POSCO International has recently sent a letter to Pertobangla, a state-run oil company of Bangladesh, requesting a review of the commercial terms of its production sharing contract (PSC) signed in 2017.
POSCO International has been working in deep-sea block DS-12 in the Bay of Bengal since 2017. But on Nov. 13, the Korean company sent a note to the Bangladesh Ministry of Power, Energy and Mineral Resources expressing its plans to exit Bangladesh.
DS-12 is situated close to a Myanmar deep-sea block, which is considered to have good potential. The Myanmar side of the block has been producing gas since 2013.
One reason for POSCO International’s plan to leave Bangladesh was, according to Petrobangla officials, that the latest PSC offers better deals than the one signed by the Korean company.
Earlier this year, the Bangladesh government introduced a set of incentives to its model PSC for offshore gas exploration to woo international oil companies.
The new PSC allows oil companies to export gas explored from Bangladesh’s offshore blocks in the Bay.
Besides, the Bangladesh government has also decided to provide international companies with more incentives like increase of gas price, exemption of tariff and mandatory drilling option in the Offshore Model PSC.
These incentives, however, are not applied to the contract signed by POSCO International.
According to foreign media reports, POSCO International’s PSC offers the company around US$6.5 per metric million British thermal unit (mmBtu) with a 2 percent annual price increase from the date of first gas production.
But under the new PSC, gas prices have been set at around US$7.26 per mmBtu, with a 1.5 percent annual price increase from the date of first gas production.
Besides, the revised PSC ensures gas export facilities to a third party and pipeline tariff to international oil companies.
POSCO International reportedly said in its request for a review of its contract terms that it needs to carry out drilling 1.7 km deep to confirm the existence of a commercially viable gas reserve. It also said it would take US$2 billion to build an underwater pipeline to transport the gas found in the offshore block.
Petrobangla has yet to reply to POSCO International’s request for a review of its contract terms.
According to media reports, POSCO International has carried out a two-dimensional seismic survey in 3,480 line kilometers of the area covered, which is double its committed area for the survey.
The company detected around half a dozen potential spots for hydrocarbon reserves following the 2D survey, a senior Petrobangla official was quoted as saying.
POSCO International had also been looking for a partner to drill an exploratory well in the block but could not find any.
The Korean company is not the only one that wants to leave Bangladesh. According to media reports, Australian company Santos Limited, which is exploring the shallow water block SS-11, in June expressed its intention to discontinue working in the Bay. The company had signed a contract in 2014.