Offshore Drilling – Unnecessary Controversy

Kh.A.Saleque.

Kh.A.Saleque.

The Bangladesh Government has proceeded to conclude production sharing contracts (psc) of offshore drilling with two international oil companies (IOC) after a transparent approval process. A portion of civil society are against this government initiative for exploring and exploiting national resources. They are protesting on the streets which is creating barrier for further offshore explorations. This group which claims themselves as the National Committee for Protection of Oil, Gas & Port (OGPC) earlier staged a road march and even called a half day hartal (strike) during Ramadan and will continue their agitation program after the Eid holidays.

The Bangladeshi media have covered their agitation program well. Two newspaper headlines are quoted here under:

  • Citizens’ group vows to resist offshore block lease deals. A sit-in will be staged at Petrobangla HQ on Sept 24
  • Gas export issue: Nat’l body ready for dialogue with govt

These two headlines contradict. If they vow to resist then there is no point in discussion. In my opinion Petrobangla and EMRD must not delay as winter is not very far. Surveys in the offshore and any other activities can only be done from November to March. If we delay another season will be lost and we will further plunge into the energy crisis.

Now the question is why Citizens Group should resist offshore exploration efforts when we are reeling with energy shortage?

Bangladesh is suffering from the worst energy shortage in its history. The main reason for the crisis is its failure to explore and exploit its natural resources (Petroleum & Coal) to fuel its energy plants. 60% of Bangladesh population is still living without access to any form of power supply. The supply to remaining 40 % is also not reliable as national power generation capacity is only 4000MW against the demand of 5500MW. This results in massive load shedding (power blackouts) causing immense miseries to the people. The Bangladesh government does not have financial or technical capacity to explore and exploit natural resources on its own. All major gas fields (Titas, Habiganj, Rashidpoor, Kaillashtilla, Bakhrabad, Shangu, Jalalabad, Bibiyana, Moulavibazar, Feni, Sylhet, and Chatak) of the country were discovered by foreign companies. Even the lone operating coal mine was developed by a Chinese company and the other major mine Phulbari was discovered by BHP, Australia.

It is true our BAPEX could be developed into a competent company but that did not happen. BAPEX is not even competent now to carry out its own assigned responsibilities. During the past years it failed to acquire a modern drilling rig or seismic equipment. It failed to complete exploration at Srikail, further development of Salda and development of Semutang. It has absolutely no capacity to explore off shore. Bangladesh has no option but to engage IOCs for exploration in the off shore.

Our neighbor India has much more efficient and competent national exploration companies and private sector drilling companies. Still it engaged IOCs in off shore and on shore areas through several rounds of PSC block bidding. Myanmar has done the same. Thailand, Malaysia, Indonesia, Vietnam, Philippines, Brunei are no exception. Bangladesh in fact was the first country in the region to start offshore exploration in 1974. But the subsequent governments could not follow up the initiative. Bangladesh progressively lagged behind.

Taking advantage of Bangladesh inaction our next door neighbors India and Myanmar explored and discovered several large petroleum structures in the Bay Of Bengal (some adjacent to our territorial water and some may have encroached our maritime boundary). Mahamudur Rahman, the Energy Advisor to PM Khaleda Zia in 2005 first took the initiative to update PSC documents to go for fresh bidding; significant works were completed during his time. But bureaucracy was the major impediment to complete his task before the BNP-Jamat alliance government completed its tenure. The PSC documents in question were prepared by line professionals and were scrutinized and vetted by prominent Petroleum lawyers. In my opinion the documents are full-proof and many renowned energy experts acknowledged them as one of the best PSCs anywhere in the world where country’s interest has been adequately protected.

Offshore exploration is a huge gamble. Bangladesh does not have enough data and information of its deep water. The available information on shallow water is also not significant. In this scenario IOCs will have to take huge risk to invest their borrowed capital. They will undertake extensive surveys and if they find some prospective structure then upon Petrobangla approval they will go for exploration. There are significant possibilities of striking dry holes and insignificant structures which may not be commercially viable. In such cases IOCs will get no return on investment. At every stage Petrobangla will be involved in monitoring, over seeing IOC activities.

