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* Firms to initially invest $15 mln, rising to up to $32 mln
* Bangladesh faces a shortfall in gas supplies
* Dependent on onshore production since October
By Serajul Quadir
DHAKA, March 12 (Reuters) - Australian oil and gas company Santos and Singapore-based Kris Energy signed a production-sharing contract (PSC) on Wednesday to explore oil and gas in Bangladeshi waters.
State-run Bangladesh Oil, Gas and Mineral Corporation, known as Petrobangla, awarded shallow water blocks SS-11 in the Bay of Bengal to the two foreign energy firms.
Santos, which in October shut down operation of Bangladesh's only offshore gas field, saying it was not commercially viable, will be the operator of the new project and Kris Energy will join as a co-partner.
"It (gas exploration) is a continuous process to make Bangladesh a middle-income country by 2021 and also to become a developed country by 2041," Finance Minister Abul Maal Abdul Muhith told reporters at the signing ceremony.
Bangladesh had raised its natural gas production by 33 percent over the past few years to around 2,300 million cubic feet (mmcf) per day to meet demand which is rising by up to 10 percent a year, he said.
Bangladesh currently faces a daily shortfall in gas supplies of 500 million cubic feet (mmcf) on demand of more than 2,700 mmcf per day.
"Our national economy is propelled by natural gas and the PSC will be able to cater to the rising demand," he said.
Under the PSC, the firms will initially spend $15 million which will rise to up to $32 million, a senior energy official told Reuters.
The firms will also conduct an in-depth seismological survey of the block during a five-year initial exploration period which will be followed by a three-year exploration period, according to a document distributed to reporters during the signing event.
The contractors will be allowed to operate and sell oil and gas for 20 years from an oil field and for 25 years from a gas field.
They must offer to sell the gas first to Petrobangla but will be able to sell it on the Bangladesh market if Petrobangla does not buy it, according to the document.
Since Santos shut the Sangu offshore field permanently in October, Bangladesh has been dependent on onshore fields for natural gas output.
Last year Kris Energy bought some of Tullow Oil's Bangladesh oil fields. (Reporting By Serajul Quadir; Editing by Susan Fenton)