Reliance wins case govt should never have filed
Given the way the issue played out in the media, it can be argued that the government had no option but to press ONGC to claim Reliance Industries Limited (RIL) had ‘stolen’ its gas and that it needed to pay $1.6bn in damages for this. But while the media can be accused of sensationalizing the matter, calmer heads should have prevailed in both the government and ONGC. For one, even if it were true that part of the gas – 0.3 trillion cubic feet (tcf) – that RIL had extracted from its KG Basin fields actually belonged to ONGC’s 98/2 field that is adjacent to RIL’s, the cost of this gas and the losses to ONGC were always dramatically different. After all, ONGC would have had to invest several billion dollars to take out in gas, so ONGC’s claim for damages would have to be restricted to the profits it could have made from this 0.3 tcf of gas after taking into account the capex and opex it would have had to make. Not surprising then, that the international arbitration panel that was examining the claim has not just refused to grant ONGC its claim, it has asked it to pay RIL for legal fees incurred. Chances are, the government/ONGC will challenge the award, but that is a bad idea. Indeed, given the report on gas reserves by international consultant DeGolyer and MacNaughton (D&M) has dramatically lowered the reserves of gas in the fields, it would appear ONGC may have made big losses had it invested in the field – for the record, the government/ONGC have not contested the findings. More important, however, this is not the first time in the history of global oil and gas exploration that reserves have migrated from one field to another due to the fact that the underlying reservoirs were connected. The way that such issues have been resolved, however, has been joint development of fields, not filing claims for damages. Had ONGC and RIL jointly developed the fields once the reservoirs were found to be connected, the PSU would have paid its share of the capex and opex, including the royalty paid to the government. And while ONGC/government were quick to blame RIL and claim it knew the reservoirs were connected – that’s where the concept of theft/pilferage came from – the facts show ONGC and the regulator in a poor light as well since neither realized the reservoirs were interconnected though they had data on it for years before RIL started extracting gas. In retrospect, this is not surprising since RIL didn’t know either. Indeed, it upped its original estimates of gas in the field from 7 tcf to 12 tcf while D&M later estimated the reserves were just 2.9 tcf. Though Tuesday’s arbitration ruling is not related, it will have important implications for the government’s larger case against RIL for artificially inflating its capital costs. While the CAG’s audit report had first talked of RIL’s capital costs being too high, when the government finalized its stance, it took a different tack. Rather than getting into whether the capex was padded since this would have been difficult to prove, the government said RIL had promised a certain gas output for the capex and since it had not delivered on that, part of the capex would be disallowed – under the profit-petroleum rules, as the capex rises, the government gets less profits; so by disallowing part of the capex, the government said RIL had to pay it a higher profit-petroleum. Till now, around $3.2bn of capex has been disallowed. In FY15, for instance, the oil ministry disallowed $2.8bn of such expenses, or 59% of the capex incurred by RIL as the gas produced was 59% less than what RIL had supposedly promised; in FY16, the disallowed expenses rose to $3.1bn or 65% of capex. This was a tenuous argument since the production sharing contract (PSC) doesn’t link capex with output, but it seemed reasonable since the argument was that RIL wasn’t producing the gas because it wanted to wait till prices rose – at that point, prices were $4.2 per mmBtu while RIL was lobbying for around doubling of that price. But now that the D&M report has shown there is very little gas left in the RIL fields, the government can no longer argue RIL was hoarding gas; and if it can’t do that, it may not be possible to justify disallowing $3.2bn of capex. Earl Thomas Authentic Jersey
Taiwanese company proposes $6.6 billion petrochemical investment in Odisha
Taiwan’s state-owned CPC Corp has proposed to invest USD 6.6 billion in petrochemical projects in Paradip in Odisha using feedstock from IOC, Oil Minister Dharmendra Pradhan said today. A Taiwanese delegation today discussed investment in the petrochemical cracker and downstream units. “Met with a delegation led by President of Taiwan’s state-owned petrochemical company, CPC Corporation. They propose to invest $ 6.6 billion in petrochemical projects in Paradip using feedstock from IOC,” Pradhan tweeted. He did not elaborate. The delegation led by Shun-Chin Lee, President of CPC Corporation “had detailed discussions with the Minister and senior officials of the Ministry and the oil industry on the proposed investment and identified the East Coast of India, and Odisha in particular, for the location of the cracker and downstream units,” and Indian Oil Corp (IOC) statement said. During the discussions, IOC’s 15-million tonnes per annum Paradip Refinery has emerged as a suitable location for investment in a greenfield cracker and downstream units at an estimated investment of USD 6.6 billion, it said. The delegation will be going to Odisha for a site visit to Paradip refinery and Paradip Port and for discussions with IOC and State Government officials. “The proposed cracker, based on different streams of feedstock, will have several downstream units for production of a diverse spectrum of petrochemical intermediates and end-products,” the statement added. Jaromir Jagr Authentic Jersey
Will private players go for shale gas?
