ONGC to take over east coast PY-3 oil field from UK-based Hardy Oil & Gas

PY-3 got into controversy after UK's Hardy Oil threatened to abandon the field, saying the government was not honouring the PSC

State-run Oil and Natural Gas Corporation (ONGC) is set to give a fresh lease of life to the controversial PY-3 oil field in the Bay of Bengal by taking over its operatorship from UK-based Hardy Oil & Gas.

The field was shut down July 2011, after a drop in production due to various technical reasons. According to multiple sources, the central government has given clearance for ONGC to take over the operations and the latter has issued a notice to the other partners that it would do so in six months.

The other companies include Hindustan Oil Exploration Company (HOEC)  and Tata Petrodyne (TPL, recently acquired by Chennai-based Invenire Energy). The current production sharing contract (PSC) for the block was to end on December 29 this year. “We have informed them that extension of the PSC for another 10 years will depend on whether ONGC will be taking up the operatorship before that,” said a government official.

Following this, HOEC has given a proposal to ONGC for joint operatorship, citing the proximity of PY-3 to HOEC’s nearby PY-1 field. The proposal was to utilise the subsea pipeline from PY-1 to an onshore plant, to evacuate oil and gas from PY-3. 

PY-3 got into controversy after London-listed Hardy Oil reportedly threatened to abandon the field, saying the government was not honouring the PSC. This was after a new PSC extension policy by the government, applicable for 28 fields, including PY-3. The policy calle for cess and royalty to be paid at prevailing rates for the extended period and raised the government’s share of oil by 10 per cent. 

In a letter dated April 10 this year to Ian Mackenzie, president of Hardy Oil, ONGC’s chief general manager, M Ganesan, has said both HOEC and TPL have agreed to the proposal of ONGC taking over the operatorship of PY-3 immediately and that it was awaiting a response from Hardy. 

PY-3 consists of an 81 sq km area, around 80 km south of Puducherry. An increase in production from the block is expected to be beneficial for the Nagapattinam refinery of Chennai Petroleum Corporation. A source said the ministry of petroleum had cleared the proposal, saying the change of operatorship should not be associated with additional liability transfer to ONGC.

At present, ONGC has 40 per cent participating interest in the block. Hardy Oil has 18 per cent, with HOEC and TPL having 21 per cent, each. In March 2017, Hardy had initiated arbitration at an international court in Singapore against its partners to collect $10 million associated with expenditure it had incurred as operator of PY-3, including the amounts due to Samson Maritime, a service provider to the block. According to a filing by Hardy at the London Stock Exchange, its partners have “made several counter-claims against Hardy for substantial damages they attribute to alleged gross negligence and wilful misconduct”.