BP Pitches For Infra Sharing With Companies Like ONGC; Sanctity Of Contract
Ahead of starting the next wave of gas production from the KG basin, U.K.-based supermajor BP Plc. has pitched for oil and gas producers sharing their infrastructure to help cut costs and monetise small and marginal discoveries.
BP, which in partnership with Reliance Industries Ltd. is investing $5 billion in developing three sets of discoveries in the Krishna Godavari basin block KG-D6, also wanted sanctity of contracts to be honoured and policy stability.
Speaking at the India Energy Forum of CERAWeek, BP's India head Sashi Mukundan said policy and decision making must support raising domestic oil and gas production by adopting best international practices. He also made a case for offering incentives for doing better than targeted production rather than imposing penalties.
"One of the things that surprised me when I came to India was that you don't see upstream companies working together and sharing infrastructure," he said, giving an example of a hub called Nikara that BP and Royal Dutch Shell have created in the Gulf of Mexico.
The hub, 140 miles offshore in 2000 meters of water depth, brings in oil and gas production from 8 fields - four owned by Shell and BP and the remaining by other operators. There are 100 miles of gathering line and four export lines - two oil pipelines built and operated by Shell and two gas pipelines that are built and operated by BP. But production from all 8 come through that system, he said.
"If you have something like that you actually can speed up new production, you can reduce the cost, you can bring up marginal discoveries. Also, you can bring down the economic cut off point of production from each of these fields," he added.
The KG-D6 block sits next to the gas blocks of state-owned Oil & Natural Gas Corporation Ltd. Reliance-BP has built pipelines to carry the gas to share and so has ONGC laid separate lines.
Mukundan said there should also be the sanctity of contract and policy stability.
"Once we come and invest under a certain contract and a certain policy framework, it is important that we keep it the same and continue with that," he said, adding the present government is pushing for that.
The other thing is interpreting contracts to support activities, he said.
"Lot of time, the contract might be silent. If it is silent (on an issue or activity) for some reason, we always interpret as allowed," he said. "If it helps in increasing activities, we should allow it."
He went on to cite the example of Angola, which like India also has production sharing contracts for oil and gas production.
The African nation produces 1.5 million barrels per day of oil and to maintain the output it has allowed companies to not just produce but also explore in the same offshore block as well as allowed tie-in marginal discoveries into the existing production and allowed companies to market gas they discovered alongside oil, he said.
On the management committee, which acts as oversight panels for oil and gas blocks, he said these should be run similar to the board of a company where everyone is looking for the success of the block and not at each one's interest.
The management committee is headed by the DGH and is made up of representatives of the operators. In some cases, a representative of the oil ministry also sits on these committees. These panels approve investments as well as oversee operations.
He suggested the appointment of a nodal officer from the DGH, who is not just looking from the standpoint of the upstream regulator, but from the interest of the block operators to help bring success to the operations.
"We can also have DGH participate as we are going through the planning process. So, DGH people can learn from experienced players like BP in terms of how we plan and execute, how we risk manage, how we come up with development concepts, how we come up with commercial models. Also, by participating, they will bring experiences and learnings from other blocks. Also, DGH can assist us by sharing information, services, and infrastructure, making sure that we do this right," he said.
Mukundan said the focus should be to increase the activities that will help raise oil and gas production and reduce imports.
"I need to mention this that in the last six years, this government has done a lot to simplify and fast track processes," he said.
"Proof is in the pudding, which is why BP and Reliance have committed to spend $5 billion to develop three fields which will produce 30 million standard cubic meters per day or roughly 1 billion cubic feet per day of production. That will meet 15% of India's demand in 2022-23 and be roughly about 25 per cent of the production."
India, he said, is not a country of prolific reserves. "We have to string together medium and many small reserves to build materiality and accelerate production. For this, we have to have out of the box thinking. And policy and decision making must support this. There shouldn't be any other objective which supersedes this, not even thought of maximisation government revenue."
He gave the example of Goods and Services Tax where the collections would increase if the economic activity rises.
"If we see more activity happening, more exploration, more production happening, automatically revenue would go up," he said. "We probably must question the depth of regulations that we nowadays have in the name of assurance. Do we really need all of that? Is it helping or is it hindering E&P activities? Are we taking away flexibility, freedom, and the space to innovate solutions?"
"If incentives are better than penalties," he asked. "Increase activity, deliver faster, bigger, and better."