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No operator now at lucrative Block 9

Tullow refuses to shift onus to controversial Niko

SHARIER KHAN
Gas block number 9 in central Bangladesh, which posed as an apple of discord between different interested oil companies and the government since the second round
block bidding, now does not have any operator although three oil companies are involved in it.
The block's last lead operator Irish Tullow Oil in a letter on Tuesday refused to hand over operatorship to
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its unexpected new partner Niko Resources. Tullow says Tengratila blowouts raise questions about Niko's ability.
The block was awarded to US giant Chevron-Texaco and Irish company Tullow Oil, with a 10 percent complimentary share for Bapex, through a Production Sharing Contract (PSC) back in 2001. Later in September 2003, Chevron-Texaco sold its shares to Canadian Niko Resources, which was found disqualified in the second round bid in 1997.
Under the PSC, during the first three years of exploration, Tullow was the block's operator. In the second phase that involves development of discovered gas field, Chevron-Texaco was supposed to be the operator. The first three years ended in February 2004 but Petrobangla gave it an additional 120 days extension. Tullow discovered a gas field in Lalmai and Bangora.
Tullow was unwilling to accept Niko as its partner and 60 percent stakeholder of the PSC (Chevron-Texaco, being two large entities back then, got 30 percent share each). And it had expressed its reservations on the prospect of seeing Niko as lead operator in development phase. While Tullow is a small company itself, Niko is even smaller and inexperienced.
But soon after the PSC's first phase was over in August last year, a total stagnation prevailed in the block. Other than Tullow's objection to Niko's operatorship, a number of legal issues hindered Niko from taking over the block.
Following the Tengratila second blow out, Tullow wrote to Niko on July 5 saying, "For various reasons we would not be willing to transfer operatorship to Niko…our view has been reinforced by Niko's recent operational experiences in Bangladesh."
Earlier in June, Petrobangla gave its observation on the stalemate saying that legally there is no
operator for the second phase of the PSC, although Chevron-Texaco sold its concerns to Niko.
Petrobangla cited different clauses of the PSC and the Joint Operating Agreement (JOA), and said, "…shares and related liabilities were sold to Niko, but they did not assign their rights, interests and obligations under the contract. Since there was no assignment to Niko, as such, Niko cannot claim to be the assignee of Chevron and therefore, they are not Contractors as per definition given in Article 1.25 of the PSC, and since they are not contractors, they are not also a party in JOA."
The PSC states that a contractor under the JOA can assign any part or all of its rights, interest and obligations to a third party subject to prior written approval of the government and Petrobangla. In case of the Chevron-Texaco's sale to Niko, it was unilaterally done.
"The sale of Chevron's shares stand legal because any company has the right to sell its shares. But the PSC dictates that it has to take permission to assign its rights and interests to third party, which has not been done. Therefore, Niko is nobody in terms of a stake holder of the PSC," said a PSC expert.
Petrobangla Director of PSC Raihan Abedin in a letter asked Tullow and its partners to decide among themselves who would be the operator once declaration of commercial discovery of gas is made and who would be the operator, and forward the same for decision to Petrobangla.
"Petrobangla can only at that stage intervene to give approval or to decide the ability of the proposed new operator," the letter said.
If this problem is resolved, the Block 9 PSC will get four years of extension for gas field development and seven years for production following a successful development phase.