BANGLADESH SEEKS FOREIGN

PETROLEUM INVESTMENT
11/01/1993

Bangladesh is pressing initiatives to boost foreign participation in its upstream and downstream
petroleum sectors.
The impoverished country in july put into effect a new national petroleum policy intended to speed
private sector investment in petroleum E&D. The government and state oil company Bangladesh Oil,
Gas, & Mineral Corp. (Petrobangla) have opened almost the entire country's petroleum sector -
downstream as well as upstream - to competitive bids from international petroleum companies.
There is no bidding deadline, but Petrobangla will negotiate terms and assign available acreage on a
first come, first served basis.
Bids are being accepted on 17 of 23 blocks created in 1989 under terms of a model production
sharing contract (PSC) formulated in 1988. Two tracts - Blocks 13 and 21 - have been assigned, and
Blocks 12, 14, 16, and 22 are under licensing negotiations. The 1988 model PSC will serve only as a
guideline for new E&D proposals.
To meet current and future demand for petroleum products, Bangladesh must increase its oil and
gas production and refining capacity.
Petrobangla's two production companies - Bangladesh Gas Fields Co. Ltd. and Sylhet Gas Fields
Ltd. - produce 635 MMcfd of gas, 1,000 b/d of condensate, and 200 b/d of oil. If gas output increases
as expected to 950 MMcfd by 2000, net remaining reserves of 0.554 tcf will be exhausted by 2011-D.
The country's sole refinery produces about 28,000 b/d of petroleum products. However, Bangladeshi
products consumption averages about 40,000 b/d, and demand is increasing at a rate of 2.5-
3%/year.
Bangladeshi officials at a September roundtable in Houston presented highlights of the government's
new petroleum policy and petroleum development objectives and opportunities. Petroconsultants
SA, Geneva, helped coordinate the meeting.
PETROLEUM PROSPECT
Most of the oil and gas discovered and produced under PSCs negotiated in Bangladesh's open
ended tender is to be sold into the country's expanding domestic markets. Contractors also may
arrange to export some output.
Because of gas and condensate discoveries in the country's eastern fold-belt, Bangladesh for the
past 3 decades has been considered gas prone.
However, three recent discoveries in the heart of the eastern fold-belt have revealed a previously
unknown system of oil bearing structures beneath the base of gas and above highly pressured
zones, Petrobangla said.
Fifty-two exploratory wells drilled on Bangladeshi territory to date have found 21.3 tcf of proven and
probable gas reserves, including 12.43 tcf of recoverable gas, about 1.876 tcf of which has been
produced. Recoverable oil and condensate is estimated at 64.69 million bbl, including 2.63 million
bbl produced.
Most E&D attention has been directed at the eastern fold-belt, where Plio-Pleistocene folding
dominates all other trapping mechanisms. However, seismic surveys also have detected undrilled
anticlinal folds with significant stratigraphic variation.
Bangladesh's known gas and condensate reserves are distributed among 17 eastern fold-belt fields,
often in stacked Miocene and Pliocene fluvial and deltaic sandstone reservoirs. Reservoir porosities
of 20-22% are common at depths of 1,096-3,020 in.
About 85% of Bangladesh's condensate reserves are confined to four eastern fold-belt fields: Kailas
Tila, Beani Bazar, Sylhet, and Jalabad.
Paraffinic oil at Kailas Tila, Sylhet, and Fenchuganj in Surma basin is similar to oil encountered in
seeps along the northern margin of the fold-belt and in fields and seeps across the border in India.
Sparse seismic data on Bangladesh's southwestern delta and offshore area has revealed large,
relatively gentle structures, suggesting the possibility that numerous others remain to be delineated.
Large, obvious structural traps generally are absent in Bangladesh's western Bengal basin.
However, Petrobangla officials said a great variety of traps are present in the basin and much more
of the sedimentary column is accessible for testing, including Neogene Tertiary, Paleogene,
Cretaceous, and Gondwana age rock.
NEW POLICY GOALS
Bangladesh's new petroleum policy is intended to boost exploitation of petroleum resources by
encouraging systematic evaluation, exploration, and development in drilled and undrilled areas.
Government officials hope more attractive terms will help mobilize domestic and foreign financial and
technical resources. Development of petroleum refining, import, export, storage, distribution, and
marketing is integral to its plan.
A major goal involves replacing oil imports as much as possible with domestic gas production and
augmenting energy supplies from other undeveloped sources with commercial potential, including
coalbed methane, coal, peat, and liquid petroleum gas.
Officials also want to:

Increase involvement of the private sector in petroleum industry and trade.

Create a competitive environment to assure consumers of stable prices and high quality energy
products.

Promote environmental impact assistance in the petroleum sector,

Strengthen research, technical, and administrative capabilities of governmental agencies that make
and implement policies.

Bangladesh plans to amend existing acts and rules whenever necessary to implement the petroleum
policy. The model PSC is to be reviewed at unspecified intervals and many contract terms will be
biddable.
PSC CONDITIONS
To help spur interest in Bangladesh's petroleum resources, the country is developing a
comprehensive database available for a fee to exploration companies. Confidentiality rules are being
amended to align with international practices.
Local companies are encouraged to form joint ventures with foreign firms or with Bangladesh
Petroleum Exploration Co. Ltd.
To speed acreage assignments, Petrobangla has agreed to act within 6 months on all exploration
license applications and within 9 months on disputed or contested applications.
As applied under the new petroleum policy, a PSC can be awarded on one or more designated
blocks. Two blocks onshore can be included in one contract if geologically justified or more than two
blocks offshore. However, a separate work program must be developed for each block.
No administrative fee or signature bonus will be required upon signing a PSC, but licensees must
pay a biddable yearly PSC service fee of at least $50,000.
PSC terms are to be 7 years for exploration, including a 3 year basic period plus two extensions of 2
years each. As many as 3 years can be allowed to appraise a discovery.
Production terms of 25 years from PSC effective dates are allowed for oil fields and 30 years for gas
fields, each subject to a mutually agreed 5 year extension. Work must begin within 60 days of the
PSC effective date. Minimum work obligations must be bid for each phase of commitment.
PSCs require relinquishment of 25% of the contract area at the end of the third contract year,
another 25% at the end of the fifth year, and all acreage not included in production areas at the end
of the seventh year.
PSC FISCAL TERMS
Costs may be recovered from oil and gas produced to a maximum of 40% of oil output and 50% of
gas output. Shares of production are biddable, based on tranches of 10,000 b/d of oil equivalent
(BOE/day), 25,000 BOE/day, 50,000 BOE/day, and 100,000 BOE/day,
Foreign companies may repatriate profits as specified in each PSC. Public and private entities are
assured uniform treatment.
Special incentives are to be allowed to encourage exploration and development of offshore tracts
and deeper productive horizons. Gas from offshore fields will be priced 25% higher than volumes
from onshore areas, and the government share will be smaller.
Generally, associated gas is to be priced on a cost plus basis, while nonassociated gas prices will be
set at 75% of the international prices for high sulfur, heavy fuel oil, less negotiated discounts.
All taxes are to be paid by Petrobangla, based on fair market value of production. Subcontractors
and employees of contractors and subcontractors are exempt from income tax. Contractors may
deduct operating, exploration, and other capital costs before determining tax liabilities.
Yearly contract service fees are recoverable, but biddable discovery and production bonuses and an
annual $100,000 training fee are not.
Contractors may export gas in the form of liquefied natural gas, subject to governmental approval.
Contractors must sell as much as 25% of their profit oil at a 15% discount for consumption within
Bangladesh.