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Controversy over pit oil in Barmer block-I: ONGC claims rights to it

July 23: A controversy has erupted between ONGC and Cairn over ownership of pit oil produced in the Barmer block.
As per a 2004 order of the petroleum ministry, the pit oil (also called test oil) -- which is produced during testing of exploratory and appraisal wells -- has to be handed over to the licensee, in this case, ONGC, by the operator, Cairn, without any charges. The disposal of such pit oil rests with the licensee and any statutory payments (royalty) are also to be born by the licensee.
Earlier, Cairn had handed over the pit oil produced during testing operations to ONGC for further disposal in line with the petroleum ministry's order. But after the company was allowed to further explore the field after the expiry of the development phase, the operator, in view of the changed circumstances, refused to hand over the pit oil to ONGC.
Cairn has now started collecting the pit oil separately, claiming that it is the "contractor's oil".
ONGC has informed the ministry that Cairn had collected around 10,000 barrels of pit oil till May 2014. With more exploratory wells coming up on testing, the pit oil quantity is likely to increase. As the pit oil has not been handed over to ONGC and also not been disposed, the royalty on it has not yet been paid by ONGC.
8In light of this, ONGC has requested the ministry to look into the matter and advise the operator to comply with the 2004 order.
 (Click on Details for more information)

Controversy over pit oil in Barmer block-II: Cairn says oil belongs to both parties

July 23: Cairn is not willing to hand over the pit oil produced in the Barmer block to ONGC arguing that the ministry's 2004 order is no longer relevant under the changed circumstances and hence cannot be followed at this time.
The operator feels that, at this time, the only way by which all the stakeholders can be benefited is by commingling the pit oil with the Rajasthan crude and selling it as one grade of crude. This will give enhanced profit petroleum to all the stakeholders, including the government. The PSC does not support a position wherein one party takes all revenue at the cost of rest of the parties, Cairn has argued.
Countering ONGC's argument that it was the ministry's directive that the pit oil should be handed over to the licensee, ONGC, Cairn is of the view that the communication of the ministry was in response to given facts and circumstances existing in 2004 and it was not a policy statement.
8In 2004 there was only a PEL in force and not a mining lease (ML) as it is at present. Today, there is a ML and there can be production and sale of oil whereas that was not the case when a PEL was in existence. Then again, in 2004, Cairn had an ongoing issue with regard to cess and royalty liabilities and hence there was a difficulty as to who will pay the statutory liabilities on test oil. As royalty and cess liabilities are no longer an issue now, the ONGC's argument does not hold any water in the present circumstances, the private refiner has argued.
 (Click on Details for more information)

HOEC in ministry cross hair-I: Bureaucrats miffed

July 23: The petroleum ministry does not take it lightly when an operator takes it to arbitration over issues connected with a Production Sharing Contract. In most instances, companies tend to stay away from an open confrontation with the government as operating an exploration block involves a huge amount of government involvement at every stage and an operator just cannot afford to be on the wrong side of the government.
8In this context, the petroleum ministry seems to be very miffed by the decision of Hindustan Oil Exploration Co. Ltd (HOEC) to haul the government to arbitration over payment of liquidated damages (LD) in the Cambay block CY-OSN-97/1.
8The fight is over payment of liquidated damges  Rs 4.76 crore as LD to secure an extension in the block, which has been relinquished now.
8HOEC is now claiming that the DGH did not take into account a force majeure notice and instead decided to impose liquidated damages on the company for its supposed inability to drill a well.
8On paper, the government has no other option but to go ahead and defend its case.
8Bureaucrats don`t like arbitration notices, for they involve a lot of, what they think is, unnecessary work.
8And more often than not arbitral awards go against the government and this reflects badly on the decision making process within the government.
8Most companies swallow their pride, shell out the money and carry on with business as usual.
8Some companies like HOEC do not do so.

