BP seeks compensation from oil ministry for KG basin block

Moneylife Digital Team 19 June 2013

About 70% of the 1,949 square kilometres of the block falls in an area where DRDO and Navy exercises are conducted and has been classified as “Impact Zone” where oil and gas operations are not possible, BP said

UK’s BP plc has asked the Indian petroleum ministry to compensate for a Krishna Godavari basin block that it is being forced to surrender after defence ministry restrictions made oil and gas exploration impossible.

BP along with Reliance Industries had won the deep-sea KG-DWN-2005/2 or KG-D17 block in the seventh round of auction under New Exploration Licencing Policy (NELP) in 2008.

The block, it said, has “practically become a ‘No-Go’ zone for continuous exploration and subsequent development activities thereby preventing contractors from carrying out petroleum operations.”

BP vice-president (exploration) Alistair JA Bent wrote that the company appreciated that ministry of defence requirements for testing and carrying out exercises have led to the introduction of significant risk and high uncertainly beyond the control of contractors.

“We would therefore be prepared to relinquish the KG-DWN-2005/2 (KG-D17) block, but are happy to discuss possible options in lieu of such relinquishment,” BP said.

BP had written a similar letter in April.

Since the block size is small, flexibility to make any design changes to mitigate the impact of defence ministry requirements was severely restricted, it said.

BP said the block was in early stages of exploration and “any further exploration operations will be constrained as they need to be managed with respect to Naval and DRDO testing and exercises.”

“Even if any hydrocarbons are discovered, those cannot be produced as contractors (RIL-BP) would be prohibited from installing any permanent infrastructure in support of petroleum operation,” it added.

BP said due to the restrictions it will not be able to meet the minimum work commitment it had given at the time of winning the block.

The company had committed to do 2D and 3D seismic survey of the entire block.

“However, we are willing to consider an option to carry out a similar level of activities if equivalent new acreage is given in a mutually agreed area for exploration,” Bent wrote.

Previously, Cairn India had told the oil ministry that a large part of its KG basin block has become operationally infeasible because of new limitations imposed.

Cairn on 26th April wrote to the ministry that 35% of its KG-OSN-2009/3 block is “No-Go” area, which runs right through the block, leaving small portions on either side for exploration.

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