The New Nation - Internet Edition

Business Report

The government has rejected a proposal from Cairn Energy that has upped a previously agreed price for potential gas finds by the British company in two offshore fields.

"We discussed the Cairn proposal. If the company can confirm commercially recoverable reserves, only then can we consider or discuss the proposal," energy secretary Mohamamd Mohsin told bdnews24.com after a meeting at the ministry Wednesday.

Another official, who declined to be named, said the meeting termed the proposal "still premature".

The decision means Cairn will have to do a 3D seismic survey in the Bay without having secured any commitment from the government to pay the price in case of a find.

Cairn proposed that the government or a third party pay a price higher than the rate agreed by PSC if the company strikes gas, after determining that costly 3D surveys would have to be undertaken in the Mognama and Hatia fields.

Petrobangla said Cairn, having failed to discover gas by sinking two exploratory wells in the Bay of Bengal, is looking to the technologically more advanced 3D surveys.

Cairn told Petrobangla that it had already spent $117 million on the two wells and would have to spend another $30 million on the new surveys.

If gas is discovered, moreover, another $100 million would be required to drill wells and set up offshore platforms, Cairn argues.

The gas exploration company claimed in its price hike proposal that it would not be a profitable investment if gas was sold at the PSC rate.

If the government failed to pay a higher price, Cairn insisted on the right to sell the gas to a third party.

Petrobangla says its production sharing contract with Cairn sets a maximum rate for gas at $120 for a thousand cubic feet.

The Scottish company now extracts 38 million cubic feet a day from the country's only offshore gas field.