Essar can't develop CB-ON/3 without ONGC

Vol 13, PW 20 (25 Mar 10) Exploration & Production

Frustrated Essar Oil is impatient with ONGC for refusing to cooperate with development plans at the 143.5-sq km pre-NELP CB-ON/3 Mehsana block in north Gujarat - even as it continues to make discoveries.

PETROWATCH learns Essar successfully completed Phase-III at CB-ON/3 on February 10 (last month) and has notified the DGH of two new crude oil discoveries at the ENP and ENS fields. Essar also wants to drill two additional development wells at the ESU field following a discovery in 2006.

“But ONGC is not supporting those plans,â€‌ say industry sources. “Essar wants to move ahead with appraisal programmes once testing is completed but can’t without ONGC approval.

â€‌ Essar has a 100% operator stake in the block but ONGC is the original government nominated licensee and because of a complicated set of government rules it is actually not in ONGC’s interest to begin commercial production at this or any other pre-NELP block! This is because ONGC must pay all statutory levies like royalties on any discoveries or production at any pre-NELP block entirely on its own, even if it has only a partial stake or no stake at all! “ONGC is not keen on CB-ON/3 because it does not make economic sense,â€‌ we hear. “This problem is not limited to Essar alone but affects all oil companies partnering ONGC in pre-NELP blocks.

â€‌ At the ESU field, Essar has made one commercial oil discovery at well ESU-1, which was approved by the block’s Management Committee on August 4, 2006. ONGC exercised its right as the original licensee to come back and pick up a 30% stake in that discovery field.

“At this point, Essar needs full support from ONGC for its development programme,â€‌ we are told. “Unfortunately that support is not forthcoming.

â€‌ Essar holds 100% in the rest of the block.