FE Editorial : Explorations gas

Written by The Financial Express | Updated: Jul 18 2012, 05:44am hrs
Given the threat of a continuing fall in RILs gas production from the KG Basin fields, to a possible 20 mmscmd in 2015 as compared to the high of 56 mmscmd in 2011 and a projected 80 mmscmd at one point in time, its not surprising the petroleum ministry has said it will move quickly on the demands made by RIL and its partner BP when it met oil minister Jaipal Reddy and senior officials for over three hours last Friday. This includes more regular meetings of the Management Committees (MC) that control each exploration block, approval of RIL-BPs capex plans, approval of three discoveries, and more. After its fiasco in the D6 block where what RIL thought was a larger inter-connected field turned out to be unconnected gas-bearing wells, RIL wanted permission to dig one more exploratory well. But given RILs exploration phase is over, this needs special permission from the Directorate General of Hydrocarbons (DGH) and that has not been given so far.

The problem, however, is not restricted to RIL alone. As reported by this paper, Cairns request for approval of $1 billion of expenditure is pending even though it will end up giving the government $15 billion more (http://goo.gl/kI9bz); ONGC took more than two years to get permission to drill one more exploratory well in its KG Basin blockgiven the billions of dollars of expenditure on development, surely thats a reasonable precaution to take Nor, similarly, is it just RIL thats complaining of the government delaying things by not holding enough MC meetingsgiven the MC is essentially the board of the production block that controls every aspect of exploration and production, not holding MC meetings is tantamount to ensuring no exploration/production takes place. While news agency PTI says RILs request for convening MC meetings has not even been acknowledged on the past 6-7 occasions, there are several Cairn blocks where just 1 or 2 MC meetings are held in a year as compared to the obligatory 4. Given there are just a handful of operational production blocks right now, imagine how bad things will be if there are some large oil/gas finds.

One possible solution, that PMEAC chairman C Rangarajan is working on, is to shift to a revenue-share model instead of the current investment-multiple one where the government starts getting its revenue-share only after the operator is reimbursed for its exploration/development expenditurein this revenue-share model, the government is not concerned about the costs incurred by an operator and so gives permissions faster. This still doesnt deal with the needs of existing oil firms but, given many of the disputes are over the interpretation of dataRIL says theres gas in one area, the DGH feels the gas is elsewherewhy not have a panel of global experts to examine the data regularly One thing that needs to be kept in mind is that if RIL/Cairn/ONGC or anyone elses plans are not cleared, the biggest sufferer is the country.