feet per day, according to Petrobangla. 

As the gas reserves are depleting and there were no new gas discoveries, the government is awarding deep-sea blocks to international oil companies to boost production.

In 2014, the government awarded shallow water block-11 to Australian oil and gas company Santos and Singapore-based Kris Energy, and shallow water block-4 and -9 to India's state-owned Oil and Natural Gas Corporation Videsh Ltd.

Under the amended model production sharing contract 2012, the provision for exports has been kept. But Posco Daewoo would have to offer the gas to Petrobangla first.

If Petrobangla refuses to buy the gas, the Korean company would have to find local buyers. Once the first two options were exhausted, they could look for buyers outside the country.

Officials of Petrobangla said Bangladesh has amended its Model PSC 2012 keeping it in line with those in Myanmar and other countries in order to woo more international companies to explore its vast waters. This has been done as global oil giants were not keen on investing in projects that would not offer attractive incentives against the investment risk they would be taking.

Bangladesh had awarded deep-sea block-10 and -11 to US oil giant ConocoPhillips in 2011 under the model PSC 2008. But the company wound up its operations in late 2014 despite carrying out extensive survey, as the government did not grant the benefits of Model PSC 2012 to the company, sources said.

Yesterday, Joo Si-Bo, senior executive vice-president of Posco Daewoo, Khadiza Nasreen, deputy secretary of the energy ministry, and Syed Ashfaquzzaman, secretary of Petrobangla, signed the deal.