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BP's application to market ATF: Decks cleared

Sept 22:  After initial hiccups, the decks seems to be clearing for BP Exploration (Alpha) Ltd to market Aviation Turbine Fuel (ATF) in India.
 8As required, BP has satisfied the norms to be eligible for marketing of ATF in terms of the investment criterion.
 8The company has already made an additional investment of more than $508 million (equivalent to Rs 3,048 crore) in its blocks upto 2013-14, and has also committed a further additional investment of $2,100 million (equivalent to Rs 12,600 crore) for 2014-15.
 8It is pertinent to note that, as per norms, a company has to meet the following conditions to be eligible for marketing of ATF:
 --Investment (invested or proposed) of Rs 2000 crore in eligible activities by the company
 --The investment in equity or equity like instruments (for example, convertible bonds or debt with recourse to the company) should lead to creation of additional assets and/or creation of new assets in the eligible activities
 --One company can only get one marketing authorization irrespective of the additional or total investment it makes in eligible activities
 8The investments made by BP in 2013-14 and committed for 2014-15 have been confirmed by the DGH and the petroleum ministry has been informed about it.

Minister's review-I: ONGC admits targets may be missed

Sept 22: The ONGC chairman D.K. Sarraf has admitted in a recent review meeting with petroleum minister Dharmendra Pradhan that the company may not be able to fulfill its targets for 2014-15.
8The admission came after news came in that overall crude oil production for the April-August, 2014 period was 15.557 MMT against a target of 16.20 MMT.
8Against this background, ONGC's output is 7.5% below target while private and joint venture fields have recorded a significant 15% fall in production in comparison to target for the period.
8Similarly, there was decline in production of natural gas: output was at 14.070 BCM was achieved against a target of 15.064 BCM during April-August, 2014.
8The production during August 2014 was 12% lower than target owing to 13% shortfall In production each by ONGC and Private/JVs and 5% by OIL.
8While ONGC is pessimistic about meeting targets, OIL chairman S.K. Srivastava, claimed that he would be able to achieve his target and perhaps exceed it.
8OVL managing director N.K. Verma said that his company too would be able to scale the target set for it.

Minister's review-II: DGH told to work out monetization of ONGC's marginal fields

Sept 22: The petroleum minister has asked the DGH to work out a monetization plan for ONGC`s 165 odd marginal fields.
8Auctioning off of the fields is one of the options that the regulator has been told to look into.
8So far, there has been no attempt to auction the fields and contracts for exploitation of these fields had been handed over to a handful of private operators on a service contract basis
8Most of the service contracts fell through as most of then found it difficult to be viable as they were not given the market price for oil and gas to be produced.
8ONGC wanted a big share of the service operator`s take and this had been a deterrent in giving out these fields to the private sector for further exploration and production.
8Given ONGC`s high overheads these fields can be better exploited by small private operators with lower costs.
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Minister's review-III: ONGC directed to stop supply of gas with condensate to stop pipeline corrosion

Sept 22:  Petroleum minister Dharmendra Pradhan directed ONGC to stop supply of gas with condensate in an attempt to prevent corrosion
 8It is pertinent to note that the recent blast in the GAIL`s Tatipaka-Kondapalli pipeline was on account of ferrying of "wet" natural gas, containing water and highly inflamable condensate, which corroded the line, leading to a leakage and a subsequent blast when the cloud of leaked hydrocarbons came in contact with a fire source on June 27. The pipeline was designed by GAIL to transport dry gas to cusomters.
 8ONGC has been told to ensure that no condensates and wet gas is supplied to GAIL.
 8At the same time, GAIL chairman was asked to make alternative arrangements for transportation of gas which had beeb hampered on account of the blast.
 8GAIL has been advised to make bypass arrangements before taking up pipeline replacement and shutdown work to ensure continuous supply of gas.

