Petrobangla had invited 53 IOCs to participate in a two-day conference in Dhaka held on 8-9 May 2024. Only 15 of the companies took part in a PowerPoint presentation on fresh offshore bidding rounds based on the updated model PSC 2023. Seven prospective bidders have purchased data packages. Bangladesh made inordinate delays of 10-12 years in announcing the bidding round after the resolution of maritime boundary disputes with neighbors – Myanmar and India. Both countries in the meantime reaped benefits by engaging exploration companies. Bangladesh's many excuses ranging from non-availability of data and information to lack of interest of potential investors in making risky investments for lack of reward in model PSC delayed the process. Finally, by 2019 when Bangladesh was almost ready to launch the bidding round, the outbreak of the COVID-19 pandemic held back the government's move. Bangladesh also made unpardonable delays in engaging contractors for carrying out multi-client surveys. The same contractor was engaged for the work after four years of dilly-dallying. Bangladesh ran into a serious gas and fuel supply crisis. However, good senses prevailed. Updated MPSC 2023 provided much more attractive financial and fiscal incentives comparable with PSCs of regional countries. Natural gas is a preferred transitional fuel and the Bay of Bengal is considered a potential area of hydrocarbon resources. Bangladesh expects to get an encouraging response in the bidding. However, the responses at this stage are not that encouraging.
It could not be assessed why only 15 companies out of the 53 joined the conference. Hope EMRD and Petrobangla through direct contacts and using foreign missions in the respective countries could reach out to the leading IOCs. The Bay of Bengal, of course, has grown into an important region of regional and global geopolitics. Major superpowers like the USA, China, Russia, and Japan have interests and would like to have the long-term presence of their companies in the Bangladesh portion of the Bay of Bengal for exploring and exploiting the resources. Bangladesh must also assess the geopolitical risks and ensure transparency in evaluating the offers and awarding the contracts. It will take 8-10 years at least for reaping the benefits from the date of effectiveness of the would-be concluded PSC. Bengal basin is believed to have prolific hydrocarbon infrastructure and if positively explored can be a game changer.
The Conference
Apart from the 15 potential investors, the Energy Advisor to the Prime Minister, State minister energy, the Chairman of the Parliamentary Standing Committee on Energy, the Secretary of the Energy Division, and the Chairman of Petrobangla participated in the inaugural session of the conference. On behalf of Petrobangla, General Manager (Exploration) Farhana Shaon in a PowerPoint presentation highlighted the salient features of MPSC 2023 and bid document 2024. The chief guest, special guests, and some representatives of the participating IOCs also spoke on the occasion. Later the officials of Petrobangla and EMRD answered questions. On day two, there were more interactive discussions between Petrobangla and IOCs. The bids from potential bidders are due in September 2024. The State Minister for Energy Nasrul Hamid said that all efforts will be made to award contracts and conclude PSCs for starting activities in the winter of 2025. Discussing with responsible officials of Petrobangla, it was gathered that bidders were curious about the evaluation process, possibilities of joint ventures, time-bound action plans of various permissions and permits, support, and assistance of Petrobangla and the government. There have been some bitter experiences of exploration in Bangladesh in the past like Scimitar and Niko controversies. Few PSCs ran into arbitration. Offshore exploration is a high-risk investment where rewards must match with associated risks. In general, there were positive feelings about various incentives included in the updated MPSC. For Bangladesh, natural gas will continue to play a major role as a preferred transition fuel.
Salient Features of MPSC 2023
Nine shallow blocks (SS01, 02, 03, 05, 06, 07, 08, 10, and 11) up to a water depth of 200m are open for bidding. But the main focus is the 15 deepwater blocks (DS 08.09,10,11,12,13,14,15,16,17,18,19,20,21,22 and 23) at water depths from 200-2000m). Shaon elaborately explained the scope of work of the contractor at exploration and in the case of commercial discovery development and operation phases. She also explained the requirement of submission of mandatory and biddable work programs during the initial exploration period and subsequent exploration phase. Shaon clearly explained the PSC workflow from signing the contract to abandonment after production life in case of commercial discovery. The scope of work of the contractor and the assistance and support from Petrobangla and Bangladesh were also mentioned clearly. The requirement of irrevocable and unconditional bank guarantee by the bidders and their amount at different phases was also informed. The structure and scope of the Joint Management Committee (JMC) and Joint Review Committee (JMC) were elaborated. It was mentioned that all costs that the contractor would incur would be recoverable, but the limit of recovery would be 75% each calendar year.
The important aspect of the MSPC 2023 is the revised R-Factor for profit sharing. It will be different for shallow and deep water, appreciating the greater risks in deep-water exploration.
Shaon in her presentation also elaborated calculation of government profit share in the case of R-factor. She also mentioned the incremental profit share of the contractor in case of additional drilling.
Another important aspect of MPSC 2023 is the pricing of gas and oil. This time the price will be uncapped. The gas price is indexed to the international market i.e. 10% of the Brent crude. Oil prices will be determined on the fair market value prevailing in South and South Asia.
Some IOCs which the writer had a recent interaction with have some reservations here. Crude oil will increasingly lose its market share in the energy transition. As such indexing gas prices to Brent crude may not be proper. A few suggestions came for indexing the price to LNG as the prospective transition fuel.
Another important aspect of MPSC is third-party sales and exports. Petrobangla will retain the right of refusal. We are not sure when a situation of refusal would happen given the huge gas demand in the country. In such a case, contractors will have the option to sell gas domestically to a third party. The contractor will also have the right to export the gas if no such domestic third party is available. Such a provision must not be considered as a big deal. It is a market incentive given to potential investors for taking investment risks.
Petrobangla's presentation highlighted taxes and duties, applicable law, arbitration process, assignments and share transfer, expropriation, and stabilization.
Bangladesh must realize that in the prevailing regional and global geopolitical reality it can not leave its potential hydrocarbon resource lying unexplored forever under the ocean. It also does not have the technical and financial capabilities to make risky investments for exploring and exploiting the resources. Model PSC 2023 provides optimum incentives for prospective investors for risky investments. IOCs will take risks and will deserve adequate rewards in exchange. Petrobangla will remain the owner of the resources and will get their share of discovered resources free. It can also purchase gas or oil at the agreed rate. Human resources of Bangladesh can also develop skills and experience working alongside IOC experts. The only challenge is managing geopolitical risks. There is a possibility of discovering sizable structures deep offshore which may extend over three to four blocks. In such a case, Petrobangla and GOB must endeavor to award the PSC to a single bidder or JV to avoid controversy at a later stage. In case of blocks adjacent to Myanmar and India's situation requiring Joint Development, Agreement may also arise. Petrobangla and EMRD should also try to acquire the services of former Petrobangla executives in Bangladesh and abroad to assist Bangladesh in managing and monitoring IOC activities. Let us hope that the PSC bidding round attracts leading IOCs like ExxonMobil and Chevron. Petronas, Sinopec, and a few other leading IOCs are active in the region. Three or four leading IOCs working on a standalone basis and in joint ventures can change the landscape of Bangladesh's energy sector in a decade or so. But Bangladesh needs to act smart.
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