Companies that are prospecting for oil and gas on blocks issued to them under the third and fourth rounds of the new exploration licensing policy (Nelp III and IV) will now be able to decide where they wish to deploy drilling rigs and how deep they wish to drill, maximizing their chances of discovery.
According to a person close to the development, this has been recommended by a high-powered committee attached to the ministry of petroleum and natural gas, which has also suggested that the drilling programmes of the two rounds be merged. This will work to the benefit of companies such as Reliance Industries Ltd, Essar Oil Ltd, BG Plc., Cairn Energy Ltd, GAIL (India) Ltd and Oil and Natural Gas Corp.
The committee’s recommendations now await the approval of minister for petroleum and natural gas Murli Deora, after which it will need to be approved by the cabinet committee on economic affairs, according to the person, who did not wish to be identified.
Currently, the government’s production-sharing contract signed with explorers provides little flexibility. Every change needs the approval of the Directorate General of Hydrocarbons (DGH), the regulator for the exploration business.
A shortage of drilling rigs has only made things worse for companies.
The government has issued licences for exploration in six phases thus far (Nelp I to VI), and will issue licences under the seventh soon.
While blocks belonging to Nelp I and II have been developed (or returned to the government), and those belonging to V and VI are still undergoing development, it is the 43 blocks covering close to 1.5 lakh sq. km given out in Nelp III and IV that are in focus—several firms that have licences will likely default on them unless there is a change in the conditions laid down by the government.
Under the production-sharing contract that firms sign with the government, they commit to drilling a certain number of wells and investing a specified amount. The number and depth of the wells, as well as the timeframe for drilling, are also specified.
If the government approves the changes, companies can drill fewer but deeper wells. The committee, said the person close to the development, is also in favour of extending the timeframe given to exploration firms.
However, he added that the committee has suggested that only those companies that have stuck traces of oil can avail of the proposed concessions. The committee has said that if a company does not strike oil within the revised timeframe, it will have to surrender up to 50% of the area awarded to it, he said.
“The move to allow companies to deploy resources wherever the chances of striking oil and gas are optimal can be seen as a precursor to major policy change,” said Yogesh Garg, an independent energy analyst and CEO of Infraline Energy, an energy consultancy firm. According to a former senior executive of DGH, who now works in the private sector and cited company policy that said he or his firm couldn’t be named, “This is a way out for the government which was stuck with many firms that have been doing no work on their blocks under various pretences. This will ensure that if you are not carrying out your drilling commitments, you will not get an extension and will have to pay the penalty or surrender the blocks.”
Until now, companies have reported five discoveries in three of the 43 blocks; two of these have been reported by RIL and one by Gujarat State Petroleum Corporation in the Krishna-Godavari basin, on India’s east coast.