Policy on Extension of Mining Lease of Small Sized Oil / Gas Fields.

Background:

Oil & Gas Blocks in India, belong to one of the three regimes

  1. Nominated Blocks
  2. Pre NELP PSC blocks
  3. NELP Blocks

During Pre NELP regime, Notice Inviting Offers (NIO) to develop discovered small sized oil and gas fields in India was given in 1992 and 1993 respectively by Ministry of Petroleum and Natural Gas (MoP&NG), Government of India (GoI). Details are given in Annexure 1.

In majority of the cases, the fields were selected for one of the following reasons

Likely low returns

severe logistic problems,

complex nature of fields,

assimilation of new technique and technology from small oil / gas field operators

reduce number of idle oil fields, down-sizing of man-power etc.

Annexure 2 gives details of fields and operators.

Production Sharing Contract (PSC) has been signed between Joint Secretary, MoP&NG , GoI on behalf of President of India and oil /gas field operators between 1994 – 2-001.

ONGC is not in picture as far as development of small oil / gas fields is concerned.

Mining Lease

Mining Lease determines the period during which the licensee/contractors can exploit the Hydrocarbons.

For the Pre NELP Contracts Mining Lease is differently defined in different contracts. Annexure 3 gives the details of Mining Lease regimes, as are applicable to different fields.

It will be seen, that –the periods are arbitrary, and have very little relevance to the ground conditions or recovery potential or residual life of capital equipment.

The current procedure for ML extension is not clear, or time bound and leaves gaps between crucial requirements and likely results.

It is therefore proposed that AOGO identify issues involved and recommend a procedure to be followed for ML Extension.

Criterion for extension of Mining Lease:

Following factors are important for determining the Extension Period for Mining Lease

  1. Recovery Factor achieved and likely to be achieved
  2. Residual Life of Reservoir
  3. Residual Unrecovered Capex / Proposed Capex
  4. Time Lost in Initial Contract
  5. Fluid Characteristics
  6. Upper Limit for Contract Period imposed by PSC

The above factors should be determined, at the time of new Capex proposal or in any case a minimum of four years ahead of expiry of initial ML period.

  1. Recovery Factor – Knowing the reservoir parameters, it is possible with best judgment, to calculate both the actual recovery factor achieved, and likely recovery factor achieved without any further capex, at the end of current ML and the maximum recovery factor achievable with or without the capex.
  2. Residual Life – Once the above factors are established, it should be possible to determine the residual economic life of the reservoir.
  3. Residual Capex Production – It is based on the concept that a hurdle ratio of Investment Multiple exists for any Capex. It is suggested that a ratio of 1.5 ( ?? Whats a good no ?)be used. Thus residual capex production works out a balance production number to reach the above ratio
  4. Initial Time Lost – This refers to initial time lost because of non receipt of permissions or data, and consequent inability of operator to produce during entire life of initial lease.
  5. Fluid Characteristics – It is assumed that minimum extension periods required are different for different fluids ( give technical/commercial reasons ) as follows

free gasproducing fields, extension of 5 years beyond initial period

undersaturated crude field Minimum extension of 5 years,

with further 5 years based on situation like dissolved gas supply

saturated crude extension of 5 years with further 5 years for commercial production of free gas / gas cap gas.

  1. Upper Limit in PSC – Each PSC defines a maximum limit to which it can be extended

Procedure for Extension of Mining Lease

The procedure should be as follows

  1. The operator shall submit a request for extension of ML, with a desired extension period, if
  1. There is a new capex proposal, where hurdle ratio of investment multiple shall be achieved only after current ML expires
  2. Only four years are left , and the hurdle ratio of IM is not likely to be met in the current ML validity
  3. Only four years are left in the current ML validity, and various factors indicate a longer residual economic field life within the overall limit stipulated in PSC
  4. Only four years are left in the current ML validity, and various factors indicate a longer residual economic field life which extends beyond the upper limit stipulated in PSC
  1. DGH shall indicate its requirements of further feasible inputs, Technical or Commercial presentations, within 15 days of such submission.
  2. Operator shall organize such inputs, generally within a period of 15 to 30 days.
  3. DGH shall make its recommendations within 4 weeks of receipt of inputs.
  4. MOPNG/MC shall convey its approval within 8 weeks of receipt of such recommendations
  5. Such approval shall not be generally with-held unless
  1. There is ……
  2. Xxxxx
  3. Xxxxx
  4. xzxxxx
  1. Incase the approval is required for a period longer than any limit specified in any act, MOPNG shall convey through a Letter of Intent , its intention to approve such extensions , as and when they become due , unless specifically barred by statue. For such renewals, only a certificate confirming a no change in the original factors need to be submitted.
  2. Incase the period goes beyond the maximum cap specified in the PSC, a proposal to create special prior rights needs to be considered to optimize the field development . A draft outline is provided in Annexure 4
  3. For cases where the ML is to be granted by state authorities, the application shall be made to them enclosing the above LOI, and shall be deemed approved if not granted within 3 months.