As crude oil prices continue to remain at elevated levels, a recent notification by the government to undertake an inconspicuous change in the definition of petroleum have brought in the much-needed regulatory boost to the exploration of shale gas. This new age untapped source of fuel might bring to an end, to some extent, India’s dependency on crude oil imports. But what’s the fine print? Will the private sector, engaged in exploring and producing alternative sources of fuel like coal bed methane (CBM), be encouraged to start investing in shale gas and oil exploration? In its notification issued on July 24, definition of petroleum was changed to include shale by implication. The new description reads: “Petroleum means naturally occurring hydrocarbons, whether in the form of natural gas or in a liquid, viscous or solid form, or a mixture thereof, but doesn’t include coal lignite, and helium occurring in association with petroleum or coal or shale.” This amends the earlier definition of petroleum under clause K of Rule 3 of Natural Gas Rules 1959, which defined petroleum as follows: “Petroleum means naturally occurring hydrocarbons in a free state, whether in the form of natural gas or in a liquid, viscous or solid form, but does not include helium occurring in association with petroluem, or coal, or shale, or any substance which may be extracted from coal, shale or other rock by application of heat or by a chemical process.” That definition, which contained the phrase “free state” apparently prevented private players to explore shale, which was reserved for only government-owned entities like ONGC. “By removing the word free, it now means that hydrocarbons in absorbed state like shale can also be exploited,” Vilas Tawde, chief executive officer, Essar Oil and Gas Exploration, told DNA Money. In May, government felt the need to change this definition and accordingly floated a consultation paper with a draft definition. A section of the natural gas industry feels this will enhance domestic exploration and production of shale and other hydrocarbons raising India’s energy security and reducing dependency on imports. “The amendment of the definition of petroleum is a welcome move as it would open up exploration of all hydrocarbons in existing fields which is in line with the new Hydrocarbon Exploration Licensing Policy,” Prashant Modi, managing director and CEO, Great Eastern Energy Corp, which is one of the two companies that produce coal bed methane, told agencies. But a closer reading of the changes in the regulations reveals a different picture. “This notification doesn’t cover the CBM blocks. It redefines petroleum where all conventional blocks are allowed to go for all kinds of unconventional resources like shale or CBM that are there in those blocks. But its only for conventional blocks,” Tawde said. This means private sector players like Essar Oil and Gas and Great Eastern Energy would not be allowed to mine for unconventional sources like shale in their CBM blocks, which itself is an unconventional energy. “This opens up opportunities in western region and in Assam (where most of crude bearing blocks are there) but not in Bengal region which is devoid of conventional deposits but have rich CBM reserve and where we have producing CBM blocks,” Tawde explained. So, Essar will now have to look for shale in its Mehsana block in Gujarat where it doesn’t have estimates. “We have to work hard to get the date estimates for shale in Mehsana block which falls in the Cambay basin, so we are more upbeat on CBM where we pioneered CBM exploration in the early 90’s,” he said. While Essar will now have to look at Gujarat for shale, allowing shale production in the existing producing CBM blocks, all of which are located in Ranigunj that falls in the Damodar basin, would have helped the operators as there is significant synergy between CBM extraction and shale fracking. “CBM extraction gives out water while shale fracking needs water. Again, CBM production can only be ramped up gradually after dewatering while in case of shale, production is high in the initial years. So, we can front-end shale production and back-end CBM production thereby achieving an optimum utilisation of infrastructure,” an Essar official said. Another impediment could be absence of recent data on actual reserve of shale in the country. “We are currently creating a database of shale gas reserve in the Damodar basin though the project has seen some delays,” said an official of Centre for Mine Planning and Design Institute (CMPDI), a subsidiary of Coal India that carries out most of exploration research and data analysis for coal and related minerals in the country. CMPDI had mandated National Geophysical Research Institute for carrying out the study titled ‘Shale gas potentiality evaluation of Damodar basin’ which involves 3D high resolution seismic survey for shale gas exploration and demarcation of shale horizons. That project, earlier slated for completion by March 2016, has got delayed till November 2018. In its absence, private sector players like Essar and others are dependent on a study done by the US government released in 2015 on “Technically Recoverable Shale Oil and Shale Gas Resources: India and Pakistan” which carried out Energy Information Administration (EIA), the statistical and analytical agency within the US Department of Energy. According to that report, India has technically recoverable shale gas resource of 96 trillion cubic feet (tcf) which, incidentally, is lower than Pakistan’s 105 Tcf. In Addition, India has 87 billion barrels of shale oil compared with 227 billion barrels in Pakistan. Essar’s Ranigunj CBM block has about 7 tcf of reserves of which around 1.5 tcf is recoverable, according to an estimate of the United States Trade and Development Agency (USTDA), Tawde said. Eric Lindros Authentic Jersey
