Oil Firms’ Problems in Bangladesh Are ‘a Lesson for Burma’

By William Boot 28 May 2014

International oil and gas companies in Bangladesh have complained about working restrictions, bureaucratic delays and unfair prices in what industry analysts say could happen in Burma as negotiations over licensing terms to explore offshore waters drag on.

A delegation of foreign oil and gas businesses, including US-based multinationals Chevron and ConocoPhillips, presented a list of complaints at a meeting with Bangladesh’s Energy Minister Nasrul Hamid, reports said.

The unprecedented confrontation involving the Foreign Investors’ Chamber of Commerce and Industry in Bangladesh follows months of wrangling there over the terms of new contracts to explore offshore and onshore blocks in Bangladesh.

It is a situation that may also be developing in Burma, where proposals to carry out exploration in up to 30 offshore sea blocks have been going on for well over a year.

Bangladesh depends on locally produced natural gas for fuel for electricity generation but has suffered from severe power shortages for years because of inadequate gas supplies.

“The delegation told [the Bangladesh Energy Minister] that inadequate offshore fiscal terms and restrictive onshore access has limited their investment in the country,” industry analysis firm Platts said, quoting a ministry source. “They also asked for higher gas prices for producers, permission to market their share of supply and the flexibility to modify contract terms based on block location.”

Burma is looking to new discoveries of gas and oil to help fuel the country’s economic revival. But nothing more has been heard from Naypyidaw’s Ministry of Energy or the state-controlled Myanma Oil and Gas Enterprise (MOGE) about 20 offshore and onshore blocks conditionally awarded in March to international and local companies.

The awards, to a range of firms including ConocoPhillips, Shell, Total, Statoil of Norway and Mitsui of Japan, are subject to final agreement on terms for investment, development duration and the pricing of any gas and oil produced.

“Agreeing terms on oil and gas E&P [exploration and production] can be protracted but taking into account the time these processes have been under way in Myanmar bidders must be becoming frustrated,” industry analyst Collin Reynolds in Bangkok told The Irrawaddy.
“If and when final production sharing contracts (PSCs) are agreed it will be years before there is any fruitful production, especially from the deep-water blocks where costs will be much higher than in shallow waters or onshore and working conditions much tougher.”

ConocoPhillips, which is involved in both countries, declined to comment to The Irrawaddy on its Burma block bid.

“The Myanmar Ministry of Energy’s Model PSC has a small number of important provisions which many of the selected companies find difficult to accept,” Edwin Vanderbruggen of regional legal advisory firm VDB Loi with offices in Rangoon said in a recent client note.

“We are caught between the past and the future. The Ministry on the one hand feels that this PSC Model has in the past been accepted by all of its partners, so they see no reason why to change it. The new batch of operators on the other hand points to some provisions that are indeed difficult to understand, and find it unreasonable not to amend these going forward.

“Put another way, in the wake of the repeal of international sanctions against Myanmar, the Ministry of Energy (MOE) is facing a new kind of company at the other side of the negotiating table,” said Vanderbruggen.

A major sticking point for the bidding foreign oil companies is the phrase Burma’s “inalienable rights” in the ministry’s model PSC, said VDB Loi.

Foreign operators in Bangladesh produce more than 50 percent of the country’s domestic gas, according to government figures, and most of it is delivered by Chevron from three established fields in the country’s north.

But Bangladesh is struggling to award contracts for 12 blocks first put on offer in 2012, and then re-offered in October 2013 after supposedly offering sweeteners to make the licenses more attractive.

The delays and confusion surrounding bids and final agreements involving these blocks illustrate the slow process in Bangladesh’s state-controlled energy sector in spite of the urgent need for more production to meet domestic demand, say industry analysts.

ConocoPhillips in April declined to sign a PSC for a shallow-water block in Bangladeshi waters of the Bay of Bengal because it disagreed with the terms offered, according to the Dhaka Financial Express.

“This is for the first time that an international oil company has refused to sign a PSC with [Bangladesh] after being selected finally for a block,” the Express said.

The foreign delegation that met the Bangladeshi energy minister reportedly complained that existing PSCs offered by Bangladesh do “not reflect current risks or exploration and development costs,” Platts reported. They also criticized the slow approvals process which holds up the terms of exploration work demanded by the state.