India to pay small penalty for Myanmar gas find

Vol 7, PW 23 (11 Feb 04) People & Policy

ONGC Videsh and GAIL will have to pay a small penalty to operator Daewoo to rejoin the A-1 exploration programme following the massive gas find at offshore Myanmar exploration block A-1 last month.

Only now are details of a back-room drama between Daewoo and its Indian partners beginning to emerge. PETROWATCH learns Daewoo drilled Shwe-1 on a sole risk basis because OVL and GAIL refused to share all the cost.

Shwe-1 was spudded on 21st November as a sidetrack well. We did not agree to Daewoos proposal for a sidetrack, reveals OVL.

The main zone that we were looking at did not have gas so Daewoo wanted to sidetrack the well. Neither OVL nor GAIL was confident of Daewoos data justifying the sidetrack, and we thought it better not to take a risk at that point of time.

As a result, Daewoo went ahead on sole risk and struck it lucky. As far as we were concerned there was a data communication gap between us and Daewoo.

OVL stresses that the decision to let Daewoo drill at sole risk in no way jeopardises Indias position in the consortium. Keeping away from sharing in the expenses of a particular exploration item is clearly provided for in the PSC, we are told.

We have a right to return at the next milestone in an ongoing programme. OVL believes India took an intelligent risk by staying away when Daewoo began drilling and is firmly back in the exploration programme.

We rejoined four days later, when testing began, he adds. If Daewoo had not struck gas we would not have had to share in the drilling costs of the Shwe-1 sidetrack.

But OVL admits that Daewoo will extract a penalty from OVL and GAIL, in addition to their share of the drilling cost, before they can rejoin the exploration programme. The PSC says we can rejoin on payment of a penalty that is equivalent to four times the expenditure incurred by the operator while on sole risk.

This penalty will have to be paid by OVL and GAIL over a period of 11 years. The penalty is a nominal amount because Daewoo was on sole risk for only four days.

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