Minister's review-IV: GAIL complains of lack of indigenous supply of line pipes and valves for pipeline replacement jobs

Sept 22:  During the monthly review meeting by petroleum minister Dharmendra Pradhan, GAIL complained that there is no indigenous production of critical line pipes and valves, which is impairing pipeline replacement works that the gas major has now taken up on a war footing.
Petroleum minister Dharmendra Pradhan directed that a meeting should be convened with leading steel manufactures to assess the production capabilities for these specialized items.
 8Petroleum secretary Saurabh Chandra too made the point that that a team of experts from the Centre for High Technology (CST) and EIL should be asked to conduct a study in this regard.
 8ONGC and OIL were also asked to involve experts from the E&P major`s 11 R&D institutes on way and means to over come the problem.

Minister's review-V: Other decisions taken

Sept 22: ONGC and OIL were directed to adopt state of art technologies for the IOR/EOR schemes to enhance production.
 8The two companies were also directed to work out programmes for revival of old and sick wells and submit action plan with detailed timelines and responsibility centres for each activity.
 8ONGC was directed to expedite installation of compressor at Uran so that the gas can be brought back to main grid.
 8The issue relating to charging of arms length prices by operators for the gas produced from the Rajasthan block may be examined and put up on file.
 8One of the important matters of concern is that of higher internal consumption of gas. ONGC & OIL were directed to carry out proper audit in this regard and implement measures to reduce the internal consumption of gas and put up a time-bound plan to reduce it to levels in consonance with the best international practice.
 8The tour plans and field visits of the higher management may by submitted by OIL to Secretary (PNG) every month.
 GRMs of refining CPSEs need to be improved. CPSEs to take suitable action to increase the GRMs of the refineries and move toward global benchmarks. One measure is to Utilize grid power instead of captive power plants that would help to improve energy efficiency and raise GRMs. 
 8Keeping in view the high contribution of private companies in the production of petroleum products, RIL & Essar should also be invited in the next review meeting proposed to be held on 10th October, 2014.
 8The m
inistry to examine the possibility of providing arms length pricing for gas produced from Cairn India`s Barmer block.

In search of gas hydrates: Second expedition will look at 20 sites

Sept 22: The Indian government seems enthused by the possibility of unending supply of energy from supposedly massive deposits of gas hydrates in India's offshore basins. One core sample gathering expedition -- dubbed National Gas Hydrate Programme Expedition-01 -- has already been undertaken and another (NGHP Expedition-02) is ready to takeoff.
ONGC has been entrusted the responsibility for execution of the second phase of the programme (NGHP Expedition-02).
The second expedition, consisting of logging-while-drilling (LWD) and coring operations, will be carried out at 20 locations in Krishna-Godawari and Mahanadi offshore areas.
The E&P major is in the process of hiring of a rig and attendant services for execution of LWD and coring operations at the designated sites during an appropriate weather window.
The intended drillship shall have onboard facilities for carrying out various scientific analysis and studies for characterization of gas hydrates.
The drilling and logging will be carried out in a non-riser environment and will only use sea water as drilling fluid.
The minimum distance of the locations from the coast is 22.46 nautical miles.
At each site, the drill ship would not be present for more than four days and no structures will be erected at any of the locations.
8The programme will be limited to drilling, logging data and core collection programme, which will help in assessing the potential of gas hydrate in the east coast basins of India.

Face-off between Jindal Pipes and ONGC over $1million recovery: Legal department unhappy as rig was deployed without insisting on payout

Sept 22:  The face-off between ONGC and Jindal Pipes Ltd (JPL) over refund of $1 million from the contractor as part of the mobilization charge that it had quoted against the contract for hiring of a drilling rig -- dubbed Virtue-1 -- has taken a new turn.
 8The ONGC's legal department has expressed its unhappiness over the deployment of the rig without any consensus between the parties about the place from where the rig was to be mobilized.

