On better prospects, oil firms want longer leases

Written by Pranav Nambiar | New Delhi | Updated: Oct 26 2013, 15:59pm hrs
Oil and gas producers worried about the prospect of their lease agreements expiring prematurely have lined up before a government committee, seeking an extension of the lease period. In all, 12 oil and gas fields whose production sharing contracts (PSCs) are set to expire between 2019 and 2025 including Cairn India's prolific Barmer fields in Rajasthan and the Panna Mukta Tapti (PMT) fields held by ONGC, BG and Reliance Industries need extension.

What's prompted these firms to seek longer tenures for these PSCs is a flurry of new finds in these fields five by state-run ONGC, two by the RIL-BP combine and one by Cairn, which it recently said would go commercial soon.

Cairn India, which recently got the its integrated block development plan (IBDP) for the Barmer field approved by the government, wants the relevant PSC to be extended by 10 years to 2030. The PMT fields' lease periods are valid until 2021, and the developers want these to be extended too.

All these are pre-NELP blocks where the PSCs comprised both exploration and production phases and have a tenure of 25 years. Halfway through the PSC, the companies realised that in order to fully tap the resources, they would need the PSCs to be extended.

The panel led by the oil ministry has representatives from the law ministry, Directorate General of Hydrocarbons and the Planning Commission, said sources.

During the first quarter of this financial year, Panna-Mukta produced 1.8 million barrels of crude oil and 16.9 billion cubic feet (bcf) of natural gas, a drop of 19% in oil and 5% in natural gas production. Tapti produced 7.8 bcf of natural gas during the first quarter, a fall of 43%.

All the blocks that have come up for renewal are pre-NELP blocks where 25-year PSCs for exploration, development and production were handed out to operators. The NELP blocks in the country have a poor track record so far with only three out of 254 blocks allotted to exploration companies seeing any form of production.

Also, in the case of NELP blocks the exploration and mining phases are clearly delineated.

Cairn India CEO P Elango, in an analysts' called held on Tuesday, said that as commercial gas sales from the Barmer block started in March 2013, the company is eligible for a 10-year extension in lease period. Moreover, globally extension of lease agreements is a well-established norm.

Cairn plans to invest about Rs 5,000 crore in its Barmer block over the next three years as part of its IBDP , approved recently. It hopes to ramp up oil production from the block to 500,000 barrels of oil per day (bopd) from the existing production of 200,000 bopd by the end of 2013-14.

Another medium-sized block in which the operator is seeking a PSC extension includes a field in Ravva where the lease runs out in 2019. The Ravva block has produced more than 257 million barrels of crude and sold 324 bcf of gas, more than double its initial estimates. It has the remaining gross proved and probable reserves and resources of 50 million barrels of oil equivalent as on March 31, 2013.

The smaller fields that for which operators are seeking extensions includes HOEC's Asjol field expiring on 2021, Oilex's Cambay field expiring in 2020 and Niko's Hazira field, which has a 2019 due date.