Cairn and Niko agree to resolve gas migration row

Vol 6, PW 22 (15 Jan 03) Exploration & Production

CAIRN ENERGY AND Niko Resources can soon put behind them their bitter squabble over gas migration between the Hazira and CB-OS/2 blocks offshore Gujarat.

PETROWATCH learns that last month both sides agreed on a 'gas balancing heads of agreement' ahead of a final agreement to be signed in the future. Cairn first complained to the oil ministry about a year ago of "unusual pressure depletion" in its wells on Block CB-OS/2 along the border with Hazira.

Niko and its consortium partner Gujarat Petroleum indignantly refuted any suggestion that it was mining gas from the Cairn block. Forced to intervene, the oil ministry tried to get both sides to the negotiating table during the NELP-III roadshows in London and Calgary.

Cairn, understandably, was eager to find a solution but faced resistance by Niko and GSPC who refused to acknowledge the problem. At this point Shastri Bhawan, quoting the terms of the PSCs, insisted that both blocks be developed as a single unit.

It soon transpired this was not possible because the financial terms of both PSCs are different. Hazira is a producing discovered field while CB-OS/2 is an exploration block, which only began producing gas from the Lakshmi field in November.

Important to note is that both sides have rejected the 'unitisation' formula suggested by Shastri Bhawan. Instead, Cairn and Niko-GSPC want to continue with independent development.

"We saw no benefit in unitisation," reveals a source. "We believe gas balancing is a quicker and cleaner way of getting gas to the market."