8Initially, JPL had informed ONGC that it would mobilize the rig from the Middle East, but later it deployed the rig straight from Indian waters. The "change of place" of mobilization was done after the placement of the letter of award (LOA).
 8JPL could mobilize the rig straight from Indian waters because of an amendment made in the customs law, which allowed transfer of assets to other projects without re-exporting.
 8If this change was not done, the rig would have had to be re-exported before being mobilized under the fresh contract.
 8According to ONGC, the mobilization of the rig from Indian waters, instead from the Middle East, resulted in savings to the tune of $1 million.
 8ONGC wanted to recover the amount from the first running bill of the rig contract (excluding the mobilization invoice) but JPL refused to play ball. As JPL did not give consent for the recovery of the amount, a formal agreement could not be signed between the two.
 8The ONGC's legal department has opined that ONGC could have asked Jindal to either agree to a deduction of $1 million upfront or treat the LOA as cancelled for lack of consensus without any penalty to either party. However, despite no consensus, the rig was allowed to commence operations.
 8The ONGC's legal department is of the view that as the rig was allowed to be mobilized, the contract was concluded and attained finality. In such a scenario, If Jindal raises the dispute, in case ONGC deducts $1 million from the running bills, it would be difficult for the E&P major to defend the case.
 8However, a
s the running bills are being held up by ONGC, the pressure is mounting on JPL to pay up.

Public sector refining margins lower than private units: High energy consumption, legacy issues to blame

Sept 22: Refinery margins of public sector refineries are significantly lower than their private sector counterparts.
Reasons like high energy consumption and legacy problems associated with public sector refineries are responsible for lower margins.
8The Gross Refining Margins (GRMs) of the PSU refineries have been lower (at between 3.5 and 4.2) than private sector units (of around 8), although the GRMs of new joint venture refineries like BORL (a JV of BPCL and Oman Oil) are comparable with private sector refineries.
for reference purposes, the website provides here, details of GRMs for all refineries for the last five years, that is, from 2009-10 to 2013-14
High energy consumption by public sector refineries
8Operating costs of Indian refineries, particularly PSU refineries, is also very high, wherein energy constitutes 83% of cost as compared to 69% in Asia Pacific, 52% in Europe and 34% in USA. These high costs are primarily due to high cost of captive power. Undoubtedly, there is a need to adopt energy conservation measures, switch to grid power to the extent feasible and drastically reduce the Energy Intensity Index (EII) which, on an average, is currently 112 and bring it closer to the world best average of 71.
8Operational availability in the PSU refineries also needs to be improved from the current 94% average to atleast 97%. Higher availability and capacity utilization will reduce operating cost to derive higher margins.
8Legacy issues at the PSU refineries are well known, and these are dragging the refinery margins down. There are a large number of old refineries, including those in the North East, with sub-optimal configurations and low complexity levels, which cannot process high sulphur levels and that cannot achieve an optimum mix of products. It is critical to upgrade the PSU refineries to enhance distillate yield and improve product mix to improve refinery margins.
8Of course the PSU refineries also need to work on managing other factors that impact refinery margins -- such as raw material cost (crude oil) and irrecoverable taxes.

Calculation of unfinished work programme in Naftogaz's terminated blocks: Adani and Welspun asked to pay when the fault is not theirs

Sept 22: The DGH is not in a mood to let go off Adani and Welspun, the two contractors having a 35% stake in two blocks, CB-ONN-2004/5 and AA-ONN-2004/4, without paying penalties for the unfinished work in the contract areas.
8The DGH wants them to pay up as the committed work in the two blocks could not be completed after it came to light that the operator of the two blocks, Naftogaz India Private Limited (NIPL), had bagged the contracts by making a false representation that it was a subsidiary of Naftogaz of Ukraine.
8Despite the fault being on Naftogaz' part, the two contractors are still being asked to shell for the unfinished work programme as that is what is required by law.
8Adani and Welspun however claim that they should not be penalized as the default was not on their account.
8The DGH had slapped a massive $20.89 million penalty on Naftogaz for the unfinished work programmes in the two blocks.
8As Naftogaz is under liquidation
, the freshly calculated costing details for the two blocks have been submitted to the official liquidator attached to the High Court of Delhi from whom the government plans to recover the cost of the unfinished work.
8However, as a breather, the DGH has agreed to reduce the cost of the undrilled wells on a dry well basis and without considering non-production days.

