BackTheft charge, lawsuit kill ONGC-RIL infra-sharing deal
Move will lead to loss of potential revenue for RIL, higher capex for ONGC as it has to build its own infrastructure
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Oil and Natural Gas Corp. Ltd (ONGC) has quietly junked an agreement to use the existing infrastructure of Reliance Industries Ltd (RIL) in the Krishna-Godavari basin in its own neighbouring field after ties between the two companies turned sour.
The move will lead to higher capital expenditure for ONGC, which will have to set up its own infrastructure from scratch, and potential loss of revenue for RIL, which could have let out its idle equipment to ONGC for a fee.
The two firms had agreed to share RIL’s infrastructure in July 2013. However, ONGC, which controls the D5 block—right next to RIL’s flagging D6 block— has made no mention of plans to use RIL’s infrastructure in its field development plan currently in the final stages of preparation, two ONGC executives said on condition of anonymity. ONGC has no intention to use RIL’s infrastructure, they said.
The field development plan details how a field will be brought to production, with information of the funds required, infrastructure to be used and time taken to bring a field into production.
What changed in between was ONGC’s allegation in August 2013, followed by a lawsuit filed in May 2014, that RIL was pilfering gas from its field. RIL then hit back. “We deny the claim of apparent ‘theft’ of gas from (ONGC’s) G4 and KG-DWN-98/2 Block by RIL and can only attribute it to the likelihood of some elements in ONGC misleading the new chairman and managing director, D.K. Sarraf, in order to hide their own failure to develop discoveries made over the last 13 years in these blocks," RIL said in a statement in May 2014 after ONGC had filed the lawsuit. However, in a fresh hearing on Wednesday, ONGC told the Delhi high court that it would not withdraw the petition of alleged gas theft by RIL. The next hearing is scheduled on 10 September.
Emails sent to both ONGC and RIL on Monday remained unanswered as of press time on Thursday.
A July 2013 memorandum of understanding (MoU) between ONGC and RIL had sought to work out “the modalities for sharing of infrastructure, identifying additional requirements as well as firming up the commercial terms". After signing the MoU, ONGC had said that the deal would minimize its initial capital expenditure and speed up field development, leading to early monetization of these deepwater fields. Sudhir Vasudeva, who headed ONGC then, had called it a “win-win situation" for the two firms and the country. One of the two ONGC executives cited above said the firm has decided against using RIL’s infrastructure because the two are locked in litigation.
Analysts termed the development a loss for both: While RIL could have monetized its idle infrastructure, ONGC could have made substantial cost savings.
“There are several instances of sharing infrastructure in hydrocarbon assets globally, including in India, such as in the North Tapti field where both ONGC and Cairn India Ltd are working together. This has helped in substantial cost savings for both companies," said an analyst with an international brokerage who did not wish to be named because of company policy. He said firms share infrastructure such as platforms, rigs, pipelines and processing terminals if two blocks lie next to each other.
“We are investing up to ₹ 40,000 crore in the D5 block and we have decided that the best way to go is to set up our own infrastructure and have control over our own assets," the second ONGC executive said, adding that the firm has learnt that the blocks are not close enough to share infrastructure.
ONGC and RIL have been locked in litigation since May 2014 on the former’s claim that RIL had pilfered gas from its blocks in the Krishna-Godavari basin. In a writ petition filed against RIL in the Delhi high court on 15 May 2014 ONGC had said, “...four wells have been drilled by respondent No. 3 (RIL) within distances ranging within 50m to about 350m from the blocks of petitioner (ONGC) and wells have been so drilled and constructed that there is a pre-planned and calculated slant/angular incline towards the gas reserves of petitioner with a clear idea to tap the same."
In its petition, ONGC also claimed that there could be a possibility of drawing almost “thousands of crore rupees worth of gas".
The arbitration notice came exactly a year after both ONGC and RIL had signed the MoU to share RIL’s existing under-utilized infrastructure in the basin.
An analyst with a domestic brokerage, who also did not want to be named, said RIL had set up its D6 infrastructure assuming a production of 80 million metric standard cubic metres per day (mmscmd) of natural gas. But currently, it is producing only 12 mmscmd. Consequently, much of its infrastructure is lying idle.
An executive from a private energy company said there are two potential spots for infrastructure sharing in India—the Krishna-Godavari basin and the Cambay basin in offshore Gujarat. He pointed to similar experiences in the Gulf of Mexico, where firms collaborate to save on costs, gain from mutual expertise and unlock marginal fields. “This practice is still not prevalent in India," he said, requesting anonymity.
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