Bangladesh rejected a proposal by Australian oil major Santos and its US partner Oakland International to explore two offshore gas blocks jointly and sell output to private buyers, the US company's Bangladesh representative, Mohammad Farid Hossain told Platts last Friday.
Hossain said the energy ministry had informed Santos and Oakland that it will not approve their joint venture proposal.
The energy ministry will put both the gas blocks on offer for exploration in a bidding round to be launched in June this year, said an energy ministry official.
Santos and Oakland had sought exploration rights in the two Bangladesh gas blocks relinquished by Total and its partners in 2009.
Santos teamed up last year with the US' Oakland to conduct exploration in blocks 17 and 18, which spread over 18,367 sq km (7,090 sq miles) around Cox's Bazar and parts of the Bay of Bengal.
In the joint venture, Santos was to be the operator for the blocks with an 88% stake, while the remaining 12% stake was to be owned by Oakland.
Oakland International, as separate companies Oakland and Rexwood, had previously partnered with operator Total in the blocks. All three and other partners withdrew from the blocks in 2009 saying they were "commercially non-viable" for exploration.
Santos and Oakland had sought exploration rights over the blocks on condition they be able to sell output to private users at higher price. Santos and Oakland had wanted to sign a PSC, or production sharing contract, amendment agreement to this effect.
"We had demanded to sell gas to third parties to get higher return as the costs of exploration in offshore gas fields have gone up," the Oakland representative Hossain said.
Santos and its partner Oakland would get at most $2.9/Mcf if not allowed to sell gas to private buyers.
Officials said the government's approval to Santos' predecessor in its Bangladesh operations -- UK's Cairn Energy -- to sell gas to private buyers from block number 16 by amending a PSC clause had prompted Santos and its partners to make a similar proposal for blocks 17 and 18.
After Santos bought out Cairn Energy's Bangladesh interests last year it became the only international oil company operating in Bangladesh that has been allowed to sell gas to private buyers at a negotiated price.
All other foreign firms sell their gas output to state-owned Petrobangla first at PSC rates, and the state oil company then sells the gas to state-owned distribution companies to reach end-users.
Petrobangla had initially awarded blocks 17 and 18 to the Oakland-Rexwood joint venture during its first round of energy bidding in January 1997, but the two did not carry out exploration due to poor gas demand in the country at that time. UK company Tullow Oil later bought a majority stake from the JV, and then in 2006 sold a 60% stake to Total, which last year sold half its stake to Thailand's PTTEP.
Total held a 30% stake in blocks 17 and 18 along with Tullow (32%), PTTEP (30%) and US companies Oakland and Rexwood (8%) when they gave up the blocks in 2009.
