Andhra Pradesh’s maiden attempt to search for oil and gas has met with regulatory hurdles. The defence ministry has objected to exploration activities at two blocks in the Krishna Godavari (KG) basin that were bagged by the state in consortium with ONGC.

A third deepwater block in the same basin also won by Andhra Pradesh in partnership with ONGC, Oil India and British Gas is also facing the prospects of attracting similar restrictions.

The defence ministry has raised objections over drilling activities in two blocks -- KG-OSN-2005/1 and KG-OSN-2005/2. The country’s largest explorer ONGC and state-run AP Gas Infrastructure Corporation (APGIC) are exploring energy resources in these blocks.

“ONGC has completed the seismic survey and is now awaiting clearances to carry out exploration, development and production operations in these blocks,” a senior ONGC official said, who didn’t wish to be named.

A similar defence ministry restriction is now anticipated in deepwater block KG-DWN-2009/1. The northern area of block is adjacent to the above-mentioned two blocks that has attracted restrictions. The deep-water block is held by a consortium in which British Gas has 30 per cent stake. British Gas is also the operator of the block in which ONGC holds 45 per cent, Oil India 15 per cent and the rest 10 per cent is with APGIC. The block was bagged by the consortium in the eighth round of auction under the new exploration licensing policy (NELP).

The defence ministry’s objections pertain to a broad area of KG basin on the east coast of Andhra Pradesh, which hosts the navy's eastern command at Vizag, rocket launching centre at Sriharikota in Nellore district and a proposed missile test range. As the 10 per cent stakeholder, APGIC has committed to invest around Rs 1,000 crore over the next four to five years. The state-owned corporation hopes to eventually earn as much as Rs 30,000 crore as revenues if initial surveys lead to successful exploration and subsequent commercial viability of the blocks, said a senior state government official.

On April 12, 2011, British Gas India urged the upstream regulator, the Directorate General of Hydrocarbons (DGH), to help the companies obtain clearances from the defence ministry so that it can carry out the minimum work programme. “The northern part (part A) of block KG-DWN-2009/1 is adjacent to the above mentioned areas (KG-OSN-2005/1 and KG-OSN-2005/2)… In view of this, we request you to kindly confirm any possible restrictions that may be applicable to block KG-DWN-2009/1 and the rights of the contractor to carry out petroleum operations as granted by the petroleum exploration licence dated August 2, 2010,” Mark Houchen, member of the managing committee for the block KG-DWN-2009/1 wrote to the director-general of DGH, SK Srivastava.

The operator of the block has also approached the Flag Officer Defence Advisory Group (FODAG) for clarity on possible restrictions on the block. However, the companies have not yet received a go-ahead from DGH or FODAG and are unable to carry out exploration activities. “We will take it up with the Union ministry and try to resolve the issue,” said a senior official at APGIC. Srivastava was not available for comments.

Andhra Pradesh partnered with exploration companies to ensure gas supplies to the fertiliser and power projects. It is the second state after Gujarat to foray into oil and gas exploration. This was expected to help the state to ensure assured gas to gas-fired power stations set up by Andhra Pradesh Power Generation Corporation.