HOEC in ministry cross hair-II: ONGC told to investigate capitulation to arbitration award in favour of HOEC

July 23: The petroleum ministry has now started a series of discreet investigations into blocks in which HOEC is involved.
Discreetly, the ministry has asked ONGC for an investigation into the payment of  Rs 2.58 crore to HOEC in Block GN-ON-90/3 following an award given by an arbitration tribunal.
The government wants to know why ONGC made the payment to HOEC without challenging the enforceability of the award in a court.
The block was awarded to a consortium of HOEC and Mafatlal Industries Limited (MIL) but work was stopped in May, 1995, because of what was dubbed as a force majeure situation due to the Naxalite problem in the area.
However, neither the DGH nor the petroleum ministry agreed with HOEC's contention of a force majeure condition, following which ONGC -- as the licensee of the block -- was allowed to encash the JV consortium's bank guarantee in August, 1999.
Eventually the arbitration tribunal upheld HOEC contention and ONGC was told to refund the bank guarantee.
ONGC now claims that an independent  legal opinion obtained by the E&P major had opined that the tribunal had clearly established that a a force majeure did exist and the tribunal's decision could not be successfully assailed, following which the encashed bank guarantee was returned.
8Upon the ministry's insistence, ONGC is now conducting an investigation on the circumstances under which the arbitration tribunal's award was complied with without seeking additional legal recourse.

HOEC in ministry cross hair-III: All blocks under investigation

July 23: The petroleum ministry is also carefully scrutinizing the audit exceptions in Block CB-OS-1 to find if there are any skeletons in the cupboard.
Here again, HOEC is one of the consortium partners in the block though ONGC is the operator.
The ministry has asked for a reply to several exceptions registered by the auditor in the operations of the block.
 The exceptions include the following:
 -- no  detailed data was provided on the expendture incurred in the block
 -- Procurement procedures as outlined in the PSC were not followed
 -- Actual expenditure is not in pursuance with work programme and budget approved
The replies sent in by the operator provided the necessary clarifications and no dirt was found under the carpet..
8Clearly however, the government seems to be scrutinizing all the blocks in which HOEC is involved with a really fine comb.

Importing LNG: Indian embassy brokers GAIL-Nigeria dialogue over reviving defunct LNG project

July 23: The Indian embassy in Nigeria is brokering a dialogue between GAIL and the African nation to funnel investments to revive the Olokola Liquefied Natural Gas (OKLNG) project.
8The Nigerian government has pumped in over $500 million in the 5.5 MMT per annum Olokola LNG project which has been in comatose since five years, with no significant work going on. The Federal Government, through the Nigerian National Petroleum Corporation (NNPC), has a substantial stake in the project.
8The OKLNG project was initiated in 2005, with NNPC as the major shareholder. But other shareholders including BG Group, Shell and Chevron have pulled out of the project.
Since then, Nigeria has intensified efforts to tie-up with long-term buyers of LNG.
8GAIL chairman has expressed his interest in the proposal floated by the Indian embassy.
8A bilateral meeting between GAIL and the Nigerian government is on the cards soon.
 (Click on Details for more information)

DSTs for D-29, D-30 and D-31 discoveries in D-6 block: RIL laments lack of clearance from ministry

July 23: RIL is not happy with the ministry's decision to not allow it to conduct the Drill Stem Test (DST) for each of the new discoveries -- D-29, D-30 and D-31 -- in its prolific block KG-D6, despite having a rig, along with associated services, in place.
The operator has argued that these discoveries being marginal can be developed viably only by integrating their development with that of the satellite discoveries. This would not only save time but greatly optimize the costs by utilizing the existing infrastructure.
If these discoveries are not developed using the existing facilities, they would become unviable on a stand-alone basis resulting in precious resources being possibly lost. Thus not allowing RIL to proceed with the development has far greater implications for positive production revenues for the government than carrying out of DSTs have for negative costs.
8In light of this, RIL has once again requested that a holistic assessment should be made of the full facts along with the benefits involved and a decision to allow it to conduct the DSTs be expedited accordingly. Timely government approval will enable optimization of costs and speedy development of these discoveries with other satellite discoveries for which the Field development Plan (FDP) has already been approved by the Management Committee.
 (Click on Details for more information)