Advantages of Proposed Procedure

The above procedure, by removing uncertainties/and guaranteeing adequate time for economic recovery, shall offer the following advantages

  1. Possibility of enhancement and / or maintaining level of oil / gas production by drilling of wells and increase in ultimate oil / gas recovery factor
  2. Identification of new areas within and / or adjacent to existing field for exploration and / or exploitation of hydrocarbons.
  3. Exploration and exploitation of unique and / or unconventional reservoirs like Shale gas, Shale oil and Fractured Basement.
  4. Pilot and commercial application of cost and man-power intensive EOR processes.
  5. Depletion of gas cap after optimum utilization of potentential gas energy of gas cap as drive mechanism
  6. Recovery of high value sophisticated hardware / equipments procured for special projects, cost of recovery of wells drilled, specialized services, knowledgeable skilled personnel etc in last phase of development of fields.
  7. Field trial to new technique and technology which has applicability in other complex fields in the basin.

We request for an opportunity to present and discuss these proposals.

ANNEXURE 1

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NIOs of various rounds /or/ a table of fields, dates , periods etc.

ANNEXURE 2

Majority of fields offered for development are from Cambay Basin in Gujarat .In matured Cambay basin , out of the 27 (in 1992: 18 and 1993: 9 fields) discovered fields by ONGC, there were no claimant for 5 fields (Mahi High, Siswa, S Malpur, S Patan from list of 1992 and W Bechraji from list of 1993). In other words, 22 oil / gas fields (14 from 1992 and 8 from 1993 document) have been given to private operators for development.

22 fields include 5 free gas (Hazira, Baola, North Balol, Cambay and Karjisan) and 17 oil fields. Some of the fields were put on trial production by ONGC. Presently, free gas is being supplied from only 2 fields viz Hazira and N Balol

The recipients of oil /gas fields in Gujarat are GSPCL – HOEC ( 1 field), GSPCL – NIKO (5 fields), GSPCL – HERAMEC ( 1 field), GSPCL – HOEC – HERAMEC (5 fields), HRDC ( 1 field), INTERLINK ( 2 fields), JTI ( 2 fields) and SELAN (5 fields).

Number of oil / gas field operators in Gujarat are 8 viz GSPCL, HERAMEC, HOEC, HFDC, INTERLINK, JTI, NIKO and SELAN.

As far as lease area is concerned, maximum area is with GSPCL and associates like NIKO, HOEC, HERAMEC (311 km2), followed by SELAN (194 km2), JTI (57 km2), INTERLINK (17 km2) and minimum with HRDC (4 km2).

Oil / gas field operators like NIKO, HOEC and HERAMEC being associated with state owned company - GSPCL seems to have no challenges. But the situation is different for operators like JTI, SELAN, INTERELINK and HRDC.

The 22 oil / gas fields were awarded before pre-NELP for development and therefore not entitled for befits under section 42 of IT Tax 1961. This has jeopardized development of some of the fields. Moreover, productivity and reserves are low to have reasonable pay out period.

ANNEXURE 3

Mining Lease for Free Gas Fields:

In the case of Free Gas Fields like Hazira, ML period is 20 years from effective date which is the date of signing PSC: 23rd Sept 1994.

The awarded fields not being delineated, considerable data gap for logical scheme of development, drilling of development wells for envisaged production, adequate representative pressure - production information for Material Balance Calculation, Enhanced Gas Recovery etc., requirement of gas by industries for longer duration, total ML period of 20 years is less. Therefore, need extension of ML for a minimum period of 5 years. Incidentally, oil and gas produced from fields of Gujarat being “sweet”, tubular can last for longer period as seen from Ankleshwar field which is on production from 15th Aug 1961. Therefore, tubular may not limit exploitation period.

Mining Lease for Oil Fields:

With respect to free gas fields, number of oil fields are 3 ½ times more. The oil fields are of variable dimensions, differentially delineated, complex, without bare minimum basic information for logical development of field, expeditiously. Moreover, most of the wells are not in healthy condition, the information given in Information Docket and Data Package is far from situation actually encountered during work over job thereby resulting in time and cost over-run.

For the development of the fields, vital inputs like suitable Drilling Rig and Work over Rig of Proper specification were not available, timely. Mover, this situation was compounded, for some time, by low oil price thereby limiting development drilling.

Most of the operators being small, the approach for development of field has been cautious i.e. from known to unknown productive areas, generation of pressure- production information from existing oil wells etc .As a result of this, development has been slow. Moreover, it is equally difficult to get consent from Directorate General of hydrocarbons.

In the case of Oil Fields, ML period is in range of 18 to 25 years and extendable by the Government for a further period not exceeding 5 years. The total ML period is variable and seems to depend on balance recoverable oil, balance economic life commercial production of Non Associated Natural Gas but not more than 5 years.

Initial Mining Lease Period:

As mentioned earlier, presently, for free gas field like Hazira, ML period is 20 years without any extension.

In the case of saturated and under saturated crude fields, initial period is in range of 18 to 25 years and extendable for another 5 years.

In the event of commercial production of Non Associated Natural Gas, period may be extended for a period up to 5 years after first extension. Sub-total:10 years.

In some cases, extension is dependent on balance recoverable oil and economic life etc.

In short, there seems to be no definite yardstick for deciding minimum and maximum period of mining lease.

ANNEXURE 4

Draft proposal for prior rights beyond max limit in PSC