PSC on offshore blocks uncertain

M Azizur Rahman

The Financial Express July 9, 2012

The state-owned oil company Petrobangla showed disinterest in signing any deal with the UK’s Tullow Oil on a disputed offshore block, as the bickering parties failed to hammer out a consensus on how to explore gas there, a top official said on Sunday.

The unresolved maritime boundary dispute with India on the block SS-08-05 lies at the centre of the stalemate over signing the production sharing contract (PSC) on it. The bidding on gas exploration in the block was held in February, 2008.

The official said Petrobangla was initially looking to sign a PSC, under which the Tullow Oil first would initiate gas exploration in the undisputed area of the block and later in the remaining area on resolution of the dispute with India.

But Tullow wanted to ink a PSC providing for gas exploration in an area of an adjacent block, similar in size to the disputed area in the Bay of Bengal.

Petrobangla rejected outright the Tullow proposal and until Sunday there was no headway in talks over breaking the stalemate, the official said.

“We cannot wait long for signing the PSC over the blocks offered in the 2008 bidding round,” a PSC department official of the Petrobangla said.

If no PSC was inked with Tullow on the shallow water block SS-08-05, it might be up for grabs for international bidders again, he said.

The official did not say whether the block would be offered in the forthcoming bidding round in August or not.

“The maritime boundary dispute with India involves a major portion of the block,” he said.

Despite having disputes, US’s ConocoPhillips on June 16 last year signed a PSC with Petrobangla for 70 percent of the block DS-08-10 and 85 percent of the block DS-08-11 in the Bay of Bengal, which the US oil giant won in the 2008 bidding round held by Bangladesh.

Earlier, ConocoPhillips signed an agreement with Petrobangla on June 16, 2011 over guaranteeing its right to explore gas in the remaining areas on resolution of the disputes in Bangladesh’s favour.

Petrobangla said the US firm would be able to conduct exploration of oil and gas in the whole area of the block DS-08-11 as Bangladesh won a verdict on March 14 of Germany’s Hamburg-based International Tribunal for the Law of the Sea over the maritime boundary dispute with neighbouring Myanmar.

To get exploration rights in the whole area of the block DS-08-10, ConocoPhillips will have to wait until 2014 when a verdict by the Hague-based United Nations Convention on the Law of the Sea is set to pronounce a verdict over the maritime boundary dispute between Bangladesh and India.

In its bid for SS-08-05 in 2008, Tullow had committed to invest $49.85 million and offered a bank guarantee of $33.9 million, Petrobangla sources said.

Bangladesh’s cabinet committee on economic affairs decided to award the block to Tullow and two other deep water blocks to ConocoPhillips in August 2009.

In the 2008 bidding round, Bangladesh had offered 28 offshore blocks, 20 in deep water and eight in shallow water. But the response was lukewarm because of the maritime boundary disputes with neighbouring Myanmar and India then.

Bangladesh could award only parts of two deepwater gas blocks to ConocoPhillips, and that too was finalised on June 16, 2011 after a series of meetings.

Tullow Oil has now moved to wrap up operations in Bangladesh by December as part of its plan to divest all its Asian assets.

Australian Santos is in talks to take over Tullow’s Bangladesh stake.