OVL to take $74m hit in Brazil for sloppy work

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

Taxpayers won’t be pleased to hear state-owned ONGC Videsh (OVL) might be forced to pay more than $63m as ‘standby charges’ for a semi-submersible idle off Brazil for 196 days.

Worse, OVL must pay another $11m to Brazil’s upstream regulator as a penalty for not submitting ‘oil spill response readiness’ documents in time. Blame the fiasco on OVL’s rush to begin drilling a single exploration well at its Santos Basin block BM-S-73 offshore Brazil, where it partners Petrobras and Ecopetrol.

On March 3 this year, OVL asked Petrobras if it could sub-contract Transocean-owned semi Transocean Driller at $320,000/day to drill well Agua Viva #1 in water depths of around 200 metres. Driller mobilised to the well location on March 8, but began drilling only on April 19 after receiving clearance from the Brazilian Institute of Environment and Renewable Natural Resources (IBAMA).

But, on June 24, IBAMA and Brazil’s upstream regulator National Petroleum Agency (ANP) ordered OVL to suspend drilling till it submitted documents showing it could tackle any potential oil spill, and also ordered it to pay $11m as penalty. OVL submitted the necessary document in early November and resumed drilling on November 9.

“OVL was allowed to resume work because of the good relationship Petrobras and Transocean have with ANP,” says an industry source. “OVL has only itself to blame for this situation.

It should have organised the clearances in advance.” OVL must pay all standby charges on its own, at this block, which it operates with a 43.5% stake.

Under the ‘farm-in agreement’ signed in 2009, Petrobras must provide a rig to drill at the block but operator OVL can keep the rig on standby for no more than 14 days. After this period, Petrobras has the right but not the obligation to take the rig elsewhere.

Driller has yet to reach TD of 5500 metres at Agua Viva#1.