Need to stop more RIL-type cases from coming up
Given the threat of a continuing fall in RIL’s gas production from the KG Basin fields, to a possible 20 mmscmd in 2015 as compared to the high of 56 mmscmd in 2011 and a projected 80 mmscmd at one point in time, it’s not surprising the petroleum ministry has said it will move quickly on the demands made by RIL and its partner BP when it met oil minister Jaipal Reddy and senior officials for over three hours last Friday. This includes more regular meetings of the Management Committees (MC) that control each exploration block, approval of RIL-BP’s capex plans, approval of three discoveries, and more. After its fiasco in the D6 block where what RIL thought was a larger inter-connected field turned out to be unconnected gas-bearing wells, RIL wanted permission to dig one more exploratory well. But given RIL’s exploration phase is over, this needs special permission from the Directorate General of Hydrocarbons (DGH) and that has not been given so far.
The problem, however, is not restricted to RIL alone. As reported by this paper, Cairn’s request for approval of $1 billion of expenditure is pending even though it will end up giving the government $15 billion more (http://goo.gl/kI9bz); ONGC took more than two years to get permission to drill one more exploratory well in its KG Basin block—given the billions of dollars of expenditure on development, surely that’s a reasonable precaution to take? Nor, similarly, is it just RIL that’s complaining of the government delaying things by not holding enough MC meetings—given the MC is essentially the board of the production block that controls every aspect of exploration and production, not holding MC meetings is tantamount to ensuring no exploration/production takes place. While news agency PTI says RIL’s request for convening MC meetings has not even been acknowledged on the past 6-7 occasions, there are several Cairn blocks where just 1 or 2 MC meetings are held in a year as compared to the obligatory 4. Given there are just a handful of operational production blocks right now, imagine how bad things will be if there are some large oil/gas finds.
One possible solution, that PMEAC chairman C Rangarajan is working on, is to shift to a revenue-share model instead of the current investment-multiple one where the government starts getting its revenue-share only after the operator is reimbursed for its exploration/development expenditure—in this revenue-share model, the government is not concerned about the costs incurred by an operator and so gives permissions faster. This still doesn’t deal with the needs of existing oil firms but, given many of the disputes are over the interpretation of data—RIL says there’s gas in one area, the DGH feels the gas is elsewhere—why not have a panel of global experts to examine the data regularly? One thing that needs to be kept in mind is that if RIL/Cairn/ONGC or anyone else’s plans are not cleared, the biggest sufferer is the country.