Now the question of liquid natural gas (LNG) may be discussed. If any IOC discovers any gas structure which is large enough for LNG exploration it will prepare the necessary infrastructures. Nothing in the PSC restricts Bangladesh to buy all LNG for domestic use if Bangladesh pays the price. Are not many Bangladeshi industrial entrepreneurs planning to import LNG? Bangladesh needs to set up LNG terminal, Re-Gasification plant if it likes to import LNG. If IOCs set up LNG plant in Bangladesh onshore then that Plant will not need LNG platform, Regasification plant can be built in the same premises. The PSC has enough safeguard to control export. Petrobangla has first right of refusal. Then local market has first preference.

In any case all these are things to consider 7-8 years down the line. What is the guarantee that IOCs will strike major gas structures good enough to invest for a LNG plant? The energy scenario in Bangladesh and the world may change great deal by then. Bangladesh may develop few coal fields and set up several coal based plants to meet emerging power demand. Regional energy trading may start. The situation may come where expert of Bangladesh LNG may bring more economic benefit who knows.

The National Committee for Protection of Oil, Gas & Port (OGPC) does not have any practical knowledge of any offshore exploration or offshore pipeline construction. They do not have any adviser who has ever planned any energy project, mange implementation of any energy projects or operate any energy facility. OGPC is not a political party. It is a conglomerate of some left leaning political parties and some university teachers. Offshore PSC must be discussed in the parliament, not in the streets. The parliamentary committee has invited the OGPC for discussion. They should participate and register their points but should not stop the progress.

EMRD and Petrobangla have been given constitutional rights to sign PSC with IOCs. All documents have been legally approved. Even tendering and award process were very transparent. The agitation against offshore exploration to delay this initiative will serve the purpose of our neighbors who want Bangladesh to stay away from Bay of Bengal.

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Kh. A. Saleque (Saleque Sufi) is the ex-Director ( Operation) GTCL and writes from Australia.

[Read all posts by Kh. A. Saleque]


13 Responses to “Offshore Drilling – Unnecessary Controversy”

  1. Muhamad

    Well, I’m not surprised that people are protesting.

    In the last day or so it has been revealed that Bibiyana’s yield of gas is more or less 6.6 trillion cubic feet. Now, who amongst you is going to be a good samaritan visiting those poor villages around Bibiyana to explain to those poor villagers how much is 6.6 trillion…?

    The people of Bangladesh are being robbed and those who benefit from Petrobangla are helping the robbers.

  2. Engr Khondkar Abdus Saleque( Sufi)

    Gentleman UNOCAL discovered Bibiyana .It was well known to those who had access to reservoir assessment that Bibiyana had such high reserve figures. Unocal proposed to built a gas export pipeline from Bibiyana to West Bengal .That pipeline was initially designed to transport 500MMCFD gas -200 MMCFD for use inside Bangladesh and 300MMCFD for export.When export was not allowed all exploration activities were stopped. Even reserve of Bibiyana was concealed.
    Bangladesh is owner of Bibiyana field.Chevron is operating under PSC. After cost recovery PB is getting majority of Profit gas . PB did not make investment upfront .Chevron investment is recovered from PB share of profit gas. Where you find robbery. Without knowing the intrecassies of PSC one must not make comments on such issues.
    Yes PB and a portion of Energy sector mangement is leaking boots of Chevron bosses but discovery of Bibiyana by UNOCAL is a blessing for Bangladesh.It is the only gas field where 3D seismic survey was first carried out and gas field development has been properly done.

  3. Rayhan Rashid

    Thank you for the post. You wrote:

    The Bangladesh Government has proceeded to conclude production sharing contracts (psc) of offshore drilling with two international oil companies (IOC) after a transparent approval process.

    If I may ask:

    1. What did you mean by ‘transparent approval process’?
    2. How do you define the term ‘transparency’ in this respect?

    Unfortunately, I have no access (whatsoever) to information related to the terms of the actual contract (not the Model one). Would you please care to share them with us here?

