Forest drilling easier after Oil India victory

Vol 18, PW 1 (28 Aug 14) People & Policy

India’s Supreme Court has issued a landmark ruling in Oil India’s favour, setting a precedent making it easier for explorers to drill in forested areas.

This month (August) judges decided to reduce the amount of compensation Oil India pays Arunachal Pradesh state by 98% from Rs6000cr ($991m) to Rs120cr ($20m). Oil India received environmental clearance on November 1, 2011 to drill 11 development wells to 4500 metres TD and eight exploration wells at its 541-sq km Ningru mining area lease, which lies in reserve forest land.

But the state government asked the company to pay forestry compensation based on the net present value (NPV) or prevailing market rates for the entire area in the hilly north-eastern state - or Rs6000cr. Oil India petitioned the court arguing it only planned to use 2% of the area so should only pay that much compensation.

The court agreed, after examining best practice in other countries. “This is a major breakthrough,” exclaims a Delhi-based oil and gas lawyer.

“Other companies can refer to this case.” An Oil India source tells us it would have abandoned its drilling programme at the block if the ruling went against it.

“We have four weeks to pay,” he says. “Formal orders to begin exploration should come in two or three months.

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