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Santos leaving Bangladesh after govt refusal for exploration

Publication Date : 25-09-2012


Australian oil company Santos is withdrawing from Bangladesh as its operation in the offshore Sangu field is becoming uneconomic while the government rejected its proposal to allow it to produce gas from a decades-old untapped Kutubdia gas field.

The exit of Santos threatens gas supply to energy-starved southeastern Chittagong region for at least the next several years. Sangu was the main source of gas for Chittagong for years while Kutubdia could be the next one. There are no major fields around Chittagong region.

Given the present situation, awarding the job of gas production from Kutubdia field to Santos is the only quick solution to the problem of supplying gas to Chittagong, said an official.

Santos yesterday served a notice on Petrobangla about withdrawing its operation from Block-15 where Sangu field is located. The field is currently producing 25 million cubic feet per day (mmcfd) of gas, Petrobangla sources said.

As per its Production-Sharing Contract (PSC) with Petrobangla, the government may within the next 90 days either take over Sangu field along with US$500 million worth of equipment -- the offshore platform and onshore gas processing plant -- or may decide to shut down the operation completely.

Officials say Petrobangla does not have trained manpower or experience to run the Sangu platform, located 35 kilometres offshore. It is usually operated by a specialist team through remote control and its operation is very costly. Santos operates it with a third party -- US company PSN.

“Petrobangla may employ PSN for the job. Otherwise, the whole high tech set up will be kept shut and it would eventually go out of order,” an official of Santos said.

In January this year, Santos proposed to tap the small offshore Kutubdia field, located 36km off Kutubdia island, to make its business viable in Bangladesh. Although this field is located in Block-15, it was kept "ring fenced" or reserved for other options.

But in June, the government denied this, saying the field would be available for bidders in the next offshore block bidding for oil and gas exploration.

Discovered in the mid-seventies by a foreign oil company, Kutubdia field was never tapped because it only had a gas reserve of around 50 billion cubic feet (bcf). To bring this gas to the national grid, a 46-km pipeline needs to be installed in the sea bed and other infrastructure built, which are a costly and unattractive venture. This is why it never attracted investors.

“But, for Santos it had some business prospects,” said an official. “It could install a 46-km pipeline to connect the field with the Sangu offshore platform, drill a well and start producing gas from the field. It needed no additional infrastructure,” he added.

Kutubdia field was ring-fenced, but for many years the government kept the option open for oil companies to develop it by paying $15 million, which was the cost of drilling that led to the discovery of gas in the seventies. This year, the government, however, dropped the payment issue. Instead, it sought a five percent extra share of gas produced from this field under a new model PSC.

Santos proposed to give Petrobangla this extra five per cent share, on top of a production-sharing formula.

Petrobangla recommended the proposal to the energy ministry. But the ministry said Kutubdia field would be open for bidders in the upcoming block bidding, and it cannot be given to Santos.

Petrobangla sources said putting this field in the next block bidding, which might take place next month, did not guarantee its development or an early development.

This decline came as a disappointment for Santos as it had spent a few million dollars since January as a preparation for early drilling of the field and laying of the pipeline. As the government has declined it, Santos sees no future in running the Sangu field for long.

Sangu field has been producing gas from newly drilled Well-11 from June and supplying it to the Power Development Board for power generation. But its production rate would gradually decline throughout next year. The field also has 10 other wells that remain shut. Of these, three can produce a small amount of gas but these are kept shut to facilitate maximum production from Well-11.

“For Santos, the business has become too small and it will become unprofitable from March-April next when Sangu's production reduces further. Therefore, the company has decided to withdraw,” said an official of the company.

Sangu is the country's first producing offshore gas field, discovered in 1996.


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