Some of the major oil and gas exploration blocks cleared by the Cabinet Committee on Investments (CCI) in recent months may not realise their full investment potential in what bears out the notion that a big gap exists between what the government claims about the likely positive impact of the CCI on investments and the ground reality. The Reliance-BP combine, Cairn India and state-run ONGC, all of whom got some of their Krishna-Godavari Basin blocks partially cleared by the CCI, have scaled down their investment plans.
As the CCI cleared only 30-35% of the 835 sq km acreage at ONGC's KG-OSN-2009/4 block, the company has sought a proportionate reduction in the minimum work programme (MWP) commitment. Cairn India had earlier sought a similar reduction in MWP for a block adjacent to ONGC's. On its part, the RIL-BP combine has offered to relinquish its partially-cleared KG-DWN-2005/2 block, which too, incidentally, is situated in the KG Basin.
Many of the projects cleared by the CCI in the oil sector and other areas like power and roads are yet to go on stream for want of state-level clearances and due to procedural delays.
The Directorate General of Hydrocarbons (DGH) has now referred the ONGC block along with the partially-cleared Cairn block to the oil ministry to take a final call over the matter, official sources said. ONGC's KG-OSN-2009/4 block falls within the range of the Defence Research and Development Organisations' Machilipatnam launch site and the Indian Air Force's Suryalanka guided weapon firing range.
The CCI has so far this year cleared 25 oil and gas blocks for exploration and production activities with investments worth $13.42 billion and a further investment of $2.5 billion in the next few years.
FE had earlier reported that ONGC was considering moving to the DGH for a reduction in the MWP.
A DGH official told FE that there is no provision in the production sharing contract (PSC) for a reduction in the MWP. “However, we suggested to the oil ministry that the petroleum exploration licence for the no-go areas be cancelled. As a consequence, the remaining acreage can be explored,” the official said.
MWP commitments are submitted by contractors while bidding for oil and gas blocks. It stipulates the minimum amount of work that the contractor is prepared to undertake during the exploratory phase including surveys, exploratory drilling, etc.
ONGC's KG-OSN-2009/4 block was awarded to a consortium of ONGC (50% and operator), Oil India (30%), NTPC and AP Gas Infrastructure Corporation under New Exploration Licensing Policy-VIII bidding. This exploration block is a shallow-water block and the PSC was signed in June 2010. ONGC has so far invested about $0.44 million in the block.
Cairn also received a partial CCI clearance for its KG-OSN-2009/3 block that lies adjacent to the ONGC block. Around 35% of the block is in the so-called "no-go" area. Of the remaining block area, 20% is "clear area" and the remaining is "high-risk area", where exploration activity has been permitted with certain conditions.
The RIL-BP KG-DWN-2005/2 block on the other hand covers an area of 1,949 sq km, and was awarded to BP along with Reliance Industries in the seventh round of auction under NELP in 2008. BP wrote to the oil ministry that around 70% of the block falls in an area where DRDO and navy exercises are conducted and it is not commercially feasible to produce from the rest of the block.