HSBC Global says PSC has no proviso for retrospective penalty, so ONGC won’t get most from brawl with RIL

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Oil and Natural Gas Corp (ONGC) might not get many remuneration even if it is determined that healthy gas from a waiting fields in Bay of Bengal had migrated to adjoining KG-D6 retard of Reliance Industries (RIL) as a agreement does not yield for retrospective chastisement for such acts.

ONGC had in 2013 claimed that RIL had deliberately drilled wells tighten to a range that a Krishna Godavari dish KG-DWN-98/3 (KG-D6) retard shares with a state-owned firm’s KG-DWN 98/2 retard and Godavari Block (G-4). It claimed that some of a gas might have been pumped out from a adjoining block.

Representational image. ReutersRepresentational image. Reuters

Representational image. Reuters

US-based consultant DeGolyer and MacNaughton (DM) has been allocated by a dual firms to investigate if a dual blocks are constant and have a common gas fountainhead from that gas can be constructed from possibly side.

HSBC Global Research in a note pronounced a underlying agreement – prolongation pity agreement (PSC) – provides for a fortitude of such a dispute.

A full section on fortitude of such a brawl by section growth has been clinging in a PSC, pronounced a investigate agency, indicating out that as per a terms of a contract, if a fountainhead is situated partly within a agreement area belonging to a celebration and partly in a opposite agreement area, any of a parties could write to a government, and a supervision will afterwards ask a dual contractors to combine and determine on a corner growth of fountainhead within a stipulated time period.

If parties destroy to determine to do so, a supervision can force a parties to ready and govern such a corner plan, it said.

RIL began gas prolongation from KG-D6 retard in Apr 2009 while ONGC is nonetheless to start growth work on gas fields in G-4 that were detected some-more than 12 years back.

PSC does not yield for an pithy retrospective chastisement on any of a parties that constructed from a authorized agreement area (mining franchise area) as per an authorized margin growth plan, if a other celebration to a brawl unsuccessful to find such a section development, HSBC said.

ONGC had sought remuneration for a gas belonging to it that RIL had produced. Sources pronounced DM has in a rough comments settled that a fountainhead in a dual beside blocks are connected and there is no unfriendly area in G-4.

ONGC claims that 11.9 billion cubic meters (bcm) of a gas might have been constructed from RIL’s KG-D6 field. This during a gas cost of $4.2 per mmBtu, will be value reduction than $180 million.

Even this it can get usually after margin losses as good as taxes and kingship paid by RIL is deducted, they said.

DM is expected to contention a news on a emanate by subsequent month. And as per Supreme Court order, a Oil Ministry will have 6 months from a date a news is submitted to confirm if ONGC is entitled to any remuneration from RIL.

KG-DWN 98/2, owned by ONGC given 2003, and RIL’s KG-DWN 98/3 (better famous as KG D6) were auctioned in 2000 underneath a New Exploration Licensing Policy (NELP). Discoveries were announced in KG-DWN 98/2 in 2001 and in KG D6 in 2002.

But from there on, KG D6 went on to announce commerciality in 2003, filed a margin growth devise in 2004 and started blurb prolongation in 2009, so shortening a time between find and prolongation to usually six-and-a-half years from a internationally supposed time line of 10 years.

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In a process, it also became a initial domestic low H2O retard to furnish oil and gas. It continues to sojourn a usually writer in a intensely formidable low waters even currently yet prolongation has seen a high fall.

Not usually is ONGC a few years divided from production, it lifted a emanate of propinquity of reservoirs usually in Jul 2013, 4 years after RIL started prolongation after duly complying with all a mandate of a PSC. It is this behind lifting of a emanate of propinquity that HSBC is referring to while observant that a PSC does not yield for “retrospective” remuneration for withdrawal of gas from an waiting retard with a constant fountainhead fluctuating into that of a producing neighouring block.

With honour to propinquity of reservoirs, a PSC is a prospective, forward-looking request that lays a belligerent manners to safeguard a many fit and cost-effective approach of extracting healthy resources. This is a proviso that protects a interests of a emperor over a rights of a particular operators.

The proof here is that if a fountainhead extends into dual blocks owned by dual opposite operators, it is in a nation’s seductiveness to equivocate both operators duplicating huge infrastructure and resources to remove a same volume of gas.

For example, if a ability of a fountainhead is dual tcf (trillion cubic feet), that is a volume of gas that can be extracted, no some-more or no less, either one user extracts it or two. But when dual operators pull from one reservoir, it will double a cost of extraction.

That is because a PSC gives a supervision a right to force a corner growth devise on a operators if a existence of propinquity is realised prospectively. There is zero in a PSC to demeanour during corner growth retrospectively.

(With inputs from PTI)

(Disclosure: Firstpost is partial of Network18 Media Investment Limited that is owned by Reliance Industries Limited.)