The BP oil spill in the Gulf of Mexico has sent Indian oil majors into a review mode. While private sector Reliance Industries Ltd (RIL) is reviewing its service contracts and engineering operations, government-owned Oil and Natural Gas Corporation (ONGC) has conducted five safety audits for its field since the incident happened on April 20.
The London-based company lost around 15 per cent of its market value in a single day yesterday, taking the total decline to 40 per cent or $74 billion from $186 billion since the disaster. Domestic oil industry in India is now debating the risk taking ability of companies especially that of mid-size players.
A paradigm shift in the risk sharing by the operator and the service provider is also on the anvil. The responsibility for safe conduct of drilling and production operation is that of the field operator since the lease for drilling is in its name. “We generally take insurance for such incidents and even the service provider takes insurance but the primary responsibility is of the operator. We are now looking at technical and certain aspects of service contracts,” said PMS Prasad, director and head (petroleum business), RIL.
He said the incident would have far reaching implications for operators and service providers and their insurance contracts. Besides technical aspects like hardware, design and cementation of wells would also need to be reviewed.
There may be a change in relationship between the operating companies and service providers who conduct the actual drilling, cementing and provide hardware for the entire operations right from exploration to the production stage. Certain liability clauses may now be built into contracts with service providers. “This will be a game changer. We feel that the approval process from regulatory authority, not only in the US but elsewhere also, is going to be much more difficult and demanding. The companies will be required to spend much more resources towards safety precautions and drilling practices will be more stringent,” said ONGC Chairman R S Sharma.
The US president Barack Obama has announced that his government would freeze offshore drilling projects for six months and suspend exploration underway near Alaska, Virginia and in 33 sites in the Gulf of Mexico.
The future of India’s deepwater drilling would also be redefined though the country cannot afford such a moratorium, said Avinash Chandra, former, director general of hydrocarbons. About two-third of India’s domestic crude oil production of about 34 million tonne comes from offshore fields. “We are heavily dependent on imports so work has to go on (for domestic exploration and production) in line with new safety precautions,” he said.
India’s safety regulations are currently patterned on Norwegian safety norms that are considered stringent though according to Chandra some of these are not adopted here because they are perceived as “too stringent”. Oil Industry Safety Directorate, under the ministry of petroleum and natural gas, is the regulatory agency for all oil installations including offshore drilling though the Directorate General of Mining Safety also monitors onland fields. OISD conducts regular safety audits besides internal checks by companies themselves.
Deepwater control becomes difficult in such incidents and the whole remedial action gets time consuming. "An event like this can wipe out any mid-size company. In future not only would due diligence be exercised more but the decision making process of the operators could be put under stringent screening. The skills and experience of the manpower hired could also be put to test before signing contracts with the service providers," said an ONGC executive. ONGC witnessed the worst oil disaster in the country’s history when a support vessel collided with its Mumbai High North Platform in 2005 killing 22 people. Since then safety norms have been tightened.
