CCEA approves 3-year holiday on deepwater drilling

By PTI Jul 08 2010 , New Delhi

After several months of dilly- dallying, the government today announced a three-year moratorium on

deepwater drilling, a move that will help ONGC and Reliance save exploration acreage that they otherwise may have lost for not meeting their commitments to drill wells.

"The Cabinet Committee on Economic Affairs today approved the grant of a drilling moratorium (or holiday) of three years to all deepwater block... Where drilling commitments are pending as on January 1, 2009," Home Minister P Chidambaram said.

State-owned Oil and Natural Gas Corp (ONGC) and Reliance Industries could not complete the commitments they made to win exploration blocks under the New Exploration Licensing Policy (NELP) due to a global shortage of deepsea drilling rigs in 2008. On their request, the Oil Ministry had moved the Cabinet for grant of a drilling holiday in late 2008, but a decision was deferred several times.

Chidambaram said the moratorium would apply to 30 blocks (16 of ONGC, 13 of RIL and one of Italy's Eni) from January 1, 2008, to December 31, 2010. The three firms can now meet their drilling commitments during the extended period.

The blocks under consideration are those awarded up to the fifth round of auction under NELP.

"With grant of drilling moratorium, the objective of accelerated exploration of hydrocarbons in the country would be accomplished, which may lead to new discoveries of oil and gas," he said.

Welcoming the decision, ONGC Chairman and Managing Director R S Sharma said had it not been for the moratorium, the state-owned firm would have to surrender the blocks.

"We had invested about Rs 8,000 crore in seismic surveys, data acquisition and interpretation and drilling of some wells in the 16 blocks. We would have lost this," he said.

Globally, oil and gas explorers are faced with a huge shortage of drilling rigs as countries stepped up their oil and gas hunt in the wake of the surge in crude oil prices in 2008. Day-hire charges for a deep-sea drill rig shot up 250 per cent between 2007 and 2008.

But for the drilling holiday, the companies faced huge penalties for not fulfilling their work commitments, which included drilling of a certain number of wells.

"The objective of the drilling moratorium dispensation is to enable the contractors to meet the drilling commitments under various Production Sharing Contracts (PSCs), which have been adversely affected on account of worldwide shortage in availability of deepwater rigs

since 2007," Chidambaram said.

The proposal will be implemented immediately and the contractors (ONGC, RIL and Eni) will be asked to complete the drilling commitments during the moratorium period of three years, he said.Chidambaram said the CCEA has not approved a gradedsystem of incentives and disincentives to reward and punish companies based on their performance during the period.

The PSCs signed till NELP-V constitute three exploration phases, with Phase-I, II and III comprising 8 years (4+2+2) in deepwater blocks.

In case of non-completion of the minimum work programme (MWP) at the end of an exploration phase, the block stands relinquished and the contractor has to pay an amount equivalent to the unfinished work programme to the government.

The non-availability of deepwater rigs had adversely affected the completion of minimum work commitments for drilling by various contractors of deepwater blocks.

The contractors of these deepwater blocks and the Association of Oil and Gas Operators (AOGO) requested the government to grant a drilling moratorium of three years to compensate for the time being lost on account of non-availability of deepwater rigs, he added.

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