  4. Engr Khondkar Abdus Saleque( Sufi)

    The draft PSC Document which appears in Petrobangla website can easily be acessedd by anyone. It has among others qualification of bidders and evaluation critera. There is no reason for Mr Rayhan Rashid or any person interested to know about Draft PSC not to access that document.
    Petrobangla and EMRD organised road show on PSC at a Dhaka 5 star hotel for intending bidders where about 75 representatives of 50+ intending bidders participated. After presentation of various criteria of PSC by relevant officials the querries of biders were responde. The minutes of the meeting were sent to intending bidders. On due date the bidders submitted bids. A duely constituted evaluation commitee as per relevant evalutaion criteria evaluated the bids and the well established approval process was followed. There were no complaints by any bidder at any stage against evaluation .
    I have written few analytical write ups in Energy & Power and Energy Bangla where I analysed various aspects of draft PSC.
    Transparency here means all intending bidders knew about bidding requirements- qualifiaction and evaluation critera which were approved following standard approval process of relevant authority , evaluation by a properly constituted evaluation commitee and approved by competent authority.

  5. Rayhan Rashid

    @ Mr Saleque (Sufi)
    Thank you for your response. You wrote:

    The draft PSC Document which appears in Petrobangla website can easily be acessedd by anyone.

    I just re-checked Petrobangla website and I would advise you to do the same. Perhaps you are referring to the Model PSC 2008. I am sure you are aware that a Model PSC is nowhere close to a ‘Draft PSC’ (at least not in the sense you meant). A “Draft Contract” is a provisional contract drawn up for consideration by both parties and when agreed, the Final contract can be prepared. One would expect a ‘Draft’ (one that is about to be executed) to contain the key data and figures, in addition to the framework of terms. Therefore, describing a “Model Contract” as a “Draft Contract” can be misleading.

    You wrote that the “Draft PSC” (as per your term) has all the necessary information. I wonder what you meant by the word “necessary”! Let me tell you what I found out in that Draft:

    Art.3.1: Contract area: no information!
    Art 4.1: Initial Period of Exploration: blank!
    Art 6: Minimum Exploration Obligation: all crucial entries blank!
    TABLE 14.6: Share Ratio: all crucial entries relating to the Sliding-Scale are blank. [this was supposed to be the most important entry,,,blank!!]

    I guess, you meant something else when you directed me towards this so-called “Draft PSC”. Or perhaps you were referring to some other URL on the website (which I must have missed!). I would be obliged if you could please mention the actual URL of the finally executed PSC here; even the URL of an early “draft” would do.

    Without any information on these crucial entries, I wonder how you concluded that the finally executed PSC was indeed a good one?

    You also wrote:

    It has among others qualification of bidders and evaluation critera

    Since when the Model PSCs started including provisions on ‘bidder qualification’ and ‘evaluation criteria’? For your information, the Model PSC (or Draft PSC, in your words) does not have any such provision. The term ‘Evaluation Report’ mentioned in the Model PSC (under Articles 8.5 and 8.6) refers to something else. I leave it for you to find out. Perhaps you are confusing Model PSC with the “Bid Document” which is a totally different animal.

    In your reply, you mentioned:

    Petrobangla and EMRD organised road show on PSC at a Dhaka 5 star hotel for intending bidders where about 75 representatives of 50+ intending bidders participated. After presentation of various criteria of PSC by relevant officials the querries of biders were responde.

    – Relevance to transparency or to the quality of bids?

    Defending the evaluation committee’s action, you wrote:

    A duely constituted evaluation commitee as per relevant evalutaion criteria evaluated the bids and the well established approval process was followed.

    – Please stop using words such as “duly”, “well established” etc. They do not mean anything unless you actually explain what they entail. If I may ask:
    Who were on that Committee? We need names, or at least their positions. How do you know that all “considerations” were strictly “relevant”? I am sure you are aware that the term “relevant consideration” has certain specific connotation and is often used in a certain context. If I may also ask: were you privy to those communications? I thought these meetings were supposed to be confidential!

    Referring to the ‘quality’ of the selection-process, you wrote:

    There were no complaints by any bidder at any stage against evaluation .

    To be frank Mr Sufi, I really do not care whether or not the bidders were happy. They do not own our natural resources; they are merely the contractors. It is the people, the real owners of these resources, whose happiness/entitlement should be our concern (see Art 143 of the Bangladesh Constitution). In that respect, please would you inform us about the actual share-ratio on the Sliding-Scale as agreed in the final contract which we need to know in order to make up our mind about this so-called good-contract?

