ONGC wants Rajasthan repeat at other fields

Vol 15, PW 11 (01 Dec 11) People & Policy

Give ONGC an inch and it will gladly take a mile! This is what Cairn India and Hardy Oil & Gas are learning the hard way.

PETROWATCH learns ONGC wants royalty and ‘cess’ (tax) to be ‘cost recoverable’ at Cairn’s Cambay basin shallow water block CB-OS/2 and UK-listed Hardy’s PY-3 oilfield offshore Chennai. Cairn has already agreed to share royalty and ‘cess’ payments with ONGC at its Mangala and other Rajasthan fields, as one of the conditions for the Indian government’s approval of its majority stake sale to UK-listed Vedanta.

Having tasted success, ONGC top management last month asked the company’s legal department to get expert third party opinion on whether it could achieve a similar feat at CB-OS/2 and PY-3. There’s a chance, says an industry source, this might create another hurdle to the already delayed Cairn-Vedanta deal.

ONGC has a 50% stake in pre-NELP block CB-OS/2 and grudgingly pays all royalty and cess on oil and gas production from the block’s Lakshmi and Gauri fields, similar to what it was doing at Cairn’s Rajasthan’s fields. But, we hear, ONGC might not have a strong legal case for demanding changes to the royalty and cess terms at CB-OS/2.

The Joint Operating Agreement (Accounting Procedure, Appendix A, Article 1) of this block’s PSC clearly states: “royalty, cess, duties, fees and other charges where the licensee (ONGC) is not liable are ‘cost recoverable’.” However, at PY-3, the PSC is more favourable to ONGC and the accounting procedure attachments (Appendix A, pg 86) say, “‘cess’ and royalty are ‘cost recoverable.

’” In other words they can be recovered from revenue before profits are paid to the government and partners. This is similar wording to that contained in Cairn’s Rajasthan PSC, and ONGC might use it to argue its way to victory.