MUMBAI, Mar 13: The Oil and Natural Gas Corporation (ONGC) has changed priorities and will start work on deep water exploration in the Krishna-Godavari basin instead of the Kerala-Konkan region as planned earlier.The corporation's ship, Sagar Vijay, is on its way to the east coast and work here is expected to begin shorty.
The change in plans has come about following a suggestion from the exploration division of the ONGC team.
A single well has been planned for drilling in the Krishna-Godavari basin and if the results are satisfactory, the corporation could pay greater focus on this region.
"ONGC is categoric about sticking to its plans for deep water exploration and the change in strategy does not mean that the other regions identified will be ignored," sources told The Financial Express.
The corporation's latest annual report states that interpretation of seismic data acquired in the deep water offshore areas has led to identification of a number of prospects in the Krishna-Godavari,Cauvery, Kerala-Konkan and Kutch basins. Drilling activities in these areas will be taken up in the near future and one of the offshore rigs of ONGC is also being upgraded for this purpose.
An investment outlay of Rs 200 crore has been earmarked for deep water exploration and for the time being ONGC is going alone in this endeavour. However, it is more than probable that the Indian Oil Corporation may also team up for future activities following the memorandum of understanding signed with ONGC to share expertise in downstream and upstream ventures.
Deep water exploration has been recognised by the government in its new exploration licensing policy (NELP) which has several novel features. Some of these are:
To encourage exploration in deep water, royalty will be charged at half the rate for offshore for deep water areas beyond 400 metre bathymetry for the first seven years after commencement of commercial production.
It is proposed to completely abolish cess payments for blocks offered underthe new policy.
ONGC and Oil India will also be exempted from payment of customs duty on import of goods required for exploration work under the new policy.
There will be freedom to the contractors to market the crude oil and gas discovered in the blocks under the NELP in the domestic market.
The move to get into deep water exploration has come for some serious introspection from a recent research report by Kleinwort Benson styled "Indian oil and gas: Waiting for the new dawn." The authors, Mehdi Varzi and Fiona Nicol, have reiterated that as a first step, an urgent study should be made by the Indian authorities on deep water legislation in other areas of the world. This, according to them, will help assess the conditions that might attract the majors to offshore India.The report states that currently ONGC is considering drilling in depths of around 175-250 metres. While this would be a new achievement for the company, "it pales into insignificance" when compared with other offshoreregions, especially the Gulf of Mexico and offshore Brazil, where plans are on to drill in depths of up to 2,000 metres or more.
"In our view," state Varzi and Nicol, "there should be totally separate legislation for deep water exploration, defined as say below 250 metres, to attract foreign capital and technology." With the exception of Petrobras of Brazil, which has been focusing on deep water over many years, only the international majors and the main international service companies (mostly American) have the relevant knowhow.
The authors hold the view that "such is the urgency of the matter that offshore blocks should not only be open to bidding all year around, but also that interested foreign parties should be permitted to take up to 100 per cent of any project and to recoup all related costs upon discovery before starting to pay royalties to the government." According to them, additional incentives might also be offered for an accelerated drilling programme, including the free provision of anyavailable data and tax-free import of the necessary drilling equipment.
In the event of failure to find commercial quantities of oil and/or gas, should the company (or companies) in question have other upstream or downstream operations in India, the costs incurred in deep water exploration might be offset against taxes paid on the operations. Some other form of tax relief which is at least as attractive as those available in other major offshore regions of the world, should be contemplated," conclude Varzi and Nicol.
