RIL & Cairn to benefit as DGH role curtailed

Written by Pranav Nambiar | New Delhi | Updated: Sep 13 2013, 09:11am hrs
Oil companies, constrained by the practice of having to obtain regulatory consent for commerciality of their discoveries surrounding existing fields, have reason to rejoice. The oil ministry has said that operators can start production from all wells in an existing development area without a declaration of commerciality (DoC).

The decision could take the wind out of the Directorate General of Hydrocarbons (DGH) directive to Indias largest private-sector oil explorer Reliance Industries to relinquish three of its prized discoveries in the KG-D6 block and also benefit other players like Cairn India and public sector ONGC.

Currently, operators cannot begin production in new finds within a development area without seeking separate DoCs for each discovery. The new decision, analysts said, would sharply cut down the time lag between discovery and production.

The move comes close on the heels of the oil ministrys February decision to allow continuous exploration, which had obviated the need for separate approvals for different phases of production and exploration.

The oil ministrys latest move was prompted by Cairn Indias integrated block development plan (IBDP) proposal submitted to it to speed up the production of oil and gas. According to the IBDP, for pursuing further discoveries in development areas the process of DoC is redundant.

According to a DGH official, the logic of the move is that these new fields can be developed as combined or integrated units. So, even if individual wells might be unviable, when they are integrated they can become a viable cluster, the official said.

After the first commercially viable discovery is made in a field, geological studies will indicate the extent to which the oil and gas resources in the field is spread across. These boundaries determine the field development area.

Cairn India has forwarded to the government its plans to invest Rs 5,000 crore in the Barmer, Rajasthan oil fields in three years to 2016 under a new IBDP. Cairn CEO P Elango on April 12 wrote to the oil ministry seeking approval for an over-arching integrated block development plan to replace the current practice of government approving capital expenditure only for discoveries that are commerically viable for production.

Cairns proposal seeks to replace the current practice of the government approving capital spending only for discoveries proved to be commercially viable for production with an over-arching IBDP. It seeks blanket investment approvals for the entire acreage in an oil and gas field as opposed to giving approvals for investments only upon the establishment of a discovery as commercially viable. The company has, therefore, sought to do away with the system of seeking individual approvals for declaring a discovery as commercially viable, called declaration of commerciality.

This development comes on the heels of Reliance Industries (RIL) accusing the DGH of being whimsical in asking it to relinquish its eight prized discoveries in the KG D6 block. The company could have benefited from the oil ministrys latest directive as the company was not given a DoC on three fields at its KG D6 block as it failed to conduct the drill stem tests (DSTs) on them.

RIL has been asked to surrender three wells D20, D30 and 31 as DSTs on them were not undertaken. In the letter to Rae, RILs executive director PMS Prasad had contended that the DGH claims were based on flawed assumptions and interpretations of the PSC. As far as the three discoveries (D29, D30 and D31) are concerned, DGH officials say the company has violated article 1.38 of the PSC which defines discovery and insists that the DST is required.

Prasad, however, points that DGH has misinterpreted the PSC as it clearly lays down that DST is required only if contractor determines.

The company has also been asked to surrender five discoveries (D4, D7, D8, D16, D23) for which the DGH states that FDPs were not submitted in time.