Arbitration looms in 2D row between PGS and DGH

Vol 12, PW 6 (07 Aug 08) Exploration & Production

No one likes going to court but that’s looking the most likely outcome in an increasingly high-pitched war of words between seismic contractor PGS of Norway and the DGH over a speculative 2D survey in the ultra deep waters around the Andaman Islands.

“PGS is determined to resolve this amicably,â€‌ an industry source tells this report. “But if it can’t, then arbitration looks like the only option.

â€‌ In dispute is a contract that PGS signed with the DGH in December last year, which allows the Norwegian contractor to shoot, process and interpret, with its own money, some 5000-lkm around the Andaman Islands for sale to future NELP bidders, under a routine profit-share arrangement with the Indian government. During the shoot, DGH officials accused PGS of changing the seismic line routes without permission, and of shooting more than 5000-lkm; PGS says the contract entitles it to do both.

Trouble began soon after PGS began the survey on March 29, with letters flying back and forth, culminating in a direct order from the DGH on May 29 for the Norwegian contractor to stop the survey immediately or have its seismic boat Zephyr “seizedâ€‌ by the navy. Panicked at the thought of losing $100,000/day with its Russian-hired boat in dry dock, PGS swiftly arranged a meeting with then oil secretary Srinivasan, hoping he could pressure the DGH and give it enough time to evacuate the seismic boat; Zephyr stopped shooting on June 4 after collecting 7329-lkm.

“If it hadn’t been for the ministry, Zephyr would have been seized,â€‌ we hear. “Srinivasan saved the day for PGS.

â€‌ Srinivasan suggested both sides reach an “amicable solutionâ€‌ but anecdotal evidence suggests this is unlikely. In a second meeting with Srinivasan on July 19, the outgoing secretary announced that his imminent replacement (RS Pandey) would resolve the matter – also unlikely.

Both sides argue arbitration is the last thing they want, but as things look that’s the way it’s going.

LNG Summit