In a major development, Petroleum Ministry has allowed companies like Reliance Industries and Cairn India to start producing oil and gas from discoveries even before field investment plans are approved.
To enable early monetisation of discoveries, Oil Minister M. Veerappa Moily on October 21 approved 5-page guidelines for production and development of oil and gas discoveries made within an already producing field.
The Ministry had in February allowed companies to explore for more reserves within a currently producing oil and gas field. This permission had led to RIL finding more gas reserves 2 km beneath the currently producing gas fields while Cairn found more oil within its prolific Rajasthan fields.
The ministry has now approved a mechanism to enable early monetisation of the finds contained with an already producing area, official sources said.
It allowed companies the option to “submit an integrated development plan (IDP) encompassing multiple new discoveries.”
Currently, every discovery is treated as a separate factory and operators are required to first get approval of they being commercially viable and then seek approval for an investment plan, called a field development plan (FDP).
The Ministry allowed “submission of declaration of commerciality (DOC) and FDP/IDP together by subsuming DOC within the FDP/IDP.”
Cases with single discovery will be termed as FDP and in cases of multiple discoveries, it will be termed as IDP, the guidelines said.
Sources said the investment required in bringing the discoveries to production can be submitted along with the annual work programme and budget for that block for approval of the block oversight panel, called the Management Committee.
“For early monetisation of new discoveries in a mining lease (or producing) areas, the contractor, on his request, may be allowed by the MC to produce hydrocarbons from the notified new discoveries, pending approval of FDP/IDP,” the guidelines said.
This is subject to condition that the contract has taken approval of the MC for the annual work programme, budget and program quantity for such new discoveries, it said.
These guidelines are path-breaking as it would lead to early monetisation of discoveries.
Currently, an operator upon finding oil and gas in a well, has to inform the Directorate General of Hydrocarbons (DGH), which would recognise it as a discovery only if it gets evidence of physical flow of hydrocarbons on surface.
After this, the companies are required to get their commercial viability approved, called Declaration of Commerciality. Once DoC is approved, it submits a FDP for approval and can begin work on bringing the find to production only after the investment plan is approved by MC headed by DGH.
The whole process can take years together and the new guidelines will help cut by half the time taken from discovery to production, sources said.
“Pending approval of FDP/IDP for such new discoveries covered under the new policy, recovery of all costs associated with such discoveries will not be permitted, notwithstanding their inclusion in the annual work program and budget,” the guidelines said.
In February, the ministry had allowed drilling of exploratory wells within a producing field subject to the condition that cost of such wells can be recovered only if it leads to a commercial discovery of oil and gas.
“In the case of early monetisation of new discoveries under this policy, prior to approval of FDP/IDP by MC, it shall be the responsibility of the contractor to ensure optimal exploitation of the reservoir in accordance with Good International Petroleum Industry Practices as provided in the Production Sharing Contract,” the October 21 guidelines said.
The DGH shall, however, have the power to regulate or stop the production to ensure optimal exploitation of reservoirs, it said.