Bangladesh begins offshore gas production in 1998

Cairn development in Bay of Bengal

Ghazi Mahmud Iqbal
Contributing Editor - Dhaka

Cairn's Sangu Field is Bangladesh's first development.

Bangladesh is now poised to enter the offshore gas production industry. Cairn Energy, a British Company which discovered a huge gas reserve in Sangu gas field in the Bay of Bengal last year, is expected to start the first ever commercial production of gas from an offshore gas basin in Bangladesh by spring 1998.

The Sangu gas field, located some 35 km southwest of Chittagong Port, will produce gas at a rate of 200 MMcf/d. Initial test results from the Sangu-1 well produced the highest flow rate from a single well in Bangladesh. The gas from the field will be delivered to Chittagong, the country's second largest city, main seaport and commercial capital, and from there to the national gas grid for use in power generation, fertilizer production, industrial use, and domestic consumption.

Cairn, as PSC operator for Block 16, in collaboration with its partners Holland Sea Search Bangladesh (HSSB) and HBR Energy, has finalized the terms and conditions of a gas purchase and sales agreement (GPSA) with Petrobangla, the state-owned oil, gas and mineral corporation of Bangladesh, for delivery and sale of gas from Sangu gas field. The signing for the GPSA took place on January 11 at Dhaka in the presence of British Prime Minister John Major and Bangladesh's Prime Minister Sheikh Hasina. Associated with the gas purchase and sales agreement are a government guarantee and other agreements giving governmental assurances specifically related to the Sangu development.

Cairn's chief executive Bill Gammell believes that the signing ceremony involving both the British and Bangladesh prime ministers will be a powerful and tangible demonstration of the fruits of economic cooperation between the two countries. Gammell and Dick Cheney, former US defense secretary and chairman, president and chief executive of the Halliburton Group, were also present at the ceremony.

The PSC brings a further foreign direct investment of US$150-200 million (Taka 632-843 crore in local currency) over two years into Bangladesh's energy sector, where Cairn has already spent US$30 million (over Taka 126 crore) for gas exploration in the past 30 months. The Sangu gas field, the 19th gas field discovered in Bangladesh, has a reserve of over 1 tcf, and the prospectivity of the surrounding area is much higher, possibly 10 tcf, according to the experts.

Cairn Energy, in its capacity as contractor of Blocks 15 and 16, has reached an agreement with HBR Energy, a subsidiary of Halliburton, which includes Brown & Root, to share the development costs of the Sangu gas field in Block 16 by transferring 25% of the proposed Sangu gas development project to HBR Energy, which will co-develop the field with Cairn and meet 50% of the development costs, which are estimated at around $150-200 million.

As part of the deal, Brown & Root brings its 45 years of contract and maintenance expertise to the project through Brown & Root Bangladesh., which will provide engineering services to the project. This strategic alliance is an important vote of confidence by one of the world's leading oil and gas contracting companies in the future of the Bangladesh's oil and gas industry.

Cairn Energy and HBR Energy are committed to bringing the Sangu gas discovery on stream in a cost-effective and timely manner. The arrangement between Cairn and HBR Energy has been structured so that the objectives of each company are closely aligned, with each company contributing resources to the team managing the development of Sangu. This type of agreement, often referred to as an "alliancing agreement" was pioneered by British Petroleum (BP) and Brown & Root in the UK's North Sea oil and gas fields.

The current schedule for the fast track development of the Sangu gas field has been aimed at delivering gas at an initial rate of 160 MMcf/d gas from Sangu to Petrobangla in Chittagong in April 1998. Although that is a very aggressive schedule for an offshore gas field. Cairn and HBR Energy are committed to working with Petrobangla to achieve this aim.

Background

Cairn and HSSB acquired seismic data over a large part of Block 16 in early 1995 and subsequent interpretation of this data identified a number of significant prospects. In December 1995, the group began drilling the Sangu-1 exploration well on a prospect approximately half way between the Kutubdia gas discovery and the port of Chittagong. This well discovered gas in January 1996 in a number of gas-bearing zones. Two of the zones were tested at a combined stabilized cumulative rate 82 MMcf/d, the highest flow rate ever recorded from a single well in Bangladesh. The well has been suspended as potential future producer.

Following the success of the Sangu-1 well, the Sangu-2 well was drilled approximately five km northwest of Sangu-1. The Sangu-2 well encountered gas in the main zone tested in the Sangu-1 well. In addition deeper potential pay was encountered and the selection has not yet been fully penetrated. Sangu-2 was suspended and the exploration rig was moved off the location prior to the start of the monsoon season. The results of the two wells confirmed the potential for a commercial development and the group began plans to appraise and develop the Sangu Field. This began with an infill seismic survey in July-August 1996. The development plan calls for gas to be produced from a central production platform and transported by a 45 km pipeline to the Chittagong area for connection into the national gas pipeline grid. Under the terms of the block 16 PSC and the recently negotiated and signed GPSA, Petrobangla will be the sole purchaser of the gas.

In May 1995, Cairn signed a memorandum of understanding (MOU) with a British company Midlands Power International Limited (MPI) whereby, pending approval from Petrobangla and the GOB, MPI has acquired a 30% interest in a sub-area of block 15 including the Semutang gas field. MPI has in its own right a MOU with the Ministry of Energy and Mineral Resources of the GOB for power generation projects in the private sector. Cairn exercised its option to participate in a downstream integrated power project planned for the Dhaka area in November 1995. The power project, named the "Tiger Power Project", could be fueled by gas either from Semutang gas field or from any other gas discoveries that a group elects to develop.