Media reports suggest that Chevron Corporation is set to sell its shares in three gas fields in Bangladesh to a Chinese consortium Himalaya. Chevron is operating three gas fields -- Bibiyana, Jalalabad and Moulavibazar in onshore blocks 12, 13 and 14 under two production sharing contracts with Petrobangla and the government of Bangladesh. Himalaya is owned by a consortium of state-owned China ZhenHua oil and investment firm CNIC Corp. CNIC, set up in Hong Kong in 2012, is a government investment platform that focuses on supporting Chinese companies’ overseas investment. Chevron from the three fields supplies over 50% of total gas production which is 16 million tonnes oil-equivalent every year. Selling shares or transferring business is a usual phenomenon. Even Chevron came to Bangladesh buying assets from UNOCAL. But according to the PSCs, such transfer needed prior formal approval of Petrobangla and the government. Media reports suggest that no such approval has been given. Rather the government through Petrobangla expressed the interest to buy the assets after assessment of resources, which is now being done by a consultant, Wood & McKenzie. Chevron cannot sell its share to any third party without first right of refusal from Petrobangla.
The PSC does not provide the IOCs with ownership of the gas fields. The ownership retains with the host government in Bangladesh. Chevron made upfront investments and recovered cost as per conditions in the PSC. Chevron is operating these fields and is supplying gas to the national gas grid. It also produces gas condensate and supplies to Petrobangla. Petrobangla gets its share of gas free and buys the IOC share of gas as per given formula in Gas Purchase and Sales Agreement (GPSA). Chevron cannot invite any third party and let them visit the Petrobangla-owned gas fields without prior permission of Petrobangla. Media reports indicate that the Chinese company representatives visited Chevron-operated Petrobangla fields beyond the knowledge of Petrobangla. These are breach of trust and unbecoming of an IOC operating under the PSC with Petrobangla.
How Chevron Came to Bangladesh?
Following the discovery of oil at Sylhet by Petrobangla in 1986, a dubious company Scimitar emerged in the scene and was awarded exploration rights for exploring oil in a very controversial manner by Erstwhile Ershad government. That decision sparked countrywide protests. Scimitar came and continued works under state protection while SGFL, a Petrobangla company, continued operation at Sylhet 7 oil well. Scimitar discovered Jalalabad gas field. But they had to leave Bangladesh after losing arbitration. In the natural process, Jalalabad gas field came to Petrobangla ownership. Following the exit of Scimitar, another less known IOC Occidental came to Bangladesh. The then BNP government in early 1990s awarded very potential gas blocks in Sylhet region to Occidental and ignoring norms included the Petrobangla-owned gas field, Jalalabad Gas Field, in the contract. Occidental started developing Jalalabad gas field which many thought could be done by BAPEX or even SGFL by engaging drilling contractors through competitive bidding. Occidental was responsible for a major blow out at Magurchara, but was let off the hook though the PSC could be terminated for their gross negligence in exploration. UNOCOL took over from Occidental. UNOCOL discovered the Bibiyana gas field and came up with a controversial plan for exporting a portion of the gas to India constructing a pipeline. The gas export proposal triggered countrywide protests. Even the Prime Minister of Bangladesh expressed strong voice of disapproval. UNOCOL left Bangladesh and Chevron appeared. But in the general election of 2001, Awami League of Sheikh Hasina which opposed gas export failed to win and report goes that BNP came to power pledging gas export.
People’s opposition and emerging gas supply deficit did not allow gas export. Rather Chevron was advised for developing Bibiyana and Moulavibazar gas fields for feeding gas to the national gas grid. In 2004, Petrobangla planned major gas transmission infrastructure development. Some major gas transmission system expansions projects, including three gas transmission pipeline compressor stations, were in the plan. Asian Development Bank (ADB) committed fund and the Gas Transmission Development Project (GTDP) was launched. The BNP-led alliance government failed to steer the project appropriately and in the mean time Awami league-led government was voted to power again in 2009 when serious gas supply crisis emerged.
How Generosity Shown to Chevron Created Issues?
The government since 2009 showed extraordinary generosity to Chevron by approving everything they requested, often ignoring advise of own experts. Chevron by exploiting this situation went for expansion of their production facilities at Jalalabad and Bibiyana fields. In support of their investment, they reassessed the reserve of Bibiyana and Jalalabad fields. Many new wells were drilled in Bibiyana and production facilities were expanded. Chevron was illegally allowed construction of Muchai Compressor Station taking it out from GTCL. Gas Transmission Pipeline Compressor Station is a mid-stream component whereas Chevron as upstream operator could not engage under existing provisions of PSC or GPSA. Any investment by IOC under cost recovery allows extension of cost recovery period. This lets them opportunity for higher share of profit gas. The government decision of letting Chevron build Muchai Compressor Station was protested. Chevron has not yet handed over operation of the compressor station to GTCL.
A big damage was done when Chevron could make senior policy makers to build a very expensive and the largest in size Bibiyana–Dhanua pipeline in a difficult terrain. The line pipes were procured at a very high price without bidding. This pipeline was built without any guarantee for assured supply of gas through this pipeline for the designed life. Rather this pipeline upon commissioning made Elenga Compressor station unnecessary investment. Even Ashuganj Compressor Station cannot be operated to capacity. The Bibiyana-Dhanua pipeline would never get its capacity supply as Bibiyana Gas Field has already shown ominous signs of depletion. GTCL after spending billions in building several gas transmission pipelines and facilities upon dictation of senior policy makers would now struggle for survival as most of their capacity would remain underutilized. The transmission tariff would require major adjustment.
Experts believe that the depletion may be caused from over production. Chevron was pressing for a while for further investment on well head compression and price increase of their share of gas. Petrobangla rightly refused. Chevron in this situation decided to sell their shares and leave Bangladesh.
What Can Petrobangla Do?
Chevron cannot sell its share without approval of Petrobangla and Bangladesh. Petrobangla has already expressed the interest for taking over. Chevron must entertain Petrobangla’s right of refusal. Chevron owes an explanation to Petrobangla why it did inform Petrobangla for taking permission for bringing the Chinese company representatives to Petrobangla-owned gas fields? The government must take decision as per provision of PSC after getting the consultant’s report of assets assessment. Petrobangla may not be able to operate Chevron operated gas fields maintaining the standards and providing the same salary and benefits. Keeping in mind that Chevron operated fields contribute over 50% of gas production now, Petrobangla has to be very careful about operation of these fields. It could engaging another operator – may be a joint venture of local and international company.
Khondkar Abdus Saleque;
NRB, Energy Professional