Current status of Cabinet notes: Details

July 23: The website carries here, for reference purposes, the current status of Cabinet notes relating to the petroleum ministry. The Cabinet notes pertain to:
Implementation of national maritime domain awareness project for maritime and coastal security
8Revision of rates of royalty and dead rent in respect of major minerals
(other than coal, lignite and sand for stowing)
MoEF clearance for an OIL project in Assam
Uniform Licensing Policy
Amendment to Section 15(4) Rules under the OIDB Act
Measures for early monetization of reserves under the PSC regime
Modification of policy relating to exploration in Mining Lease areas
DST issues on D-29, D-30 and D-31 discoveries in the KG-D6 block
Signing of PSC for Ratna-R Series field
Exploration and exploitation of CBM from areas under coal mining lease allotted to Coal India Ltd (CIL) and other central or state coal mining PSUs.
Contribution by OIDB to energy insurance policy
Extension of PDS Kerosene and Domestic LPG Subsidy Scheme 2002 for a period of one year, that is, 2014-15
Under-recoveries of OMCs and their burden sharing formula
Acquisition of participating interest in Project Music in British Columbia, Canada, by IOC
 (Click on Details for more information)

Shallow water works under G-1 and GS-15 field development projects: Value of two contracts awarded to Leighton go up

July 23: The ONGC's Rs 3,437-crore integrated G-1 and GS-15 field development project in the KG offshore have been split into several smaller contracts for better execution.
Two such smaller contracts -- Contract-1 and Contract-2 -- relating to carrying out shallow water works under the project were awarded to Leighton Contractors India Pvt Ltd in November 2010.
While Contract-1 was for completing balance shallow water works -- which were left behind after the contract with Clough Clough Engineering Ltd CEL) of Australia was terminated by ONGC -- Contract-2 was awarded on a nomination basis for carrying out of additional works relating to transportation and installation of the GS15-1 deck so as to ensure start of production from the GS15-1 platform in 2011 as planned.
Leighton mobilized its barge for transportation of the GS-15-1 deck at the GPC Yard, Abu Dhabi, but the deck was not handed over in time due to various commercial reasons. Subsequently, after intervention of the senior management and signing of a MOU between ONGC and GPC, the deck was finally handed over to Leighton for transportation to the offshore site.
The deck was transported to the site for installation. However, during the offshore work, very heavy underwater currents were encountered resulting in a delay in the installation of the deck. Hook-up, testing and pre commissioning of the topside facilities was achieved on April 23, 2011.
As the contractor, Leighton, was not responsible for the delays due to the commercial issues arising between ONGC and GPC as well as for the extreme bad weather currents, ONGC has now decided to extend the completion date of both the contracts upto April 23, 2011, that is, the actual date of completion, on a post facto basis, without the levy of LD.
8Along with this, ONGC has also increased the value of the two contracts by Rs 24.96 crore.
 (Click on Details for more information)

Modi at work: Series of instructions given to ministries but nothing for petroleum

July 23: The Prime Minister Narendra Modi has given a series of instruction to various ministries and departments to set the ball rolling for action oriented work within a fixed time frame. But on the flip side, the instructions have got to do nothing with the petroleum sector, except for a brief on blending of ethanol with petrol. The PM has given the following instructions:
Cabinet Secretary has been asked to hold a meeting of the Ministry of Petroleum & Natural Gas and Department of Food & Public Distribution (DFPD) and other concerned to explore the possibility of blending of ethanol with petrol within a month.
In light of the fact that losses due to storage, transportation and damaged food grains are substantially high, the DFPD has been asked to identify measures within a time bound manner to bring it within permissible limits. Targets will be set to lessen wastage.
Action plan will be prepared up to the godown level so that accountability can be fixed in the event of losses on account of storage of food grains.
8DFPD should have real-time data on production of various food grains nationally and globally so that it can calibrate its actions in a more scientific manner.
8DFPD should take up the exercise of transforming the FCI limiting its role only to storage and movement of food grains. DFPD has been asked to come up with 4-5 models for unbundling of FCI in a time-bound manner. The different wings of the FCI should be specialized in their respective areas.
The Department of Consumer Affairs needs to collate good practices being followed in the implementation of Essential Commodities Act and Consumer Protection Act from the states within a month and replicate them elsewhere. The Department has been asked to bring a proposal for making necessary amendments to the Essential Commodities Act as per the recommendations of the Working Group on Consumer Affairs within a month.
In light of the fact that the canal distribution system is lacking even in 40-year old dam projects, the Ministry of Water Resources has been asked to prepare a prototype system which needs to be developed and replicated to address all these issues in two months` time.
8The Ministry of Water Resources has been asked to revisit various reports available on inter-linking of rivers including the Suresh Prabhu Committee. The ministry will thereafter set up an institutional framework in a period of three months to achieve the objective of inter-linking of rivers rather than making piecemeal efforts.
8The Ministry of Water Resources will compile and examine all the reports and the work done so far on the cleaning of the river Ganga. Based on these reports and experience, a complete action plan will be prepared in a time-bound manner preferably within a month. The ministry should ensure that the entire focus initially should be on cleanliness of river and there should not be any deviation from this objective.
 (Click here for more information)

