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Appraisal of Chevron’s asset in Bangladesh

Chevron is one of the leading oil and gas exploration and production company in world.

They have a big discovery of onshore gas field in Sylhet region of Bangladesh and producing and meeting demand almost 58% of total daily consumption of natural gas generally pronounce their role behind energy efficiency in Bangladesh.

It also indicates the rich hydrocarbon reserve area of Bangladesh is under directive of Chevron and earns good revenue from this resource.

Chevron is now thinking to sell their business part and Bangladesh is enthusiastically interested to purchase the share value for the proven recoverable underground natural gas reserves in allocated blocks of Chevron.

Chevron has three pronounced discovery fields in their allocated blocks like Bibiyana, Jalalabad and Moulvibazar.

Bibiyana is the largest reserve holding 7.6 trillion cubic feet (Tcf) gas and among this reserve it has already been exhausted and consumed 3 Tcf, now expected remnant reserve is around 4.6 Tcf.

In Jalalabad have reserve of about 2.2 Tcf and extracted and consumed gas is about 1 Tcf, remains reserve around 1.2 Tcf.

In Moulvibazar has no remarkable reserve any more. Normally, about 20-25% of total reserve might be unrecoverable. A producible gas field may decline formation pressure slowly after withdrawal 50% of proven reserve as well as the production rate will also be lower.

It may need further renovation work to increase the volume of production that may also increase the well production cost.

It has already been extracted gas 40% at Bibiyana and 45% at Jalalabad. Both of the fields are very much close to stage of formation pressure depletion for pay zone under production. For such well if have available pay zone not in production track might be valuable.   

In view of purchase the asset valuation is most important and estimation of cost for any invisible asset is quite difficult. Reserve of underground natural gas is invisible and it’s only predictable assessment on reserve.

So how much authentic the estimated reserve of Chevron as the total value of asset is depending on this reserve. As production sharing contract (PSC) Chevron may supposed to have share only on the remaining proven recoverable reserve and may estimate total cost of Chevron’s share as existing economic conditions.

All the surface setup by Chevron is subject to zero value as the cost is already recovered and the owner of all surface facilities is The Peoples Republic of Bangladesh. I do highlight some points here below on hydrocarbon reserve.        

Reserves are defined as those quantities of petroleum which are anticipated to be commercially recovered from known accumulations from a given date forward. Estimated recoverable quantities from known accumulations which do not fulfill the requirement of commerciality should be classified as contingent resources.

The definition of commerciality for an accumulation will vary according to local conditions and circumstances and is left to the discretion of the country or company concerned. However, reserves must still be categorised according to the specific criteria of the SPE (Society of Petroleum Engineers)/WPC (World Petroleum Council) definitions and therefore proved reserves will be limited to those quantities that are commercial under current economic conditions, while probable and possible reserves may be based on future economic conditions.

In general, quantities should not be classified as reserves unless there is an expectation that the accumulation will be developed and placed on production within a reasonable timeframe.

It is recognised that all petroleum-initially-in-place quantities may constitute potentially recoverable resources since the estimation of the proportion which may be recoverable can be subject to significant uncertainty and will change with variations in commercial circumstances, technological developments and data availability.

A portion of those quantities classified as unrecoverable may become recoverable resources in the future as commercial circumstances change, technological developments occur, or additional data are acquired.

Figure: Resources Classification Framework.

It has been circulated that Chevron has sold their share to a China Company in that case price estimation will not be issue for Bangladesh if Government accepts their decision. 

However, if have any scope for Bangladesh to purchase this asset might have steps very carefully on asset evaluation. Need to mention here US based Unocal sold their total worldwide asset to Chevron at only US$18.5 billion in 2007 and Unocal’s business in Bangladesh was also very small part of this sell.

Through careful and precise estimation of asset value it will be good and beneficial decision for Bangladesh to purchase this hydrocarbon rich region.   

Rezaul Kabir is a petroleum geologist and an international oil & gas exploration specialist.

 

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