The New Nation - Internet Edition

BUSINESS REPORT

The UK-based Cairn Energy has warned Petrobangla it would not carry out further exploration in the Magnama structure in the Bay this dry season if Petrobangla did not increase the gas price or allow it to sell its share of gas directly to a third party once gas is found.

The company in a letter recently said it would be "uneconomical" for Cairn if it sold gas to Petrobangla from Magnama for the price mentioned in the existing production sharing contract as gas exploration and production cost increased manifold in recent years, said Petrobangla officials.

The company asked Petrobangla either to increase gas price or to allow it to sell its share of 50 per cent gas of the total production to a third party in Bangladesh at the price fixed by the company.

Cairn said if Petrobangla did not agree to the company proposal by August 15, it would not go for a planned 3D seismic survey in the structure under Block 16 this dry season, between November 2008 and April 2009.

Petrobangla officials termed the Cairn letter "outrageous" and said the demand of the company was a "clear violation" of the production sharing contract.

"The PSC that the company signed with Petrobangla has a specific formula on how the gas price will be fixed. It will be clear violation of the PSC if the gas price goes beyond the formula price," said an official.

"Besides, the PSC says Petrobangla has the first right to buy the gas. Petrobangla wants to buy the gas and that is why we have signed the PSC. So the company cannot sell the gas to a third party directly unless we decline purchase," he said.

Petrobangla officials said Cairn was trying to hold Petrobangla "hostage" as the country needs new gas reserves because of severe gas crisis. "The discovery and production of gas from Magnama is very important for Chittagong as the area is facing a severe gas crisis," he said.

Cairn said if it was not able to explore gas because of uneconomical price, how gas could be extracted from Magnama and Petrobangla would sell it.

The company said it wanted to sell the gas to crisis-hit industries in Chittagong, especially to the Karnaphuli Fertiliser Company and the Karnaphuli Export Processing Zone at the price fixed by the company.

Petrobangla officials said it was not Cairn's "headache" where Petrobangla would sell the gas it would buy from the field.

Cairn discovered the Sangu gas field in the same block in 1996 and it is selling gas to Petrobangla for the price mentioned in the PSC, which is about 3.5 dollars per 1,000 cubic feet or one unit.

The company in the past dry season drilled wells in Hatia and the Magnama structure and found the presence of gas in Magnama, but it could not establish whether it was economical.

It claimed to have invested 100m dollars. It proposed a 3D seismic survey this dry season before drilling further exploration wells.

The company said the price of the gas from Sangu would not be economical for gas from Magnama as exploration and production cost and gas price on the international market had gone up manifold in 12 years.

A Petrobangla official, however, said Petrobangla bought gas for 3.5 dollars in the late 1990s and the company made a huge profit.

"The company will recover its exploration and development cost from gas price. It should not have any problem in buying gas at 3.5 dollars at present. This is the contract it signed and it should honour it."

The Petrobangla chairman, Jalal Ahmed said they were yet to go through the letter completely. "We are examining it. We will reply to Cairn at an appropriate time. We have not made any decision yet on what will be the reply."