Irrecoverable taxes-I: A presentation

Sept 22: Getting over the hurdle of handling irrecoverable taxes seems to be the focus in the petroleum ministry these days.
The website provides here, for reference purposes, a detailed presentation on State Specific Cost (SSC) matrix and the need for abolition of all irrecoverable taxes on crude oil and petroleum products, under the following heads:
Different types of state axes on petroleum products
Irrecoverable taxes on petroleum products and how they arise
Details of rrecoverable levies in terms of name of state, nature of levy and rate percentage
Guiding principles of SSC and its treatment
Current SSC rates on major products, in terms of state and market
Brief explanation of major irrecoverable levies, in terms of levy, underlying transactions and applications
Crude and product taxes levied by states, in terms of state, total entry tax or octroi on controlled products, product taxes on controlled products and total taxes on controlled products
Share of crude taxes and product taxes in the SSC rates
Distortionary impact of irrecoverable taxes on prices
8Complications arising out of irrecoverable levies

Irrecoverable taxes-II: Solutions proposed

Sept 22: Highlights of some of the solutions proposed for abolition of all irrecoverable taxes on crude oil and petroleum are provided below:
To have a uniform taxation regime for all players while ensuring revenue neutrality for states
State governments to consider a "revenue neutral" tax restructuring proposal
Increase in VAT / recoverable tax, which will be largely offset by withdrawal of SSC by oil companies
8No significant change in selling price for consumers likely as a consequence

Revamp of TPI process for tubular and down hole equipment-I: IEM order over ruled, L-80 13 CR casing pipe order to be given to Mertek

Sept 22:  In a change of stand, a proposal has now been sent to Executive Purchase Committee of ONGC that overrules the  order of the Independent External Monitors  (IEMs), calling for cancellation of the contract for sourcing  L-80 13 CR casing pipes from Mertex. The IEMs had said that ONGC should have taken due care while formulating the definition of "similar material" (equivalent to premium casing of L80 13 chrome grade pipes) in the tender based on which Mertex was granted the contract.
8ONGC in its new proposal clarifies its definition of a “similar material” – stating that according to BEC guidelines, the bidder/manufacturer would be deemed capable of supplying the L-80 13 CR casings if it could provide demonstrable experience of supplying materials with “identical yield strengths” – such as L-80 Type I casings – or casings of a higher grade, such as C-90 and T-95. Since Mertex had demonstrated its expertise in supplying L-80 Type I casings, ONGC’s says that its decision to contract Mertex to manufacture L-80 13 CR casings was therefore perfectly justified.
8In addition to this development, and one that may be linked to contracts being awarded to manufacturers with less than requisite expertise, lately there have also been reports that critical items such as Tubulars and Down Hole equipment were failing under field conditions, despite having cleared quality checks at the manufacturer’s premises. Therefore ONGC also constituted a high level Technical Committee - with members including senior officials from ONGC’s quality control and corporate management divisions – to study and revamp ONGC’s Third Party Inspection (TPI) process, and thereby improve the quality of the products procured.
8The committee in its review has come out with several suggestions, including the requirement that ONGC’s EPC division would need to engage with the TPI to ensure that the inspection process was up to requisite standards. An official from ONGC would also be deputed to inspect the manufacturing phase of L-80 CR 13 casings to ensure that all technical specifications were strictly adhered to.
8Furthermore, in order to employ the services of only qualified TPIs, each tender would specify the minimum years of experience and the level of technical expertise required of TPIs hired/contracted by the EPC division.

Revamp of TPI process for tubular and down hole equipment-II: ONGC to stipulate right of quality checks, hold manufacturer accountable for lapses in material quality

Sept 22:  Following complaints by a competitor to the Independent External Monitor (IEM) earlier this year that ONGC had unfairly awarded the contract for the manufacture of a premium product, L-80 13 CR casings, to Mertex group – a manufacturer that allegedly did not have the expertise to manufacture the casings, and concerned with reports that critical components such as Tubulars and Down Hole equipment had been failing in the field, ONGC announced that it would henceforth reserve the right to inspect material quality at destination (the contracted manufacturer’s premises) before components were dispatched.
8While Mertex’s expertise in supplying the casings has since been vetted by ONGC, the directive nevertheless comes as a part of a broader set of decisions taken by a specially constituted Technical Committee, tasked with recommending measures to bring in overall improvements to ONGC’s Third Party Inspection (TPI) process, and thereby, the quality of components procured. The committee was headed by senior members of ONGC’s quality control and corporate management divisions.
8ONGC’s quality assurance team would now have the right to conduct inspections on the material quality of components, including chemical analyses and random quality sampling, at any stage within the warranty period stated by the manufacturer. Any shortcomings would be taken up with the manufacturer immediately. The team would also have the right to conduct analyses in conjunction with the TPI originally entrusted with assessing the quality of components supplied.
8Additionally, to get the TPI to shoulder more responsibility and to achieve greater quality in inspection, it would have to provide periodic reports on the quality of manufacturing at destination, including results of metal integrity tests, checks on dimensional tolerances and the level of compliance with technical specifications. Each of these reports would then be periodically audited by ONGC in accordance with international practices, and the TPI would be held accountable for reports that did not match quality benchmarks.

