Vol 3, PW 14 (04 Aug 99) Exploration & Production

Talks between Essar Oil and the Indian oil ministry on a Production Sharing Contract (PSC) for the Ratna and R Series of oilfields should have begun by now.

The fact they havent has more to do with oil ministry inexperience than anything sinister. Oil officials tell Petrowatch they will call Essar for PSC talks, "at an appropriate time", normally a euphemism for "indefinite cancellation".

Far from losing heart, Essar remains upbeat. The company tells this report it will be called for PSC talks in September.

"We have waited four years, another three months wont make any difference", learns Petrowatch, "Wed rather they sort out their problems first and then come to the table". The problem is one of government policy.

To be precise: future crude sales from Ratna. In India, domestic and foreign operators are forced to sell domestic crude to state-owned refiners like Hindustan Petroleum or Indian Oil.

But sustained pressure from small operators like Essar and Gujarat State Petroleum for a change in the rules allowing them to sell on the open market is forcing the ministry to re-think policy. Free marketing of crude is something the ministry is keen on, since the present policy of purchase by PSUs has led to problems and litigation.

But the oil ministrys delay in coming up with a new policy is holding up the start of PSC talks on Ratna. Add to that unwelcome (but true) reports that Essar is considering selling up to 20% of its equity in Ratna and you have a situation where the company leaves itself open to accusations by officials (unfamiliar with farm-ins and farm-outs) that it shouldnt be allowed to have the oilfield in the first place.