ONGC reneges on agreement with Canoro in Nagaland

Vol 11, PW 24 (17 Apr 08) Exploration & Production

ONGC is about to renege on a June 2007 agreement with Canoro Resources in which it agreed to give the Canadian company equity and joint operatorship of its assets in the troubled northeast state of Nagaland.

The new offer from ONGC, it seems, will be for service contracts only. “We had initially agreed on joint operatorship and equity stakes,â€‌ admits ONGC.

“But now that doesn’t seem possible.â€‌ ONGC’s executive committee has approved only the scaled-down offer.

ONGC has six assets in Nagaland: one field where production is suspended and five exploration blocks. But these have lain dormant since armed separatists expelled ONGC in 1994 and the state explorer is still unable to resume work, despite a mining lease from local authorities.

By contrast, both militants and local government welcome Canada-based Canoro. “Canoro has very good links with the government and the militants,â€‌ admits ONGC.

This rapport prompted ONGC’s offer of joint operatorship and equity in the first place. Now however, says ONGC, “it will be very difficult, nearly impossible, to get oil ministry permission to give participating interest and joint operatorship to Canoro in these blocks.

â€‌ Canoro has not yet indicated whether it will accept the scaled-down offer, whereby it will receive only a development and management fee. Nonetheless, ONGC has organised a team to begin negotiations.

“Let us begin work at least with a service contract,â€‌ says ONGC. “Later we can modify the arrangement based on how things work out.

â€‌ ONGC says the service contract with Canoro will be modelled on an existing arrangement used to develop some of its marginal fields, but admits that the “commercial terms will have to be betterâ€‌. ONGC claims Canoro, “also seems comfortable with a service contractâ€‌ for the Nagaland assets.

In existing service contracts for marginal fields, contractors are extremely unhappy with ONGC’s unwillingness to raise crude oil price from $35/barrel despite rising operational costs.