 "UK's Hardy Oil threatens to abandon PY-3 oilfield")
The London-listed company's investment plan for resuming production from the field, which was shut down in July 2011, has been pending with the Oil Ministry for one year now. To compound the woes, the terms the ministry recently approved for extending the field license have made the investment economically unviable.
"The future of PY-3 is solely dependent on the Government of India and its nominee/licensee agreeing to honour the PSC in full. Well monitoring activity has been proposed and failing the timely adoption of a full field development plan (FFDP) and past budgets, planning for abandonment will be initiated," the company in a regulatory filing.
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A meeting of the oversight committee of Block CY-OS 90/1 (PY-3), called Managing Committee, was convened in June 2015 to consider the FFDP that envisaged an initial output of about 3,000 barrels per day of oil from one well and then drilling more wells to take it to peak of around 8,000 bpd.
"Several agenda items were agreed (at the MC meeting) but finalisation of the minutes of meeting remain pending," Hardy said. "The FFDP remained under consideration while the Government of India representatives consulted with higher authority regarding the necessary PSC extension and Cess and Royalty treatment."
Hardy is the operator of the PY-3 with 18 per cent interest while Tata Group and HOEC have 21 per cent each. ONGC has the remaining 40 per cent and is also the licensee of the block.
In Budget for 2016-17, Finance Minister Arun Jaitley changed the cess on domestically produced crude oil from Rs 4,500 per tonne to 20 per cent of price realised.
"Analysis indicates that the change in policy was of benefit to ONGC (the licensee) only at oil prices lower than USD 45 per barrel. At an expected price below USD 45 per barrel the PY-3 consortium would not be able to sanction the proposed FFDP. As a result the policy change has compounded the projected loss to be realised by the licensee," it said.
A month later on March 28, the government announced a PSC extension policy to be applied to 28 fields including PY-3.
The policy provided for many new terms and conditions including levies like cess and royalty being paid at prevailing rates for the duration of the extended period and the government's share of oil being hiked by an additional 10 per cent.
"The policy appears to have created an incentive for the government nominated licensee to defer investment until the beginning of the extension period as its economic position is significantly enhanced. In relation to PY-3 this would mean activity being delayed until 2020," Hardy said.
The company said its officials met Oil Minister Dharmendra Pradhan last month to discuss FFDP and to identify a viable way forward.
"It was stressed that the proposed FFDP is projected to generate considerable value directly to the government via levies, profit petroleum and taxes which would be several times larger than the projected losses to the government-owned licensee and as a result should be supported by the government nominee," it added.
The PY-3 field is located off the east coast of India, 80 km south of Puducherry in water depths between 40 meters and 450 meters. The licence, which covers 81 square kilometer, produces high quality light crude oil.
The field has produced over 24.8 million barrels and was shut-in in July 2011 due to the expiry of the production facilities' marine classification and the refusal by the government to allow the extension of the contract.