Reduction in MWP in block AA-ONN-2004/2: DGH lobs ball to the ministry

July 23: The DGH has lobbed the ball to the ministry's court to take a decision on a reduction in the Minimum Work Program in the Assam based NELP-VI block AA-ONN-2004/2, on account of unavailability of environment clearance for a portion of the block.
8The regulator has stated that the PSC has no provision for reduction of MWP and financial commitment on account of reduction in area of the block due to MoD and other restrictions by the government and its departments.
8The DGH has recommended the relaxation in MWP, however, expressing its inability to take a decision due to statutory restrictions, and has asked the ministry to take a final decision on the matter.
8The Block AA-ONN-2004/2 constituting a PEL area of 218 was initially awarded to Oil India Ltd (OIL) and Suntera, with 90% and 10% participating interest each, and Suntera's 10% PI was subsequently transferred to OIL.
8Environment clearance was not available for parts of the block (A and B) which fall in the Brahmaputra River Bed (BRB), which has a separate PEL, and consequently OIL could not acquire seismic data in the BRB part of the block, which consists of 50% of the total block area (109
8These constraints resulted in non-availability of the required number of locations to fulfill the drilling commitment of four exploratory wells in Phase-I, leading to the operator asking for a relaxation in the unfinished MWP.

News Briefs-I

July 23: 8MEA looks to Pranab Mukherjee`s Vietnam visit in September to finalize oil and gas agreements with the country: The Ministry of External Affairs (MEA) looks forward to the visit of the President of India, Pranab Mukherjee`s visit to Vietnam in September, 2014 as an opportune time to finalize various oil and gas agreements with the country.
  --This is in continuation of the various discussions between ONGC Videsh Ltd. (OVL) and PetroVietnam.
  --Accordingly, the MEA has asked the petroleum ministry to provide them with the current update on confirmation of extension of contract for Block 128 by one year, and the status of discussions or decisions on new blocks being evaluated for acquisition of stakes.
8Forward movement in India US energy dialogue expected during Narendra Modi`s forthcoming visit to USA: Discussions related to India US energy dialogue are expected to be taken up during the forthcoming visit of the Prime Minister, Narendra Modi to USA.
  --In preparation for the discussions, the Planning Commission has sought input from the petroleum ministry in terms of the minutes of the working group meetings held earlier this year as well as a status note on the follow up under this dialogue made by the working groups, if any.

News Briefs-II

July 23: 8BCG hired for Rs.15.55 crore to setup Project Management Processes for ONGC: The global consultant Boston Consulting Group (BCG) has been hired for the development and implementation of stage-gate Project Management Processes (PMPs) in E&P projects of ONGC.
 --The company has sanctioned an expenditure of Rs.15.55 crore towards this project, subject to a completion schedule of 27 months from the date of approval.
 --BCG, Gurgaon won the contract from a total of 5 bidders, including Arthur D Little India Pvt. Ltd., Gurgaon, Booz and Company, Mumbai, Turner and Townsend Private Ltd., McKinsey and Co, Gurgaon and BCG.
8ONGC has revised the interest rate on all fresh advances in LSTK tenders to 12%: ONGC has revised the interest rate in respect of advances to be given in LSTK tenders for engineering services for contracts value of Rs. 50 crore and above to 12%.
 --This will be applicable to all fresh advances granted for all forthcoming tenders.

