Four oil companies walk out, give up 7-times Reliance Industries' KG area

Siddhartha P Saikia Posted online: Tuesday, Apr 29, 2014 at 0000 hrs
New Delhi : ENI of Italy joins other global majors like BHP Billiton, Santos and BP in giving up nearly 57,000 sq km of oil/gas blocks in areas from Mumbai offshore to the KG Basin. In terms of size, this is close to 50 times the KG-D6 fields that Reliance Industries currently holds and seven times the initial area RIL had in the KG Basin.

Failure to develop the fields would invite penalties under Indian law, but sources said the petroleum ministry might give these energy giants a waiver from fines amounting to a few million dollars.

The leniency, sources said, is in view of the fact that these companies, which won these unexplored fields by taking part in auction, share little blame for their failure to perform the minimum exploration work committed in these fields — holding up of clearances at various levels and bureaucratic delays did them in. The ministry wants to ensure that the global majors refrain from taking legal recourse and stay put in India’s already battered oil and gas sector, the source added.

Upstream oil regulator Directorate General of Hydrocarbons (DGH) is learnt to have advised the ministry against invoking the penalty clause for unfinished work.

The area that the companies want to relinquish is spread across 13 blocks.

Under the production-sharing contract, the explorer is required to complete the minimum work programme before relinquishing the acreage. Else, unfinished work attracts penalties and bank guarantees are forfeited.

As for the individual blocks, Italy’s Eni bagged AN-DWN-2003/2 located west of the Andaman Islands in the fifth round of auction under New Exploration Licensing Policy (NELP) regime. The explorer holds 40% of the asset and with its partners ONGC and GAIL signed the production-sharing contract on December 5, 2005.

In October 2010, Eni sought permission from the department of space (DoS) for drilling the first exploratory well.

As per the minimum work programme, seven wells were to be drilled in three years, but that was not to be as the DoS clearance was denied on November 26, 2010. On February 23, 2012, the petroleum ministry informed ENI that the DoS had granted the clearance subject to certain condition. To this, ENI told the nodal ministry on March 5, 2012, that it can go ahead only after it receives a written confirmation saying unrestricted and safe access to the contract area is being provided. On October 25, 2013, the DoS gave its no-objection letter. Following this the petroleum ministry asked the explorer to initiate exploration activities in the block. Then on November 1, 2013, the DoS came up with a ‘range clearance memorandum’ that classifies the block as a ‘danger zone’, which once again prevented the companies from going ahead. On December 23, 2013, petroleum ministry wrote to the DoS to re-examine the matter, but the latter has not responded. Frustrated over the confusion over gaining the requisite clearance, ENI on February 4, 2014, told the petroleum ministry that it wanted to surrender the block.

“The basis on which the PSC was entered into no longer survives and performance thereof has become impracticable and useless, having regard to the object and purpose the parties had at the time of its execution. Clearly, therefore, the PSC stands frustrated and we hereby notify the government of our decision to commence exiting the block,” ENI told government.

Similar wrangling forced the other players also to give up the blocks they had bagged under auction.

The 13 oil and gas blocks are located in Mumbai offshore, northeast coast, Andaman and KG Basin.