OVL open to downstream investment in Bangladesh

After securing two shallow water gas blocks in Bangladesh, ONGC Videsh Ltd (OVL), the foreign investment arm of state-run Oil and Natural Gas Corp Ltd, has said it is open to investing in power, petrochemical and fertiliser plants in the South Asian nation.

OVL that has won the two blocks along with Oil India Ltd, will be getting into exploration business in a neighbouring country for the first time. The two companies will develop the blocks in a joint venture with Bangladesh. OVL will also take part in the bidding round for oil and gas blocks in Sri Lanka, D K Sarraf, managing director and chief executive officer of OVL, told Business Standard.

Sarraf confirmed the winning bid for Bangladesh. “Right now, we are at the exploration stage, but we can look at setting up power, petrochemical and fertiliser plants. That will depend on how much gas we get and the economics of it. Bangladesh government’s priority is supply to power plants because they have acute power shortage,” Sarraf said. ONGC has knowledge of the eastern offshore basin and, therefore, operations in Bangladesh can be integrated with domestic operations in India.

A production-sharing contract (PSC) for the blocks would be signed by August. Sarraf denied the company was under pressure from the Indian government to make the acquisition. “We bid on commercial basis, but we do keep in mind India’s energy security.”

Except ONGC and US-based ConocoPhillips, all global majors, keen during the pre-bidding stage, had backed out of the bidding, citing lack of incentives to cover the offshore investment risks. Bangladesh does not allow export of natural gas from its country, which is the reason for global majors opting out of the bidding race.

Of the nine shallow-water blocks up for auctions, ONGC and ConocoPhilips went for only three blocks. When ONGC grabbed SS-04 and SS-09, the US company got SS-07.

When contacted, a top official from the PSC section of Petrobangla, Bangladesh’s state-owned oil company, said: “ONGC and ConocoPhillips have qualified for the blocks and we have recommended its name to the government. Petrobangla is waiting for the clearance from the government and expects to sign PSCs with both the companies by August.”

Bangladesh Petroleum Exploration and Production Co Ltd (Bapex), a subsidiary of Petrobangla, will have a 10 per cent stake in each block, said the official, who did not want to be named.

The Bangladesh government has notified that the terms and conditions of bidding for the three deep-sea blocks are being reviewed, with an attractive PSC by July. For the blocks, global majors like Chevron Corp, Royal Dutch Shell Plc, Santos Ltd, Statoil ASA, Krisenergy Ltd, Eni SpA, Bahrain Petroleum Co, Tullow Oil Plc, Exxon Mobil Corp, BP Plc, ConocoPhilips, Petronas and China National Offshore Oil Corp were in the race initially. They backed out later due to lack of clarity in policy level.

“ONGC will not have to pay any signature bonus or royalty for these blocks. The only major criterion was that the operator needed an experience on offshore production with 15,000 barrels of oil or 150 mscf (million standard cubic feet) of gas,” the Petrobangla official added. According to reports, ONGC has offered to spend $98 million (Rs 540 crore today) in both the blocks.

Apart from this, OVL would also own the right to explore Bangladesh’s first offshore gas field Kutubdia, as it comes under the SS-04 block. “We have some old data regarding Kutubdia. Hence, Bapex would hold a special additional profit of five per cent for it,” he said.  

In December 2012, the Bangladesh Mineral Oil and Gas Corp, through Petrobangla, had invited bids from international companies for 12 blocks.

At present, OVL has assets in Kazakhstan, Russia, Myanmar and Vietnam in the Central and East Asian regions; Iraq and Syria in West Asia; Libya, Nigeria and Sudan in Africa and Brazil, Colombia, Cuba and Venezuela in Latin America.