South Korean oil and gas exploration firm Posco International might lose its contract for the maiden deep sea exploration job in Bangladesh due to its 'failure' to meet the contractual obligation.
The state-run Petrobangla has recommended terminating the production sharing contract, or PSC, with the Posco for exploration of deep sea block DS-12 and sought a final decision from the energy ministry before annulling the deal, said a senior Petrobangla official.
Instead of carrying out exploration work as per the contract, the Korean firm had sought a review of the 'commercial terms' seeking a favourable cost recovery provision of the PSC, he said.
It also sought an extension of the contract for another year with higher 'commercial terms', but Petrobangla refused to amend the PSC.
Market insiders said the Korean firm previously intended to explore the deep sea block through hooking up with a partner so as to minimise the costs.
It also talked with Australian Santos to establish a joint venture to this end. But Santos turned down the proposal as the Australian firm itself was planning to pull out of its Bangladesh operations with regard to the shallow water blocks.
Presently, no oil and gas exploration is being carried out in deep offshore blocks in Bangladesh.
The Posco-Daewoo Corporation, a joint venture of Korean Posco and Daewoo, inked the PSC in December 2016 with the Petrobangla under the Speedy Supply of Power and Energy (Special Provisions) Act 2010 bypassing tendering process.
Posco later acquired Daewoo to become the lone stakeholder of the deep sea block DS-12.
Under the PSC, the Posco would get natural gas price at around US$6.50 per mmBtu (million British thermal unit) with a 2.0 per cent annual price escalation from the date of first gas production.
Posco carried out 2D or two-dimensional seismic survey in around 3,580 kilometre areas, which are double its committed area for the survey.
The Korean company could detect around half a dozen potential spots having hydrocarbon reserves through the 2D survey, said another Petrobangla official.
Petrobangla had earlier awarded the DS-12 block along with two other deepwater blocks, DS-16 and DS-21, to a joint venture of the US's ConocoPhillips and Norwegian Statoil under the previous 2012 bidding round.
But both ConocoPhillips and Statoil refused to ink an PSC on 'poor fiscal terms' in the model contract.
DS-12 is located in a depth of 1,000 to 2,000 metres, with an area of 3,560 sq km.
Bangladesh is trying to promote the exploration in the Bay of Bengal to help meet its soaring energy demand.
The country's natural gas output is hovering around 3,050 mmcfd, some 500 mmcfd of it is regasified LNG. The entire local production comes from onshore gas fields.
