Think twice before committing to CBM in India

Vol 15, PW 9 (03 Nov 11) People & Policy

Handing back a CBM block in India is harder than winning it.

BP, Dart Energy and even ONGC are learning this the hard way. Each of them is spending at least Rs9 lakh ($18,000) every month on book-keeping for CBM blocks relinquished over a year ago.

Oil ministry and DGH officials are yet to decide how much penalty to impose for unfinished work programmes at BP’s relinquished block in West Bengal, five surrendered ONGC blocks, and three blocks given up by the Dart-led consortium. As a result BP, Dart and ONGC cannot close their accounts.

These operators unsuccessfully met DGH and oil ministry officials in February for clarity on how much they must pay. Another meeting is scheduled at the ministry in Delhi this month (November).

When contacted, a DGH source says ‘penalty calculations’ for these blocks were forwarded to the ministry in July for approval. However, a ministry source says calculating penalties at CBM blocks is complicated as - unlike with oil and gas PSCs - exploration expenses for CBM are not ‘cost recoverable’ from production revenue.

More, CBM drilling costs vary greatly. Drilling a CBM well at a difficult location at Jharia in Jharkhand might cost a lot more than drilling a similar well at nearby Dhanbad city.

Ministry officials are concerned CBM operators might be tempted to show lower overall drilling costs in their accounts hoping this will lead to lower penalties for unfinished work. “We do not want to favour any company,” says the ministry.

“Nor do we want to overcharge. Penalties must be justifiable.

But we must be vigilant, and may ask for third-party certification of audited accounts before reaching a final figure.”