Existing deep-water gas finds are not eligible for premium: Oil Minister

Richa Mishra Debabrata Das New Delhi | Updated on November 25, 2017 Published on October 26, 2014

Dharmendra Pradhan

ONGC and Reliance Industries will not get a premium for the gas they extract from deep and ultra-deepwater discoveries already made.

The new price formula, announced on October 18, said that for all discoveries in deep and ultra-deepwater as well as high pressure-high temperature areas, a premium would be paid based on the prescribed procedure.

But “we are very clear in our policy… The premium will be given to only those discoveries that are made or notified after November 1, 2014. The categories have been defined,” Dharmendra Pradhan, Minister of State (Independent Charge) for Petroleum & Natural Gas, told BusinessLine.

New discoveries

“The contractors will have to approach the Directorate-General of Hydrocarbons (DGH) if they make any new discoveries in these (deep/ultra-deep) areas. The DGH will evaluate them. Based on the DGH views, the Government will take a call on the quantum of the premium,” the Minister said. The exploration majors — one in the public sector and the other in private — had been maintaining that a gas price of under $8 a unit (million British thermal units) was not viable to bring discoveries in these areas into production.

RIL and its partners (BP and Niko) in the Krishna Godavari Basin, KG-D6 block, have been looking for clarity to bring into production R-cluster and Satellite discoveries. Under the KG-D6 block enhancement plan, the contractors (RIL-BP-Niko) were planning to invest over $5 billion in the next three to five years to develop around 4 trillion cubic feet (tcf) of discovered natural gas resources.

ONGC, on the other hand, had wanted to adopt a cluster approach for its East Coast discoveries (estimated at 11). Its East Coast finds also comprise an ultra-deepwater discovery (UD-1). According to early reports, ONGC had estimated producing 6-9 million standard cubic metre of gas from its East Coast finds by mid-2017. Analysts said that under the production sharing contract regime, the average cost of production in major producing fields varied from $2.19 to $3.70/unit. According to Narendra Taneja, an oil industry expert, “if one goes purely by the existing production sharing contracts then the contractor recovers its cost first. This leaves no room for any complaint.”

According to industry observers, when ONGC sought a higher gas price of $6-8 a unit then crude oil was trading at $115-120 a barrel. But, now with the steep decline in crude oil prices, input costs — rig rates — have fallen proportionately. “As a result of drop in input cost, the production cost will also decline. Therefore, the new gas price should not be much of an issue,” a senior oil company official said.

Published on October 26, 2014
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