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    Hydrocarbon Output: Proactively overhaul oversight and operations

    Synopsis

    There seems much dispute and protracted controversy in upstream hydrocarbon sector involving Indian sedimentary basins, i.e., exploration & production of crude oil and natural gas.

    ET Bureau
    By Jaideep Mishra

    There seems much dispute, countercontention and protracted controversy in the upstream hydrocarbon sector involving Indian sedimentary basins, i.e., exploration and production (E&P) of crude oil and natural gas.

    Last week, the report that the Supreme Court had withdrawn its order on the third arbitrator for the ongoing case involving production in the deeper offshore of the Krishna Godavari basin, did make it to the front pages.

    Now, E&P for oil and gas tends to be capital intensive, with high risks involved, both of a financial and technical nature. Also, much of our sedimentary basins remain largely unexplored. And to attract risk capital and expertise and boost investor confidence, the way ahead, it would appear, in mining and minerals, and especially in the upstream oil and gas segment, is the pressing need not just for more transparency and oversight but adoption of flexible methods and fit-for-purpose solutions in the field.

    Such practice codes should boost domestic output and reduce imports, and which, in turn, would have favourable macroeconomic implications right across the board. An expert committee on reducing import dependency in hydrocarbons, headed by Vijay Kelkar, has put in the public domain the first part of its report, with a second part in the pipeline.

    The Kelkar panel report, broadly, calls for a more predictable fiscal regime to incentivise much-needed investment in domestic fields, including the stepping up of tax incentives.

    In tandem, the Kelkar report has, rightly, recommended wideranging overhaul of the regulatory and oversight regime. The report has also suggested revamp of attendant infrastructure, for instance, fast-forwarding the setting up of a national repository for geoscientific data. And to do so, what’s outlined is the need for speculative surveys in the various prospective fields.

    Overall, what’s stressed is the need to purposefully adopt global best practices when it comes to accessibility and transfer of updated geophysical data on Indian basins.

    Further, what’s emphasised is that field operators and contractors adopt good international petroleum industry practices, and that the upstream regulatory body, the Directorate General of Hydrocarbons (DGH), ensure their adherence by roping in top talent, including from overseas. However, in parallel, the DGH can well be much more proactive and issue extensive operational norms, field manuals and codes of practice, as is the norm in the mature licensing regimes.

    Abroad, the guidelines are periodically revised and updated, to take into account new technological developments and innovation. The Commercial Code of Practice in the UK, for example, does specifically require that operators promote cooperative value generation, maximise use of standard-form agreements for subcontracts, and also adopt flexible field methods and fit-for-purpose solutions, both commercial and technical. But we seem to follow far more rigid and inflexible practices like minimum work programmes in the existing production-sharing contract (PSC) for oil and gas.

    The mavens note that the Indian norms do not quite allow swapping or curtailment of work programmes like drilling of wells, even when there is technical merit, following 3D seismic survey, for instance, in not going ahead with the committed investment, in the absence of hydrocarbon finds.

    Also, if the drilling work committed while bidding for the blocks is left unfinished, the contractor has to pay the cost of the unfinished work to the government. The PSC is not even clear whether after paying the fines for unfinished work, the contractor can proceed to the next phase. It has lead to avoidable disputes and arbitration.

    Additionally, in sharp contrast to the global best practices, instead of having extensive codes in place, the norm here is the management committee approach with government nominees, which can often mean micromanagement, delays and dispute.

    With the management committee required to pore over field budgets, procurement expenses, the accounting allocation of costs, etc, it often means long correspondence and administrative procedures between the government and the contractor, and other holdups. The next government clearly needs to overhaul contracts for oil and gas production.
    The Economic Times

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