    You wrote:

    I have written few analytical write ups in Energy & Power and Energy Bangla where I analysed various aspects of draft PSC.

    – Relevance?

    In your attempt to define ‘transparency’ you wrote:

    Transparency here means all intending bidders knew about bidding requirements- qualifiaction and evaluation critera which were approved following standard approval process of relevant authority , evaluation by a properly constituted evaluation commitee and approved by competent authority.

    – This is just one definition, I would say a convenient one, commonly propounded by serving bureaucrats. But “Transparency”, in essence, means “availability of information”. Please see the AARHUS criteria. When are you going to impart us the details (yes, the actual figures which are now blank on your “draft PSC”) of the finally executed Contract? I am curious, after pointing out these information-deficiencies (on the key issues), if you would still insist on describing the award as “transparent”?

    Mr Sufi, I probably would not have commented on your post at all. I noticed your remarks on OGPC at the beginning of your post which made me interested and prompted me to find out if you know something that the rest of us don’t.

    Have a good day.

  6. Engr Khondkar Abdus Saleque( Sufi)

    Thanks for your comments. Draft PSC was the basis of the bidding. Article 3.1. 4.1 , 6 and Table 14.6 in the draft document were blank as these were to be proposed by the bidders. On the basis of the bidders information the bids were evaluated. You must have found how the bids were to be evaluated.
    It is true many bidders opted not to participate as they were influenced by India and Myanmar .But some still did an none had any complaint with evaluation process.
    If there was any departure in evaluation or malpractice the disqualified bidders would have complained and you would have seen in Bangladesh media reports.
    You seem to be aware that how evaluation and award of major contracts in Bangladesh is made and what are the stages of approval process? Was there any departure here?
    We must make objective judgement.
    I have serious reservation that Petrobangla can handle IOCs in offshore drilling professionally but as far as evaluation and award process are concerned I found nothing wrong. In my time from 1977 -2005 in Bangladesh Gas sector I managed several large International contracts in Gas Sector where similar tendering and approval processes were followed.
    Since you are keen to know about this matter I suggest you try to read PSCs now in practise in India, Myanmar, Thailand, Vietnam, Indonesia. Then you compare our documents with those already in place.
    Thanks for your interest and patriotic feelings in any case.

  7. Rayhan Rashid

    Thank you for your reply Mr Sufi.

    You wrote:

    If there was any departure in evaluation or malpractice the disqualified bidders would have complained and you would have seen in Bangladesh media reports.

    Absence of complaint does not necessarily mean that the process was smooth. I am sure you are aware of the classic case of BP in Angola. There can be (and there often are) multiple reasons why the bidders may opt against raising any objection. I am aware that there is a tendency among many public servants to put forward over-simplified equations like: no objection = everything fine. That is just the kind of argument our war criminals have been putting forward for the last 39 years: no successful prosecution = no war criminals!!

    We must make objective judgement.

    I completely agree with you on this point. However, in order to make that ‘objective judgement’ one (i.e., the public) needs to have access to certain vital pieces of information (I mentioned in my previous comment), which are missing here. In the absence of those vital pieces of information, this “presumption of transparent contract” is just untenable. Would you disagree?

    I am surprised that you suggested me to look at India, Myanmar etc. Why? Why do I have to go there in order to find out what actually happened in Bangladesh. Why don’t you just provide the information here if you really know them?
    And, speaking of other countries (ie, to learn about standard practices), what if I ask you to look at Sao Tome and Principe or Egypt? What if I ask you to look at Nigeria’s latest petroleum framework (ie, PIB), where all such vital information related to PSCs are made public?

    Good day.

