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Monday, 19 May 2014 00:00
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DGH would benefit from hiring global experts

While ONGC has filed a case against Reliance Industries for illegally extracting around 18 billion cubic metres of gas from its KG-DWN 98/2 block—this is next to RIL’s KG-DWN 98/3 block, popularly known as KG-D6—over the last four years, the fact is that such occurrences are not uncommon. Interconnected reservoirs are a reality and, in such cases, drilling oil/gas from one well leads to a reduction in the pressure from the other one. Indeed, ONGC itself faced such a problem of interconnected reservoirs in its Olpad fields in Gujarat—in this case, it said they were connected with Niko Resources’ Bheema fields. While this case is still to be settled, Niko and Cairn settled their dispute in the Cambay Basin. Globally, Brazil’s regulator had told Shell it had to work out a solution with the government since the oil found in one block was on the border of another reserve that had yet to be auctioned. Qatar’s North Field, similarly, is believed to be connected to Iran’s South Pars—if so, any development of Qatar’s fields is depleting Iran’s potential output.

There are various ways that have been devised over the years to deal with this. One is to look at well data over a period of time, and the fall in pressure in one can indicate how much oil/gas has flowed into the other company’s oil/gas blocks. The other is ‘unitisation’ which, in turn, can be between companies or between governments. This can take the form of one company developing the fields, with the costs and revenues being distributed among them on the basis of some formula linked to the potential output in each reservoir. There are various countries that have even ordered compulsory unitisation where the companies do not agree on their own. In the ONGC case, the company has said that since the blocks were adjacent to one another, the government should have ordered that they be jointly developed by the two firms.

While the ONGC matter may get resolved soon if the court orders the appointment of an independent reservoir expert who can examine the veracity of its claims—that presumes Reliance will accept the expert’s view—there is a larger lesson here for the Directorate General of Hydrocarbons. In cases where fields are so close to one another, it would do well to put in place a system of unitisation for instance. Also, given that there is a larger ongoing dispute with Reliance where the company has been accused of hoarding its gas—it denies this—the DGH would do well to have a panel of independent reservoir experts on tap. Indeed, had this been put in place, the government’s fight with Reliance wouldn’t have gone on for as long as it has—the expert would have determined whether Reliance’s output had fallen due to a reservoir problem or whether it was due to hoarding.


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