Gas Field Blow-out: Niko sued for Tk 746cr over Tengratilla loss

The Daily Star, June 18, 2008. Dhaka, Bangladesh

The government yesterday filed a damage suit with a Dhaka court against Niko Resources Bangladesh Ltd, claiming Tk 746.50 crore in compensation for destroying properties and gas reserves in and around the Tengratilla Gas Field in Sunamganj.

The secretary of the Ministry of Energy and Mineral Resources filed the case on behalf of the government and Bangladesh Oil, Gas and Mineral Corporation (Petrobangla).

The defendants are Qasim Sharif, president of Niko Resources Bangladesh Ltd, Brian J Adolph, vice-president and country manager of Niko, Peter Mercier, vice-president (Bangladesh Operation) of GSM Inc–a worldwide company represented by its President Robert D Grace–and GSM Drilling Manager George M Lattimore.

After the hearing, Judge Abu Mohammad Aminul Ehsan (Central Filing) of Joint District Judge’s Court, Dhaka fixed July 31 for the next hearing on the suit and directed the authorities concerned to serve summons upon the defendants to appear before the court on the scheduled date.

In the case, the energy secretary said under Article 143 of the constitution, the government is the owner of natural resources including gas that was destroyed and damaged by Niko’s gross negligence and lack of skills and efficiency.

Niko entered into a joint venture agreement with Bapex on October 16, 2003 for development and production of petroleum from Chhatak and Feni gas fields. Niko started drilling the Chhatak-2 well on December 31, 2004 with the plan to drill three development wells in Chhatak West and one exploratory well in Chhatak East.

Niko drilled the first well Chhatak-2 without the approval of the Joint Management Committee under the agreement, the secretary noted. But this well met with the first blowout on January 7, 2005 in Tengratilla of Doarabazar of Sunamganj. This prompted the energy ministry to form an enquiry committee to determine the cause of fire and damage caused by the blowout.

In the enquiry, the committee found that the blowout had resulted from operational failure and inappropriate casing design and it held Niko responsible for the blowout.

“Niko took up a programme for drilling a relief well to contain the blowout in Chhatak-2,” the secretary stated. On May 30, 2005, Niko started drilling a relief well about 91 metres west of the blown out well. While the drilling was in progress, another blowout occurred on June 24, 2005.

“Niko did not have experience of its own in respect of designing and implementing relief well and Niko engaged GSM Inc to design and supervise the relief well operation,” the secretary pointed out, adding that the GSM then provided consultancy, relief well design, plans and drilling procedures which Niko approved before implementing.

“Mr Brian J Adolph, Country Manager of Niko having BSC Engg (Civil), held the management positions but he had no experience in the above field,” he stated, adding that GSM Well Control Specialist Robert D Grace had experience in blowout control but no experience in drilling relief well in shallow gas sand like that of Tengratilla.

GSM Drilling Manager George M Lattimore had no experience as a drilling manager while the drilling supervisor of Niko and GSM also had no experience in their respective fields.

The second blowout took place due to their lack of experience. So, the responsibility goes to Niko, said the energy secretary.

Article 3 of the Niko-Bapex agreement says the development and production of petroleum from the marginal gas fields at Chhatak and Feni is at the sole risk, responsibility and expense of Niko which is the exclusive operator of these fields. Under article 27.2 of the agreement, Niko is obliged to conduct all operations in a “diligent, conscientious and workmanlike manner and bear responsibility in accordance with the laws applicable for any loss or damage to third parties caused by the wrongful or negligent acts or omissions of the Operator”.

The secretary added that the enquiry committee found that the Chhatak-2 blowout took place due to the well’s becoming “under-balanced by swabbing during first wiper trip in open whole section. The well Chhatak 2 did not encounter unexpected gas pressure while drilling down to 807 metres.”

The committee also observed that Niko’s well casing was the result of both technical lapses and gross negligence. The technical drilling personnel were reasonably experienced but not all of them could communicate in English.

The enquiry committee observed that the volume of gas actually lost due to the blowout can somewhat be estimated according to Niko’s log report. The initial gas loss was in the range was 100 million cubic feet. This figure could be even higher. The gas loss in the first seven days could be around 500 mmcf. By the time a relief well was being drilled, the Chhatak field might have lost roughly about 1 billion cubic feet of gas.

The secretary added that the committee submitted its report on the first blowout on February 7, 2005, blaming Niko’s operation failure and inappropriate casing design for the blowout and accused Niko of gross negligence. The payment of compensation relating to the loss of recoverable gas reserve and the damage to property and environment becomes the responsibility of Niko. But unfortunately the defendants have shown unwillingness and non-cooperation in all cases, which have compelled the government to take shelter of the court.

The secretary then referred to a third committee that also observed and assessed the damage caused to the environment by the first blowout. That committee held meetings participated by representatives of Niko and Bapex, Dr Ainun Nishat, Dr Atique Rahman and Md Reazuddin and several officials of different government agencies. This committee put the figure of environmental damage at Tk 35.44 crore.

After the second blowout another committee assessed a fresh environmental damage at Tk 84.55 crore. This committee submitted its report on September 14, 2005. Another committee headed by Buet Professor M Tamim was assigned to assess the gas loss.

On December 6, 2005, the government formally demanded from Niko the payment of compensation for the damage either by amicable settlement or by way of arbitration. But Niko resorted to dilatory tactics to avoid its responsibility.

When Petrobangla served legal notices on May 27 this year, asking Niko to settle the matter out of court, Niko remained silent and demonstrated unwillingness to settle the matter.

The government then submitted a schedule of claim. Schedule-A demands Tk 36.85 crore worth of gas of 3 billion cubic feet. Schedule-B demands Tk 72.35 crore worth of 5.89 billion cubic feet gas burnt at sub-surface. Schedule-C claims additional sub-surface loss of Tk 552.75 crore worth of 45 billion cubic feet gas and Schedule-D adds environmental loss worth of Tk 84.55 crore.

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