The Times of India: April, 2015
News Delhi: The government on Wednesday approved a policy for determining commercial viability of oil and gas finds, giving explorers flexibility on the manner they want to develop these finds and laying out a predictable business framework for investors risking their capital.
The policy outlining a uniform testing method for all auctioned fields, approved by the Cabinet's panel on economic affairs, would benefit state-run ONGC and Reliance Industries Ltd (RIL) in the immediate term. Both these companies have six discoveries each that are stuck due to dispute over the testing method. These discoveries are estimated to hold gas worth Rs 1 lakh crore at prevalent price.
The oil ministry has already put in place a policy allowing flexibility to explorers on relaxations and extensions or exit during exploration and development. Together the two measures would further remove rough edges in the exploration policy and contribute towards restoring investor confidence.
The new policy gives companies option to either develop discoveries at their own risk or perform tests prescribed by the Directorate General of Hydrocarbons, the ministry's technical arm, before developing the finds and recovering the entire cost.
The policy allows companies to either relinquish blocks or develop discoveries after conducting drill stem test (DST), with 50% of the cost of the test will not be allowed to recover if it is not conducted on time. The cost recovery for DST would be capped at $15 million.
Alternatively, companies can develop the discoveries without conducting DST in a ring-fenced manner — at their own cost. The expenditure incurred in developing these finds will be recouped only if the fields prove to be commercially viable. "If the contractor does not opt for any one of these options suggested above within 60 days of the Cabinet approval then the area encompassing these discoveries shall automatically be relinquished," a government statement said.
The new policy will help RIL monetise three discoveries in its flagging eastern offshore KG-D6 block. It had notified the Dhirubhai-29, 30 and 31 finds in 2007 and submitted a formal application for declaring them commercially viable in 2010, well within the timelines set in the Production Sharing Contract. But the DGH refused to recognise the discoveries in the absence of prescribed tests.