After a series of negotiations, state-run oil and gas exploration company Bapex has finally managed to formulate a “fruitful” joint venture deal with Australian firm Santos for drilling work in Magnama structure in the Bay of Bengal. The deal with Santos would cost Bapex a total of USD 28.85 million, sources in the state-run company told The Independent. The deal will be officially inked by July and the drilling work will start in winter, the sources added. Santos would have 51 per cent stake and Bapex 49 per cent in the joint venture, which will be financed by the government exchequer under the gas development fund.
The Australian firm has long been pushing Bapex to agree to a USD 46 million deal, which would cover half of the USD 92.3 million that Santos has spent for 2D and 3D seismic surveys and other costs since 1994. Santos even went as far as to get a confidential agreement signed.
However, experts have warned that going for the USD 46 million deal over such a complicated structure could spell financial ruin for the state-owned company. The concern was more pressing, given the fact that Santos’s predecessor Cairn Energy could not go for gas exploration following a failed attempt to drill a well in Magnama structure in offshore Block-16 in 2008. According to experts, Magnama is yet to be explored and Bapex should not accept liability for a failed exploration attempt. The Magnama structure is located within Block-16 in the Bay, where the now shut Sangu well is located. Santos, however, recently mapped the mean Gas Initial in Place (GIIP) for Magnama at 1.5 trillion cubic feet (Tcf) with 16 to 17 gas layers. Besides, Bapex wanted a joint venture deal with Santos because it has never conducted oil and gas exploration offshore. So far, the state-run company has only drilled onshore gas wells in several gas-fields, which are either owned by the company itself or by different state-run gas production companies. Bapex officials felt the deal with Santos would be good because they will be able to gain experience of drilling wells in offshore areas. In line with this reasoning, Bapex finally offered to pay USD 28.85 million and Santos consented to that. Bapex currently has just one “controversial” joint venture with Canadian Niko Resources. The two together developed Feni Gas Field, but production was suspended there because of a payment dispute. They also undertook drilling at Chhatak.