News Briefs-III

July 23: 8Myanmar invites global tender for Thanlyin refinery project: Myanma Petrochemical Enterprise, Ministry of Energy, Government of Myanmar, has invited tenders for upgradation of its Thanlyin Refinery Joint Venture Project.
 --The project, to be taken up as a joint venture and licensed under the country`s Foreign Investment Law, will also cover importation, distribution and storage of a wide range of petroleum products.
 --The last date for submission of tenders is October 13, 2014.
 --Currently, Myanmar has three refineries, the Thanlyin Oil Refinery in the Yangon region and Chauk Oil Refinery and Mann Thanpayarkan Oil Refineries in the Magway region. These refineries produced 51,000 barrels per day in the initial stage but now their yield has dropped to one-third of the previous output.
 --The Thanlyin Oil Refinery will be the first to be handed over to foreign companies, amid the government`s plans to privatize state-owned refineries, petroleum, methane and chemical fertilizer plants.
8SOP for commercial evaluation of DOCs, Development Plans and WP&Bs: The website carries here, for reference purposes, the standard operating procedure (SOP) suggested by the former DGH, RN Choubey, for commercial evaluation of Declaration of Commerciality (DOC), Development Plans and Annual Work Program & Budgets (WP&Bs):
 --The DOC and the FDP may be evaluated based on incremental revenue over incremental cost, ignoring the sunk cost because sunk costs of valid E&P activities are anyway recoverable under the PSC. Proposals yielding a positive NPV at 10% discounting factor is to be approved.
 --The price used for evaluation, in the case of crude oil, would be the average Brent crude oil price during the past one year because the government permits price parity with imported crude. For gas, the price would be the government-approved price for that block, if available. If such a price is not available for that block, or available only for a part of the period of projected production, then for such balance period (and for limited purpose of techno-economic evaluation), the gas price may be taken as one-sixth of the benchmark oil price which roughly represents the calorific equivalence between oil and gas.
 (Click on Details for more information)

News Briefs-IV

July 23: 8DGH asks Cairn Energy to justify their action of not inviting competitive bids in Block KG-ONN-2003/1: The DGH has asked Cairn Energy to justify their action of not inviting competitive bids in contracts related to Block KG-ONN-2003/1, as per audit objections raised.
 --The auditor has raised objections to Cairn Energy for not following bidding procedures -- for drill stem and surface well testing, and drilling waste disposal of 5 wells -- in Block KG-ONN-2003/1
 --DGH has also asked the operator to indicate the financial implications on account of this action.
8DGH asks ministry to take a call on need for additional bank guarantee for extension of exploration period in CB-OSN-2004/1: DGH has lobbed the ball to the ministry for a decision on the need for obtaining an additional bank guarantee for extension of exploration period in the  CB-OSN-2004/1 block.
 --The regulator has stated that the contractor has submitted the bank guarantee of 50% of the unfinished work program, amounting to $7.45 million.
 --Although the budgetary estimate amounts to $14.9 million, but the actual budget expenditure for the year 2014-15, during which the proposed extension falls, is well within the bank guarantee coverage of $7.45 million.
 --The DGH has asked the petroleum ministry to decide if additional BG is required to be submitted by the operator.

Nagaland hands out two permits under its own E&P policy: Centre in a tizzy

July 22: The Nagaland government's decision to grant permits to two E&P companies for exploration and development of oil and gas in the state has thrown the central government into a tizzy.
The state government had awarded the two blocks in February 2014, in line with its own Nagaland Petroleum and Natural Gas Regulation/Rules 2012.
The blocks were awarded after Nagaland, in December 2013, invited EOIs from companies for exploration, production, extraction, refining and bottling of petroleum and natural gas.
The central government all along has been maintaining that this move by the state government is in contravention to the Constitution of India, Article 246, Seventh Schedule - List-I and Entry 53.
The home ministry (MHA) has already stated that power to make laws in respect of subjects covered under List-I rests with the Parliament.
The earlier petroleum minister had requested the Chief Minister Nagaland to withdraw the notification issued arguing that the state assembly is not empowered to make law in respect of mineral oil which is specifically covered under Entry 53 of List-I.
A reference has also been received by the petroleum minister regarding the violation (award of the two blocks) by the state government from the Governor of Nagaland and also through the President's Office.
8The home ministry has pushed the ball to the petroleum ministry for necessary action but the latter seems to be at a loss on how to tackle the problem.
 (Click on Details for more information)