Single tenders by IOC-I: Audit Committee gives a series of directions

Sept 22: IOC's Audit Committee recently reviewed specific cases of award of work by the Indian Oil Corporation (IOC) on single tender basis and came up with a set of recommendations.
8Pertinently, as per ministry guidelines all works awarded on nomination and single tender basis need to be brought to the notice of the company board and atleast 10% of such cases need to be checked by the Audit Committee.
Highlights of the review of IOC's Audit Committee:
Policy review on EMD requirement against tender suggested
8Tender for provision of a catwalk to a valve operating platform for storage tanks in the Mathura Terminal (Marketing) was awarded on a single tender basis. Of the two offers, one was rejected on grounds of non-submission of EMD of Rs 1 lakh.
8Even though a permanent EMD of Rs.2 laks was available against the vendor, as empanelled vendors are meant to provide such EMDs, the case was rejected for non submission of EMD.
8The Audit Committee has now asked for a review of the entire process.
Penal provisions in case of non-participation by empanelled parties in tenders
8A proposal has been forwarded for penal provisions in case of non-participation by empanelled parties in the tenders.
8In case of tender for internal haulage contract at the Agra Terminal, a limited tender enquiry was sent to 7 empanelled parties, of which only 2 parties responded, one of which was rejected on technical grounds.
8This has prompted a proposal for a penal provision for non participation.
Budgetary quotation should not be adopted as basis of estimation in case of single tender from same party
8Based on audit observations in award of Annual Maintenance Contract (AMC) for Distributed Control System (DCS) at Panipat Refinery, the Audit Committee has pitched for issue of new guidelines whereby budgetary quotation is not to be adopted as the basis of estimation in case of a single tender quote from the same party.
8Pertinently, the purchase order against the tender was placed on Yokogawa for a period of 2 years, against estimated prepared on the basis of budgetary quote from the same party, which did not establish the reasonability of price.

Single tenders by IOC-II: Other findings

Sept 22: The Audit Committee review of tenders awarded on single tender or nomination basis by IOC has come up with the following additional findings:
8Spares and materials issued to contractors on chargeable basis in the Panipat Refinery division, were booked to revenue expenditure instead of being recovery from the contractors, resulting into loss to the corporation.
8Then again the fact that a cost sharing formula in case of financial loss was not adopted (an instead IOC had just accepted a meagre discount on the product) was not put up to the Contracts Committee in case of an order for Adsorbent Changer Internals (ACI) and Contamination of Adsorbent from UOP in the Parex Unit of Panipat refinery.
8There were abnormal losses to the tune of 3175 KL (at natural temperature) in product movement through Digboi Tinsukia pipeline (DTPL) due to various instances of pilferage but insurance claims were not lodged.
8Procedural lapses leading to loss of excise duty, penalty and interest in case of supply of naphtha to Indo Gulf Fertilizers Ltd. (IGFL) have been highlighted.
8There was loss and fund blockage on account of excise duty paid on branded HSD, consequent to the increase of Rs.5 per litre on HSD, effective 14.09.2012, lying at IOC's depots and locations.

