DGH lets GSPC begin partial production from PK-2

Vol 10, PW 22 (08 Mar 07) Exploration & Production

GSPC (50%) has at last won DGH approval to begin crude oil production from its onland discovery block CB-ONN-2000/1 in Gujarat, which it shares with GAIL (50%).

PETROWATCH learns DGH approval for partial production from CB-ONN-2000/1 - the most hotly contested block in NELP-II - came at a Management Committee meeting in Delhi on 27th February. During the meeting GSPC argued for production from three wells: PK-2, PK-2-A1 and PK-2-A2.

Annoyingly, the DGH permitted production of only 350 b/d from one well, arguing that the other two should be kept “on observationâ€‌ until the completion of an ongoing study by an outside agency hired by GSPC. “The minutes of the MC meeting have been signed,â€‌ we hear.

“GSPC began production from 1st March itself.â€‌ GSPC has been waiting more than six months for DGH approval to begin production from the PK-2 oil discovery, announced in November 2003.

GSPC later drilled the PK-2-A1 and PK-2-A2 appraisal wells and announced estimated in-place oil of 60m barrels, later submitting a development plan envisaging initial production of 3000 b/d from these three wells over 12 years. But unknown to GSPC, the DGH had serious reservations about its production plan.

GSPC assumed DGH approval would be fast, and along with the development plan submitted other essential documentation ahead of production, such as the all-important COSA (Crude Offtake and Sales Agreement) with Indian Oil. Under this COSA the 38-API crude from PK-2 is benchmarked with Nigeria’s Bonny Light and will be transported to a nearby ONGC group gathering station from where it will be taken by Indian Oil and blended with ONGC’s north Gujarat crude before reaching the Koyali refinery.

GSPC complains that it continued to pay ONGC hire charges of Rs30 lakh per month during the approval process with the DGH, which took longer than expected. “Production should have begun when global crude was around $70 a barrel,â€‌ says a source.

“With prices now off those highs, both the contractor (GSPC-GAIL) and the government have lost out.â€‌