Singapore (Platts)--14Nov2012/241 am EST/741 GMT

Australian oil and gas upstream company Santos has withdrawn a 90-day notice it served state-owned Petrobangla over winding up Bangladesh operations from late December 2012, Petrobangla Director Muhammad Imaduddin said Wednesday.

"Santos has withdrawn the notice it served on September 24, and decided to continue operating the Sangu-11 well offshore Bangladesh as long as it is commercially viable," he said in an interview.

He said Santos had sent a letter to Petrobangla last week withdrawing its September notice.

The Australian company did not mention how long the shallow water Sangu gas field would be commercially viable.

The Sangu-11 gas well, Bangladesh's sole offshore gas producer, is now supplying around 23,000 Mcf/d of gas. Santos operates the well.

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It would be economically unviable for Santos continue operations at the well once production drops to 15,000 Mcf/d or lower, a Santos official has said previously. The well is expected to be fully depleted within the next two years as its output declines.

Santos brought the Sangu-11 well online in June after it was allowed to bypass Petrobangla and sell the gas directly to Bangladesh Power Development Board at a market price of $4.50/Mcf, 55% higher than the fixed gas price for sale to Petrobangla.

KUTUBDIA FIELD AN ISSUE

Sangu-11's gas production capacity has already dropped 13.33% to 26,000 Mcf/d since the start of production on June 17.

In its September notice, Santos had asked Petrobangla to take over operation of the offshore Sangu platform, processing plant and pipelines -- valued at an estimated $500 million -- within the 90 days notice period.

Santos and its predecessors Cairn Energy and Royal Dutch Shell have made total investments of over $1 billion in oil and gas exploration programs in Block 16, where the Sangu-11 well is located, from the mid-1990s util now.

Santos had previously indicated a lack of enthusiasm in continuing to operate in Bangladesh given Petrobangla's refusing to award it exploration rights to the offshore Kutubdia gas field.

Santos in November 2010 acquired rights to the Kutubdia field when it took over Cairn Energy's interests in Bangladesh. The Australian company was seeking at developing Kutubdia along with the nearby offshore Magnama structure in Block 16 -- where the Sangu-11 well is located -- in 2013.

But Santos last year relinquished its rights to the field as it deemed the production sharing contract terms not viable.

Santos again sought the rights to develop the Kutubdia gas field in September, but Petrobangla has instead chosen to offer Kutubdia in the upcoming upstream bidding round, now slated for November.

Kutubdia was discovered in 1977 and has recoverable gas reserves of around 45.5 Bcf, according to a Petrobangla estimate that dates to 1985.

--Mohammad Azizur Rahman, newsdesk@platts.com --Edited by Robert DiNardo, robert_dinardo@platts.comrobert_dinardo@platts.com

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