Cairn Energy has entered into a non-legally binding Letter of Intent (LOI) with Shell to acquire all of the upstream assets and undertakings of Shell in Bangladesh, including its interest in the Sangu gas field.
The LOI provides for Cairn and Shell to enter into a sale and purchase agreement in which Cairn would acquire a 37.5% operated interest in the Sangu Development Area (SDA), and a 45% operated interest in Exploration Blocks 5 and 10 in Bangladesh.
Cairn said it will pay $50 million in cash for the assets, plus a 24 cents per mscf (thousand standard cubic feet of gas) ‘overriding’ royalty on entitlement gas production relating to both fields.
Cairn also stated that it would retain the right to cancel the royalty obligation by paying Shell $10 million, inflated at 10 pct per year from the closing date.
‘Concluding this agreement with Cairn, our existing partner in Bangladesh, will not only fit within the overall strategic development of Shell’s global portfolio, it will also provide the best guarantee that after our departure the business will continue to be run to proper environmental, social and operational standards, in the best interests of Bangladesh and its people,’ said Dominic Gardy of Shell.
The proposed acquisition is subject to the formulation of an acceptable sale and purchase agreement between Cairn Energy and Shell, shareholder approval and the consent of the government of Bangladesh.