Policy on minimum works for oil firms to be tougher

A new policy against non-completion of minimum work programmes (MWPs) for exploration blocks "" allocated during the New Exploration and Licensing Policy and pre-New Exploration Licensing Policy (NELP) rounds "" is on the anvil.

The new policy is expected to lay down stringent guidelines to determine fines for non-completion of MWPs.

According to documents available with Business Standard, the new policy is likely to calculate the penalties for unfinished MWPs at fully drilled well rate and not at dry or partially drilled well rates.

The cost difference of the two rates is Rs 820 crore, including rigs rates. The rates may also be calculated at present costs, rather than what prevailed at the time of signing the production-sharing contracts with the government.

So far, the government has signed 190 production sharing contracts (PSC) with oil and gas exploration companies. However, the Directorate General of Hydrocarbons (DGH) has used variable methods in calculating the penalties on unfinished MWPs.

A case in point: The initial fine that the Reliance Industries was asked to pay for the non-completion of MWPs in four exploration blocks was $96 million. However, after negotiations, the amount was brought down to $19.8 million.

Similarly, the penalty imposed on the Oil and Natural Gas Corporation for six exploration blocks was brought down from $107 million to $24.5 million.

In these cases, the DGH had taken into account dry well costs instead of well depth mentioned in respective PSCs.

Several other criteria were also waived or altered during the calculation process. This brought forth the need for a uniform policy for non-completion of the MWPs.

As the number of PSCs signed is bound to increase over the years, the penalties that the DGH could levy on oil exploration companies for non-completion of MWPs would also increase.