1. Column: Rethink the drill on drilling

Column: Rethink the drill on drilling

Government has to make sustained and vigorous efforts to re-establish its credentials as a dependable partner

By: | Updated: October 24, 2015 1:29 AM
oil drilling

We have to make more assets available for auction and make India attractive for private sector participation so that the oil and gas industry is able to meet the Amrut Parv goals announced by Prime Minister Narendra Modi.

We have to make more assets available for auction and make India attractive for private sector participation so that the oil and gas industry is able to meet the Amrut Parv goals announced by Prime Minister Narendra Modi.

New assets that can produce the first barrel of oil by 2022 are the ones that will be auctioned in time to complete the intermediate processes of exploration and development, as identified in an earlier column (goo.gl/FRWhcb). To maximise the size of pie, we need to shorten various processes resulting in longer time available for auctions, and maximise the number of blocks auctioned to the largest number of participants to create intense parallel activity.

The current hurdles for new block auctions are inadequate seismic data, lack of NDR, no open acreage, the lengthy interregnum between NIO and start of physical activity, and no stakeholder consensus on the fiscal model and contract terms.

The target of completing all-basin reconnaissance seismic by 2019 is clearly too late to bring additional acreages (other than where data exists today) online. Looking at the progress at the moment, the oil and gas industry suspects that even the 2019 deadline for completion of reconnaissance may be missed. We need to ask what shall it take to squeeze the timeline to two years from today? At a time when the global service industry is frantic for more work and is quoting very competitive rates, and OIDB funds are not even released to it for lack of adequate use, a three-year acceleration will at least double the acreage in contention. The early monetisation of discoveries shall more than pay for additional costs, if any, but even if that were not to happen, it shall at least be a sincere effort to meet the target set by the Prime Minister.

Industry has been backing Open Acreage Licensing Policy (OALP) since 2004, and a 2008 AOGO position paper suggests how to start it even before NDR is populated. Can there be a greater incentive than the Amrut Parv targets to launch it immediately? This again has the potential of specialist participations round the year, substantially increasing the acreages under drilling, while simultaneously improving data availability and quality.

A new fiscal model and contract terms have been hinted at for a number of years. The last draft in public domain was a non-starter. The final form is yet to be seen by the key stakeholders—the operators—who will either embrace it enthusiastically or cold-shoulder it. The time to discuss or take a unilateral call is right now. The pros and cons are already well known.

These actions can trigger the actual activity that sells the idea of “Drill in India”. Any new participant in the oilfield auctions looks at the likely risk (geological, regulatory, contract sanctity, country) and rewards (fiscal terms, time consumed in monetising, exit terms).

With regards to timeline and regulatory issues, India ranks 87th in the countries having upstream activity—a clear Class 4(D) country (Latest IHS ranking). This is not a winning platform. Let’s look at a few obvious actions the government can take.

Obtaining on-land PEL and environment clearance are the first roadblocks for the start of physical activity. Pre-identification of eco-sensitive areas and large area EIA has already been suggested by industry. It has been rated by experts as doable. Using standard conditions for different categories of areas has been requested by industry since 2007. Creating an SPV that obtains PEL and environment/forest clearances, etc, before the auction shall then reduce the time consumed for these activities from two years to, at most, a few weeks. In effect, it shall increase the time available for the government to auction additional assets by two years.

While India has reduced the time gap between bid and contract-signing, occasional delays still mar the planning. The exploration divisions of companies can end up losing an entire exploration year by missing their internal budget allocation deadlines. A simple inclusion of expected date of contract award and signing can help the process substantially.

For many years, industry has been suggesting a reclassification of blocks as per the degree of challenge and tweaking the BEC (bid evaluation conditions), pre-qualification criterion, timelines and reward system accordingly. This will bring larger participation in challenging acreages, likely to be the dominating category for new exploration. Incidentally, deep water is not the only challenging acreage we have. The Northeast—our oldest hydrocarbon province—is highly underexplored because of its unique challenges.

As the new data is acquired and existing data better studied, it often turns out that a changed work programme is more efficient. The current procedures make the bid minimum work programme ironclad. Operators are sometimes forced to carry out activities when both they and the DGH know well that these add little, if at all anything, to finding hydrocarbons. Swapping of work programmes, both within the block by using work units as well as extraneously by using the Good Standing Agreement are devices to facilitate such changes. These make the money and effort spent go the distance, and at least add to country’s knowledge base, if not actually find oil. Such mechanism can also change the penalty calculations, which if still required can become a painless affair, unlike at present. Australia, Mexico and even Pakistan have been using models based on these ideas, and industry has long been fully supportive of the same.

Contract sanctity is not a term that requires elaboration. Suffice it to say that, without it, no contract is worth the paper it is written upon. Our actions in the past few years have raised substantial doubts regarding “interpretation for convenience” by India. The government has to make sustained and vigorous efforts to re-establish its credentials as a dependable partner.

The ultimate arbiter in upstream is a drilled well. In India, the number of wells per square km of basin area is poor. This is unsatisfactory for an energy-deficit country, whose geology has many unknowns. Drilling many more wells and more intense exploration activity are keys to whether or not we will succeed in our mission 2022, and sustain it for long-term energy security.

For the government, the “mantra” will have to be:

* Clarity and consistency of objectives that govern decision-making;

* Establishing distance between contract administration, facilitation, regulation, and policy-making—all of which are distinct responsibilities;

* Effective monitoring through an easy index—the number of wells drilled.

No company whose shareholders demand performance and efficiency can drill a frivolous well. Just monitoring the number of wells drilled and making authorities in MoPNG/DGH responsible for facilitating the achievement of these targets leading to a number as set in Mission Amrut Parv targets can tell at a glance whether we are serious in implementing vision 2022. This is perhaps where even the PMO, through tweaking the RFD (Result Framework Document for Petroleum Ministry), has a role to play.

The author is secretary general, AOGO. Views are personal

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