Essar hit with two-year ban on all ONGC tenders

Vol 15, PW 21 (03 May 12) Exploration & Production

Mumbai-based Essar took a gamble when it backed out of a 2011 contract to hire floater Essar Wildcat to ONGC for a more lucrative deal with ConocoPhillips.

Now it’s paying a high price. MD Joshi, executive director of ONGC’s Mumbai-based drilling services division, issued an official order on April 11 to “stop any further business dealings” with Essar Oilfield Services along with its “allied concern(s), partner(s) or associate(s) or director(s) or proprietor in any capacity for participation in future tenders” for two years with backdated effect from September 5, 2011.

Joshi’s order - seen by PETROWATCH - means ONGC will neither invite Essar to bid in any new tenders for two years nor consider Essar’s offer in ongoing tenders like the Mumbai High pipeline replacement project or the onshore facilities tender for the eastern offshore Vashishta and S1 deepwater fields. Cut to May 27 last year when ONGC issued a ‘firm’ order for Wildcat to drill three wells, including a relief well, at pre-NELP KG basin block G-4 at $253,000/day.

Essar acknowledged the order on May 31 but sent ONGC a letter of regret on June 13 saying it could not mobilise by the August 25 deadline. ONGC waited out the mobilisation period hoping something might change but finally cancelled Essar’s contract on September 5 and encashed the $500,000 bid bond.

Essar luckily hadn’t submitted the mandatory $8m ‘performance bank guarantee’ or it would have forfeited that too! ONGC sent Essar a ‘show cause notice’ on October 5 asking why it should not be banned for two years. Follow-up letters were sent on October 31 and November 11 to which Essar replied on October 19, November 7 and December 16.

Both sides met on December 9 but ONGC remained unsatisfied by Essar’s explanations.