Dispute over advance income tax (AIT) on drilling equipment and demurrage payment has been causing a delay in initiating the drilling of an exploratory well in a shallow sea block.
India's ONGC Videsh Ltd. will conduct the drilling in the shallow sea block SS-04.
To release the drilling equipment from the Chattogram port, Chinese Sinopec, the supplier of the equipment, has already paid a portion of the AIT after getting assurance from the National Board of Revenue (NBR) that it would pay back the AIT.
But demurrage payment, calculated on the basis of days of delay in releasing the equipment from the port, was not yet paid, a senior Petrobangla official told the FE on Wednesday.
"It is yet to decide who will pay the demurrage," he said.
The lingering dispute might cause the ONGC to miss the winter drilling season, which is usually from October to March, sources said.
Currently, no exploration activities are being carried out in offshore blocks inside the country's territorial areas in the Bay of Bengal.
The ONGC was supposed to initiate the drilling in the shallow water offshore block in October last, said the official.
It has planned to drill the well at Kanchan, buoyed by the findings of two dimensional (2D) seismic surveys.
Drilling a well in Block SS-04 by the Indian firm is mandatory as per the production sharing contract (PSC) between the consortium of ONGC and Oil India Ltd. (OIL) and the state-run Petrobangla and the government, the official said.
The ONGC will also have to drill another well in the shallow water Block SS-09 by February 2021.
Petrobangla signed two PSCs with the ONGC, the operator of blocks SS-04 and SS-09, on February 17 in 2014, which was set to expire in February 2019.
Petrobangla, however, extended the tenure of the PSCs by two years to facilitate hydrocarbon exploration by the contractor, said the official.
Currently, there is no producing offshore gas well in the country and the entire natural gas output comes from the country's onshore gas fields as well as import of liquefied natural gas or LNG.
Any fresh discovery of hydrocarbon in an offshore field will boost the country's future oil and gas reserve.
The country's overall natural gas output is currently around 3,165 million cubic feet per day (mmcfd), of which 602 mmcfd is re-gasified LNG and the remaining 2,563 mmcfd is local gas, according to Petrobangla data as of December 23, 2019.
The ONGC is the operator of blocks SS-04 and SS-09, having participating interest of 45 per cent. OIL holds 45 per cent participating interest and the Bangladesh Petroleum Exploration and Production Company Limited or BAPEX holds the remaining 10 per cent interest.
The Block SS-04 covers an area of 7,269 sq km while the Block SS-09 stretches an area of 7,026 sq km. Water depth of both the blocks ranges between 20 and 200 metres.
The exploration term for both the blocks consists of eight consecutive contract years-five years as initial exploration period and three years as subsequent exploration period.
As per the PSC, ONGC is committed to conducting 2,700 line-kilometre 2D seismic data acquisition and processing and one exploratory well in Block SS-04 and 2,700 line-kilometre 2D seismic data acquisition and processing and two exploratory wells in Block SS-09.
The ONGC will be allowed to operate and sell oil and gas for 20 years from an oil field and 25 years from a gas field. The ONGC has already completed around 3,100 line-kilometre 2D seismic surveys for both the blocks.
Wellhead gas prices in Bangladesh are pegged to high sulphur fuel oil or HSFO prices in the international market.
The floor price for HSFO has been set at $100 per tonne and the ceiling price at $200 per tonne to fix gas price. The latter works out to around $5.50 per Mcf or 1,000 cubic feet.
Other features of the PSC are: The licence holder will have the right to full repatriation of profits; will not be charged any signature bonus or royalty; would not need to pay duty for equipment and machinery imported for operations during the exploration, development and production phases; will have 100 per cent cost recovery; and production bonuses. The contractor can also sell gas to third parties after Petrobangla's first right of refusal.
