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Contract with Occidental likely to be terminated

By Sharier Khan
The Production Sharing Contract (PSC) with Occidental for oil and gas exploration in blocks 13 and 14 is likely to be terminated on the January 11 as the companyhas failed to fulfil its work commitment In the initial exploration period, official sources said.
The PSC. signed on January 11, 1995 requires drilling of at least one exploratory well in each of the blocks during the three-year initial exploration period.
But Occidental failed to drill a single well till now due to "slow and inefficient operations.” the officials said.
Occidental recently applied for a one-year extension tor initial exploration in these blocks
In its application, the US
company pleaded that it could not fulfil the terms of the PSC as there was an accident in Magurchhara and it lost a rig In the incident.
"But there is no official tledF'“ sion on the Magurchhara incident yet. said a source. "It could be accident or it could be Occi-dentai’s negligence."
"Besides, Occidental has failed to achieve the objectives In the Initial exploratory period. There is no legal provision in the PSC to extend this period now," the source noted.
In the late eighties, a PSC with a foreign company. Scimitar, for oil exploration In the same block was terminated in the same manner, he added.
Occidentals high officials from USA are now In the city to
find a way for resolving this matter, the sources said.
The disaster in Magurchhara took place on June 14 last while drilling was going on in the Moulvibazar-1 well. A year ago. five persons died in two accidents during seismic survey and mobilisation of exploration equipment.
Recently, the company imported an expensive rig to drill an exploratory well in Jalalabad but the rig turned out to be defective. Although Occidental is claiming that the rig became defective after tt was brought to Bangladesh. Petrobangla is saying that It was yet another example of "sloppy operation" of the US company.
As the rig turned out to be defective, It took away the last chance of the company to drill an exploratory well In these blocks within the January 1 I time frame.
When the Magurchhara blow out occurred. Occidental did not declare "force maleure" responsible for the incident Under the "force majeure" clause of the PSC. Occidental could have enjoyed an extended time to com-tensate the time lost for the low out.
Occidental has two PSCs with the government, one for blocks 13 and 14 and the other for Block 12 In January this year, it got a 3-year extension for Block 12. It has completed seismic survey In this block and now it is scheduled to drill two wells in the next three years.
Occidental had been a very costly and Inefficient operator in Bangladesh so far. observed a source. "The way it handled the . Magurchhara incident has been also costly, resulting in an enhancement of its budget by over four times "
Its negligence In operation had resulted in the Magurch-hara explosion, the source said. "It has been found by the government s Investigation Committee that Occidental s communication system at the Magurchhara well site was poor and the well design was weak" the source added.
Beside, it handled radio-active matters used for exploration carelessly, the source said. Some 18 isotopes were lost in the Magurchhara explosion. These were later recovered intact in a container but Occidental did not come up with any clear cut explanation about the possibility of more Isotopes being lost.
Occidental has also brought In two partners in these blocks and thus it has minimised its own financial risk. The World Bank's private investment wing. IFC. owns 15 per cent of the two blocks and US company UNOCAL 42.5 per cent.
But the financial risk of Bangladesh government, which is contractually 65 percent owner of the block, remains high as the government itself did not press for compensation for damages caused by the Magurchhara incident.
Occidental has taken a move to got approved an extra-expenditure of 36 million US dollars. spent in remedial measures for the blow out. as a "recoverable" cost, this would compel the government to pay 65 per cent cost of the remedial measures for the Magurchhara disaster
In executing the remedial measures for Magurchhara. Occidental had been very slow in controlling the fire and restoring the rail and road links. Time and again, it had opened and closed the rail-road links between Magurchhara and other districts of Sylhet division.
The probe committee report remains shelved and completely hidden from almost all levels of the government." the sources said.
Since the IFC of the World Bank is closely linked with Oc-cidental s operation and one of the top executives of the company is a top American politician. it is likely that the government would face pressure in automatically terminating the PSC for blocks 13 and 14.
"If in any manner, this PSC is extended, this would be a second disaster like Magurchhara for Bangladesh.' observed a source