Modified policy for extension of PSCs for small, medium-sized and discovered fields: A report

July 22: The website carries here, for reference purposes, a report on the modified policy for grant of extension of Production Sharing Contracts (PSCs) signed with private joint ventures for small, medium-sized and discovered fields so as to be able to exploit the remaining untapped reserves in these blocks after the PSC imposed timelines expire. The report carries:
 8A background to the policy
 8Scope of the policy
 8International practices on extension policy
 8Suggestions received from operators and business associations
 8Duration of extension
 8Criteria for evaluation of extension request
 8Deliberations of the Committee which prepared the draft policy on such extensions
 8Recommendations of the Committee

 Click here to access copy of the report

Kuwait revives interest in investing in downstream sector: No takers in India

July 22: Kuwait has been promising to invest in ONGC's OPal and OMPL petrochemical projects as well as in IOC's Paradip refinery for a long time now.
8Every time an Indian delegation met with the Kuwaitis, the promise of investment is held out as a sop.
8After many such meetings, the Indian side has now given up on Kuwait. There is only talk and not action.
8In this context, both the petroleum ministry and the public sector companies were surprised by a recent initiative by the Ministry of External Affairs to arrange a meeting with high ranking Kuwaiti officials to revive talks for investment in the Indian downstream sector.
8But there is no free lunch in this world anymore. What the Kuwaitis want is to be able to get into a 10-year crude supply agreement for 500,000 bpd with the Paradip refinery.
8In return, Kuwait is again talking of wanting to invest not just in the Paradip refinery but also in OPal and OMPL.
8The problem is no one believes in Kuwaitis any more.

KG-D6 production update-I: Average gas output shows a downward trend for week ending July 13, 2014

July 22: Average gas output for the KG-D6 block shows a downward trend for week ending July 13, 2014.
8Figures collated by the DGH for the week ending July 13,  2014 show gas output from the D-6 block at 12.53 MMSCMD, marginally down from 12.65 MMSCMD for the week ending July 6, 2014.
8The production for the week ending June 29, 2014, June 22, 2014 and June 15, 2014 were recorded at 12.74 MMSCMD, 12.84 MMSCMD and 12.85 MMSCMD, respectively.
8Of the total current production of 12.53 MMSCMD, gas production from D1 and D3 fields was about 7.51 MMSCMD, while from the MA field it was about 5.02 MMSCMD.
D1-D3 Field:
8The daily average gas sales from D1-D3 field during the week was about 7.51 MMSCMD compared to 7.58 MMSCMD during the previous week.
Gas production for the week was also down due to a tripping of a compressor that belonged to the gas transportation company, Reliance gas Transportation Infrastructure Ltd. (RGTIL), beyond the delivery point. Production from all 8 producing wells were normalized subsequently.
D-26 (MA field):
8The daily average gas sales from MA field during the week was about 5.02 MMSCM compared to 5.07 MMSCM during the previous week.
8Lower gas sales during the current week can be attributed to what has been dubbed as a natural production decline of the wells.
8The daily average oil production from the MA field during the week ending July 13, 2014 was down to about 5,751 barrels per day while condensate production was up to 877 barrels per day as compared to the daily average oil production and daily average condensate production of 5,768 barrels per day and 825 barrels per day, respectively, for the previous week ending July 6, 2014.

KG-D6 production update-II: Work on to raise output

July 22: Even as production continues to decline from the D-6 field, a DGH prepared note has claimed that work is on to scale up production.
8Procurement activities are on to install gas compressors at the onland terminal to increase gas recovery and production from the D1 and D3 fields.
8This will help in reducing the back pressure on the wells which in turn would raise gas recovery.
8Meanwhile, the optimized Field Development Plan (FDP) of four discoveries (D2, 6, 19 and 22) is under implementation. One development well has been drilled and one more well is under planning for drilling.
8First gas is expected by mid 2016.
8Yet another FDP for the gas discovery D34 is also under implementation. First gas from here is expected by mid 2017.
8Clearly, all is not lost in the D6 block.




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