  8. Habib Siddiqui

    My reading of the bid package and associated documents, e.g., http://www.petrobangla.org.bd/bid_document.pdf, http://www.petrobangla.org.bd/OFFSHORE%20BIDDING%20ROUND%202008.pdf, http://www.petrobangla.org.bd/MODEL%20PRODUCTION%20SHARING%20CONTRACT%202008-FEBRUARY.pdf, seem to agree with the observations made above by Engineer Kh. A. Saleque. Having been involved in my engineering work with some bid packages in the USA, I can say that the one prepared by the PetroBangla was satisfactory. Once the right bidder is chosen, then usually the finally details are nailed down in a mutually agreed upon binding agreement. As I could also see, the bid package provided for discount price, bonus and fees for the PetroBangla in section 7.
    As to the Model-PSC, I understand that it was formulated by some of the best legal minds in Bangladesh and was aimed at protecting Bangladesh’s interest. If the provisions thus laid out are somewhat wanting, one can definitely raise red flags to ensure that in the future we are better capable of improving any such faulty provisions and also to negotiate some concessions on the same with the existing contracting IOCs. What any concerned Bangladeshi or an expatriate can do is to compare the above PSC with those made by other such authorizing companies (e.g., Petronus) elsewhere and disclose any flaws or gaping holes in ours to better redress such issues. In this age of information highway, the Internet allows us to compare such matters rather quickly.
    Bottom line: as I have pointed out in my interview with the Energy & Power recently, Bangladesh cannot afford to be oblivious of its natural resources that are already pirated and robbed by foreign countries like India and Burma. Inaction on exploration does a greater harm than even a flawed agreement, if any. Because by the time we develop our own skills to either extract on our own or reach a 100% consensus, all that is ours may already have been stolen by our neighbors. Mind that many reservoirs are trans-national and interconnected. So, even if we were not to drill on our sides, a neighbor can suck ours from its side because of the nature of the reservoir.

    (Dr. Siddiqui has a PhD in Chemical Engineering from the University of Southern California, Los Angeles, and his PhD thesis involved the subject of enhanced oil recovery in disordered porous media.)

  9. SAIKAT ACHARJEE

    My understanding is that both the post author and Mr.Habib Siddiqui evaded the questions posed by Mr. Rayhan Rashid.

    By the way, why is it relevant to mention someone’s PhD thesis at the end of the comment and what the thesis has got to do with this discussion? Am I missing something?

  10. Habib Siddiqui

    I am new to this discussion website and thus tried to follow a precedence, introducing myself, in what I saw earlier with another author.

  11. Engr Khondkar Abdus Saleque( Sufi)

    I like to know from bothMr Saikat Acharjee and Mr Raihan Rashid what questions have been evaded? The draft PSC document as well as tender document are on Petrobangla website for almost a year. The blank spaces of Draft document that Mr Raihan pointed out were for bidders to fil out.The draft document has laid down evaluation proceedures. These were discussed in road show organised in Dhaka in presence of potential bidders. All questions were responded , the minutes of meetings were circulated . Several bidders participated in bidding. A properly constitued evaluation commitee evaluated bids and recommended the award. The award process followed standarad approval proccedures.
    Now following approval of highest authority of a democratically elected government having massive popular mandate the proper authority is negotiating PSC with sucessfull iOCs to in accordance with approved drfat PSC and biders proposal. What else remains unawered at this stage.
    People have given manadate to the government to rule the country for certain years, As lomg as they run affairs as per government rules every law abiding citizens must have patience.
    Government can share only some documents with all .Some documents remain classified. Elected parliamentarians can ask for these documents to be discussed in the parliament.
    Yes we will agree that Offshore PSC must be discussed in parliament .For that opposition MPs must particiapte there.
    I deeply appreciate the interest of Mr Raihan and will try to share with him any further info I recieve on PSC with Conocco Philips and Tullow as and when these are concluded.

  12. Engr Khondkar Abdus Saleque( Sufi)

    All Bangladesh need now is an experienced , commited pSC monitoring unit to police IOC acivities in the transparent way. There are many qualified , experienced Bangladeshi Expatriate Gas sector professionals now living abroad who can keep IOCs honest to the contractual responsibilities. They may be useful in PSC negotiations also. But all government want to squeeze benfit from such deals. They do not sincerely like to have a strong Petrobangla or BAPEX. For Governments weak spineles PB is Ok . Likes of Scimitar, Niko and Occidental is well come for corrupt politicians. Otherwise how their children can live like Royal family in USA , Canada , Scotland? How they can have Royal treatment in London and Bangkok.

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