Oil Ministry is formulating a policy to allow cost recovery of an exploration well drilling in a producing field, only if it leads to a commercially exploitable find

The Oil Ministry is considering granting permission to drill exploration wells within an oil and gas field but with the condition that cost recovery of such wells would be allowed only in case there is a commercially exploitable discovery.

Reliance Industries and Cairn India want to drill exploration wells in already producing oil and gas fields, but the ministry’s technical arm DGH had previously opined that such activity in an area that is producing hydrocarbons is not permissible under Production Sharing Contract (PSC).

DGH felt the government’s profit share, which is triggered when an explorer recovers all his cost, would be adversely impacted if new costs are added.

To get around this, the ministry is now formulating a policy to allow cost recovery of an exploration well drilling in a producing field, only in circumstances where it leads to a commercially exploitable find, official sources said.

This would be a significant departure from the signed contracts that allow companies to first recover all their costs before sharing profits with the government.

While RIL has proposed to drill an exploration well on the flagging D1&D3 gas fields in the KG-D6 block to study reservoir characteristic, Cairn wants to drill new probes to help raise output from the Rajasthan block to 300,000 barrels per day (bpd) from 175,000 bpd.

Directorate General of Hydrocarbons (DGH) had sometime back taken a view that exploration is not permitted within an area that has been delineated after discoveries for production of hydrocarbons.

As a way out, the ministry wants to frame a new policy for allowing exploration in a development area and will put it up to the Cabinet Committee on Economic Affairs (CCEA) for approval, they said.

Globally, exploration is permitted in fields that are under production so as to keep adding new reserves to replenish ones that have been produced. In absence of rejuvenation, the fields will terminally decline from the day output starts.

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