Jharkhand Petroleum Dealers Association: Representations on issues relating to petroleum trade

Sept 22: Petroleum Dealers Associations have a perpetual run-in with oil marketing companies on various issues relating to the petroleum trade.
Every state has its own association but the problems are common across all states. The website carries here a representation from the Jharkhand Petroleum Dealers Association.
8Formulate a common set of dealer guidelines for all oil marketing companies, to enable uniformity across companies, allowing customers to be benefitted uniformly
8Set up a regulatory body with representation from ministry and PSU oil companies, on similar lines like the insurance and telecom sectors
8Removal of Essential Commodities Act and its draconian povisions.
8Rectify the inspection procedure to ensure that acceptance or rejection of products at retail outlets is on the basis of density match only, negating the need for any additional tests.
8Formulate a policy to ensure all companies maintain a single price across trading areas
8Uniform pricing across states by minimizing variations due to differential tax structures
8Revision in dealers commission to ensure reasonable dealer earnings

Inventory status on MS, SKO, HSD and LPG (as on September 1, 2014): Details

Sept 22: The website carries here an update on the inventory status of MS, SKO, HSD and LPG as on September 1, 2014. The data is segregated by tankage, stock and day's cover.
8MS: Out of a gross tankage of 3,203 TMT, 1,290 TMT was stock in hand, providing a cover of 24 days.
8SKO: As against a gross tankage of 1,877 TMT, 648 TMT was stock-in-hand which provided a cover for 23 days.
8HSD: Gross tankage for HSD in the country stood at 8,831 TMT, of which 3,887 TMT was stock-in-hand and provided 17 days cover.
8LPG: Out of a gross tankage of 777 TMT, stock-in-hand stood at 422 TMT providing 9 day's cover.
8Notably, all stocks have registered an increase from the position as on August 1, 2014. MS, SKO, HSD and LPG stocks have increased by 10.4%, 7.28%, 18.2% and 0.5%, respectively as of September 1, 2014 from levels of 1,060 TMT, 770 TMT, 4,283 TMT and 497 TMT, respectively as on August 1, 2014.

Tender Briefs

Sept 22:  8GSPC floats tender for "return permeability" laboratory testing in block KG-OSN-2001/3: GSPC has floated a tender for "return permeability" laboratory testing to support drilling of development wells in its Deen Dayal field in the KG-OSN-2001/3 block.
 --The tests will be conducted on Zinc Bromide, Calcium Bromide and Calcium Chloride Brine.
 --The due date and time for submission of bids is November 04, 2014 (upto 17:00 hrs).

 Click here
for more information
Last date of OIL's tender for hiring of services for 3D seismic acquisition in Rajasthan extended: The last date for OIL's tender for hiring of services for 250 SKM of high-resolution (HR) 3D seismic acquisition and processing have been extended upto October 21, 2014 (15:00 hrs).
 --Accordingly, the last date for receipt of application and tender fees have also been extended upto October 14, 2014.
 Click here for more information
8More tenders: Some more tenders floated by oil and gas companies are:
 --Procurement of hydraulic cat head, Baroda [ONGC]
 --Re-filling of helium and calibration gas cylinders [GSPL]
 --Procurement of fuel oil centrifuge package, Kochi [BPCL]
 --Evaluation and certification of CSR MoU projects, Assam [OIL]

News Briefs

Sept 22: 8RIL has informed DGH that it is seeking bids for a multi support vessels for its KG-D6 block: Reliance Industries Limited (RIL) has informed the DGH that it is seeking bids for hiring of multi support vessels for sub-sea intervention for its block KG-DWN-98/3 (KG-D6).
Names of entities from which bids have been sought:
Bourbon Offshore MMI DMCEST, Dubai, UAE
 --Fugro Survey (India) Pvt. Ltd.
 --Canyon Offshore Inc, Singapore
 --Subsea 7 Singapore Contracting Pvt. Ltd., Singapore
8Major fire incident in Assam in AGCL's pipeline: A major fire incident took place in Assam Gas Company Ltd's (AGCL's) gas pipeline at the Moran field in Sibsagar district, Assam earlier this month.
 --This is a 53 km long 12.75" gas buried pipeline from Moran to Namrup, which was used by AGCL to supply gas to consumers, primarily to tea industries.
 --The incident site is situated near Oil India Ltd's (OIL's) non-functional OCS 2 (oil collecting station), and although the intensity of the fire was very high, the fire was successfully controlled within 3.5 hours with support from fire services from OIL, ONGC and state fire services.
 --The fire resulted in one fatality, a few casualties and damage to nearby crops and three houses. click here




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