Arbitration panel doesn’t find RIL at fault in ONGC row
An arbitration panel has issued an award in favour of Reliance-led consortium in the so-called gas migration dispute case, RIL said in a late evening filing to the stock exchange. The panel has rejected the government’s contention that Reliance and its partners unjustly gained by producing gas from ONGC’s fields in the KG basin and must return the gains by paying $1.55 billion to the government. “All the contentions of the consortium have been upheld by the majority with a finding that the consortium was entitled to produce all gas from its contract area and all claims made by the Government of India have been rejected. The consortium is not liable to pay any amount to the Government of India,” the company said. The tribunal also directed the government to pay $8.3 million, or Rs 56 crore, as the cost of arbitration to the consortium that includes BP Plc and Niko Resources. The arbitration tribunal was split two to one with GS Singhvi, the former Supreme Court judge and the government nominee on the panel, writing a long dissent note. Bernard Eder, a former UK High court judge nominated by Reliance, and Singapore-based Lawrence Boo were the other two arbitrators. As per the majority verdict, Reliance and its partners were well within their rights under the contract to produce the gas that had migrated from the ONGC fields in the KG Basin, and had not unjustly enriched themselves, according to people familiar with the arbitration award. The majority of the panel agreed with RIL’s view that the production sharing contract doesn’t prohibit the contractor from producing gas—irrespective of its source—as long as the producing wells were located inside the contract area, people familiar with the award said. The panel rejected the government’s plea that RIL had unjustly enriched itself on the ground that the company had made the required capex for extraction of gas and had also paid royalty and profit petroleum due to the government on all gas produced from the field, they said. In his dissent note, Singhvi cited two previous judgements on public trust doctrine and unjust enrichment. He also relied upon the reports by consultant D&M and the Shah panel, people cited above said. This is the second legal setback for the oil ministry in two months — Delhi High Court on May 31 ordered the government to extend Vedanta’s contract for the prolific Barmer block on the same terms as in the original contract. The government has appealed that order. GOVT REACTION The government is studying the gas arbitration award and may challenge it in court in the near future although no decision has yet been made, the people cited above said, adding that the dissent note by Singhvi will help in making an appeal in court. Any court appeal means the matter may drag on for many more months. An email sent to the oil ministry elicited no response till the time of going to press. The tribunal’s ruling contradicts the findings of an official panel led by retired judge AP Shah. The recommendations of that panel, published in 2016, formed the basis for the government’s demand of $1.55 billion from Reliance and its partners. Reliance had then called the government demand arbitrary and invoked arbitration proceedings. The dispute began in 2014 when state-run ONGC approached the Delhi High Court, complaining that gas from its blocks was being produced by Reliance. The two companies appointed D&M, a US-based consultant, to examine the issue. The government, which was directed by the court to resolve the matter, appointed the Shah panel to study the D&M report and recommend ways to prevent such incidents in future. The panel said RIL had unjustly gained by producing gas that didn’t belong to the company and must return the gains to the government, which owns the gas that state-run ONGC was yet to extract from the two fields it operated. Reliance had produced gas that had migrated to its field in the KG basin from ONGC’s KG-DWN-98/2 block and Godavari PML, which share borders with the RIL’s block. The government accepted all recommendations of the Shah panel, which said RIL must compensate the government, not ONGC, the original petitioner in the case. With this, the government replaced ONGC in the dispute with Reliance. The $1.55-billion demand included the alleged benefit RIL received by drawing ONGC’s gas until March 2016, the accumulated interest on the amount, and $175 million by way of additional cumulative profit petroleum. Devin Street Womens Jersey