A host of existing oil producers, including the state-owned ONGC, have sought extensions of their existing leases so as to make their current investment plans viable. A formal request has been made by the Association of Oil and Gas Operators (AOGO) to the oil ministry, saying the extension of the production-sharing contract (PSC) is a global practice and that this is usually done till the end of the economic life of the reservoir.
An inter-ministerial committee under the oil ministry has been set up to examine the issue. The finance and law ministries are part of the committee.
Some of the companies requesting an extension of PSC in India include Cairn India, which has sought a 10-year extension of its lease at Rajasthan, Barmer, that ends in 2020, and also the Ravva block where the PSC expires in 2019.
In the case of Cairn, after it invests $3 billion in its Rajasthan field, the company hopes to be able to recover 1.5 billion barrels of oil. Right now, of the 7.3 billion barrels of oil in place, the company estimates it can recover 1 billion barrels. As per the plan, if the company is able to raise production from 1.75 lakh barrels per day (bpd) today to 3 lakh, this means the company can recover 100 million barrels a year. In other words, to recover the 1.5 billion barrels it potentially can ? it has recovered 100 million barrels already ? it needs another 14 years. Currently, its lease expires in 2020. So, if Cairn is to invest $3 billion, it will do so only if it gets an extension of its lease.
Apart from Cairn, the British Gas, ONGC and Reliance Industries joint venture at the Panna-Mukta and Tapti (PMT) fields, has also sought an extension of PSC which expires in 2019.
Also, JTI has sought a 10-year extension of its 18-year-old Dholka and Wavel (Gujarat) oilfield lease beyond 2013.
Other blocks lined up for PSC extensions include a block at Kharsang in Arunachal Pradesh held by a consortium comprising GeoEnpro Petroleum, Jubilant Enpro, Geopetrol International and Oil India, a block in Asjol,Gujarat held by HOEC and GSPC, a block in Hazira,Gujarat, held by Niko and GSPC as well as Cambay block in Gujarat held by Oilex and GSPC.
AOGO, in a letter to the oil ministry dated June 28, 2013, said: ?As a global practice, extensions of contracts are typically granted for varying periods of time up to 25 years and certain conditions are attached to these contracts. However, in most cases, these conditions do not amount to a significant contract renegotiation.?
The letter notes that countries like Denmark, Egypt and Indonesia allow for PSC extensions of greater than 10 years. Others like Turkmenistan and Azerbaijan offer up to 10-year extensions, while Philippines and Poland offer up to 5-year extensions.
An oil ministry official said that in India, blocks are generally leased out to companies for 15-25 years. ?Companies say that this time frame is too short for them, as in many cases, commercial production of the block would extend beyond 25 years.?
Oil exploration companies say that future investments are planned based on the remaining economic life of the field. An official from an exploration company said that of the 287 blocks awarded in the NELP rounds, only 32 have led to discoveries. ?The low success rate means that we have to push on fields that hold promise,? the official said.
In Panna-Mukta & Tapti (PMT), in order to sustain production which is currently under declining trend, a few projects such as infill wells, well intervention activities, Tapti gas compression modification and Panna well-head gas lift facilities have been identified for the current and future years.
The Panna Mukta fields produced 8.2 million barrels of crude oil and 71.3 BCF of natural gas in FY 2012-13, reduction of 19% in case of crude oil & maintained production in case of natural gas on basis. The decrease in oil production was due to natural decline, deferment of Panna-L wells and lower-than-expected oil gains from well interventions. Tapti produced 0.54 million barrels of condensate and 43.9 BCF of natural gas in FY 2012-13, a decline of 40% and 41% respectively on Y-o-Y basis. The decrease was due to a natural decline in reserves and under-performance of a few wells.
The AOGO letter also pointed that globally, the terms of agreement are a negotiated agreement with the existing contract as a starting point, which is then adapted based on the resources, price environment and certain pragmatic clauses that maximise reservoir recovery. The industry body also said that greater clarity is needed on abandonment provisions due to a late field life recovery. For instance, in the UK, a mature oil and gas province, older fields get a 75% tax relief against abandonment spending, the letter adds.
