Santos pulls out of Indian oil and gas blocks

Close on the heels of mining giant BHP Billiton deciding to quit India, Australia's Santos wants to exit its two oil and gas exploration block in Bay of Bengal due to delays in getting approvals to start work.

Santos, Australia's third-largest oil and gas producer, was in February 2007 awarded two blocks south-east of Kolkata, has written to the government saying it has not been able to carry out exploration in the area because of defence restrictions and maritime boundary dispute with Bangladesh.

It offered to surrender the blocks NEC-DWN-2004/1 and NEC- DWN-2004/2 on which it has already spent $60 million.

Santos had won the blocks, that lie close to Bangladesh border, in the 6th round of New Exploration Licensing Policy.

While an email sent to the company remained unanswered, an official at its India office declined to comment saying "it was a matter between Santos and the government of India."

Sources said Santos told the government that exploration work at the two blocks had to be halted after Bangladeshi authorities raised a dispute about India's right to explore hydrocarbon reserves across the International Maritime Boundary Line (IMBL).

Thereafter, Santos invoked force majeure, which was agreed by the DGH and put into effect from November 17, 2009, when it had suspend its seismic operations in the blocks.

Separately, the Ministry of Defence prohibited carrying out of E&P activities in the block NEC-DWN-2004/1 and provided conditional clearance in respect of NEC-DWN-2004/2.

Santos was of the view that the MOD restrictions on the two blocks will not be lifted in near future, they said.

With its "legitimate expectations" with regard to its investment not being satisfied, Santos felt the best way forward was to return the contracts for the two blocks to the Government without any ongoing obligations for either party, financial or otherwise.

In October, BHP Billiton Ltd, the world's largest miner, had exited nine out of its 10 oil and gas explorations projects in India as it could not start operations for want of defence approval.

BHP relinquished nine exploration blocks awarded between 2008 and 2010 under NELP after it failed to secure clearance from the Defence Ministry.

It exited the 6 Mumbai basin blocks it was awarded with GVK in the seventh round of NELP in 2008 and three blocks areas it had won in NELP-VIII round.

Pullout by BHP and Santos ahead of the 10th round of NELP may be bad news for Oil Ministry's effort to attract foreign investors to boost domestic production.

The Ministry is is looking at offering as many as 86 blocks or areas for exploration of oil and gas in the 10th round of NELP. This will be the highest offering of blocks since the advent of NELP 1999.