Norwegian oil major Statoil and Brazil's Petrobras have quit Oil and Natural Gas Corporation's KG basin gas block over government delays in approving their participation in the deepwater acreage.
Petroleo Brasileiro SA or Petrobras, Brazil's state-controlled oil firm, has offered ONGC its 15 per cent interest in the Krishna Godavari basin block that sits next to Reliance Industries prolific KG-D6 fields without any cost.
Similarly, Statoil has decided against participating in future drilling in the acreage off the Andhra coast.
Sources said this follows apparent unwillingness of the petroleum ministry and its technical wing DGH to accord approvals for equity participation by foreign companies and the inordinate delays in clearing the drilling programmes.
ONGC will now have to go it alone and shoulder added risks in developing the acreage KG-DWN-98/2 which is estimated to have an in-place gas reserves of 14 trillion cubic feet.
The state-owned firm does not have the production technology to produce gas from such water depth in the geologically hostile KG basin.
ONGC chairman and managing director R S Sharma shot off an angry letter to the oil secretary saying red tape was making international oil majors apprehensive over sharing exploration risks in acreages where they pick up stake.
ONGC in 2007 had farmed out 15 per cent interest in the block to Petrobras and 10 per cent to Norsk Hydro (now Statoil Hydro).
"This was done by ONGC as a part of its strategy to capitalise on the technological experience of international companies of repute in the development of deepwater discoveries," Sharma wrote.
The block now has 10 discoveries and appraisal drilling is now required to be carried out to assess the potential before finalising development of gas fields.
"Although the farm out agreements with Petrobras and Statoil were signed in August/September, 2007, Joint Operating Agreement could not be signed with both these companies, initially, due to 9 months taken in obtaining approval on assignment of participating interest, and then one year in signing amendment to the Production Sharing Contract from various parties, including Government," he wrote.
Sharma also pointed out delays in other blocks. In case of deepwater block CY-DWN-2001/1 in Cauvery basin, amendment to the PSC duly signed by ONGC, Oil India and Petrobras was submitted for signing by the government in January 2009.
"The same is yet to be signed by the Government," he said.
"It would kindly be appreciated that such delays lead to doubts and uncertainties," he wrote.
"International oil companies have been expressing anxieties and apprehensions for such delays."
Withdrawal by the majors without participating in any activity in the block is bound to send ripples in the industry and jeopardize the initial gains of India in the NELP era as E&P destination.
"This also has put ONGC in a tricky situation as it has to now shoulder added risks," he wrote.
Sharma said Petrobras quit the block also because of uncertainties about gas pricing and tax holiday.
"ONGC is making all needed efforts to adjust to the competitive business environment and level playing format. But, fact remains that it is very difficult to maintain business leadership with such deterrents.
"In fact, the element of delay in decision/ approvals, including rig moratorium, has factored in some amount of uncertainty in steering drilling activities in large number of deepwater blocks operated by ONGC," he added.
