The Cabinet Committee on Economic Affairs (CCEA) would soon decide on a policy proposed by the petroleum ministry for testing requirement of oil and gas finds. This would lead to monetisation of nearly 14 discoveries with natural gas reserves of about 3.6 trillion cubic feet (tcf).
Since two explorers — ONGC and Reliance Industries (RIL) — have been at odds with the Directorate General of Hydrocarbons (DGH) over conducting drill stem test (DST) at their hydrocarbon finds in the KG basin, oil minister Dharmendra Pradhan plans to find a long-term solution to the issue by policy reforms.
The ministry has proposed two options: First, allow extra time to conduct DST but the extra cost incurred would not be allowed to be recovered; second, ‘ring fence’, wherein an explorer is sure of hydrocarbon finds without conducting DST, it can go ahead but any future obligations will have to be borne by it, officials told FE. The nodal petroleum ministry has already received the inter-ministerial comments and the proposal would be sent to Cabinet Secretariat soon to be sent to CCEA.
The DGH had turned down three out of 14 discoveries submitted by ONGC in its KG basin blocks — KG-DWN-98/2 and G4 — because the PSU explorer did not conduct the DST.
Mukesh Ambani promoted RIL, too, faced the same problem when three gas discoveries (D29, D30 and D31) in its KG-D6 block were not given a go-ahead by DGH for lack of DST.
It is believed the previous director general at DGH, RN Choubey, followed the production-sharing contract (PSC) and said that flow of hydrocarbon to surface is mandatory to recognise a discovery. This means DST needs to be done. Now, the government cannot make a reverse decision without a nod from the Union Cabinet.
PSU explorer ONGC argued with the government that the guidelines issued by DGH in 2007 do not make it mandatory to conduct DST for smaller discoveries. Out of the three discoveries not recognised by the regulator, one is at a depth of 3,000 metres, while other two are smaller finds. Moreover, to conduct DST, a deep-water rig needs to be hired for at least 20-25 days. Each day, the rent for a deep-water rig is almost $1 million. Non-recognition of three discoveries may mean ONGC not able to monetise about 1.5 TCF of gas.
The Parliamentary Standing Committee on petroleum and natural gas in its report has expressed serious concerns that exploratory activities are not taking off due to lack of clearances and disputes in interpretion of contracts.
The panel has recommended that the ministry should finalise the contractual regime where there should be provisions for de-allocation of blocks in case of inordinate delay beyond stipulated time frame in carrying out the exploratory programme.
