Terminating Hardyآ’s PSC for CY-OS/2 in Cauvery

Vol 8, PW 5 (02 Jun 04) Exploration & Production

Bad news for Hardy Exploration and GAIL, owners of the CY-OS/2 exploration block in the Cauvery Basin offshore Tamil Nadu.

This report learns that the oil ministry has turned down requests by operator Hardy for an extension to Phase-III of the exploration phase, which has already expired. Expect the ministry to formally inform the consortium shortly.

Crucially, the ministrys letter will also tell the consortium that the CY-OS/2 PSC is to be terminated and will ask for the return of data. Under the terms of the seven-year PSC, Phase-III expired on 15th January 2004.

Hardy wanted an extension of 22 months to Phase-III beyond 15th January so that it could complete the work programme of drilling one exploratory well. In addition, Hardy wanted to shoot 860-sq km 3D seismic.

Since October last year, both GAIL and Hardy have been writing to the ministry for extensions arguing that the time available is insufficient to complete the work programme. Hardy was unable to begin work on time because of non-availability of data and delays in government approval.

As a result, Phase-I was extended by a year and Phase-II by nine months. This reduced the time available for Hardy to carry out its Phase-III work programme.

Some argue the ministrys decision to deny the consortium an extension and terminate the contract is short sighted, particularly given Hardys commitment to the block: Hardy has already exceeded its work programme commitment in Phase-I and Phase-II. If the PSC is terminated, this means the block will return to the government and be offered in a future NELP licensing round.

Any future operator would have to repeat the groundwork that Hardy has already carried out. A wiser move would have been to allow Hardy to complete work on the block.