OilMin codifies best practices for petro exploration

Guidelines provide for practices to be followed in key areas including reservoir contiguity and contract extension

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Three years after the Rangarajan panel recommended setting up strict guidelines and standards for the functioning of the oil & gas sector, the petroleum ministry has codified international best practices for petroleum exploration and production (E&P).

The good international petroleum industry practices (GIPIP), prepared by a 10-member expert panel under the Directorate General of Hydrocarbon (DGH) and approved by the oil ministry, will increase predictability in decision-making and reduce arbitrariness, which will check the rising cases of arbitration.

“There is no codified setup of GIPIP standards in the areas of exploration, development and production activities. The guidelines of GIPIP would go a long way in establishing high standards in E&P operations and help the contractors and the government remove ambiguities and help improve PSC (production sharing contract) administration,” the DGH said.

The 442-page GIPIP document provides for guidelines to be followed in crucial areas of E&P operations, including calculation of cost of unfinished work programme, contract extension and practices to be adopted in cases of reservoir contiguity such as the ongoing dispute between ONGC and Reliance Industries (RIL) on alleged gas migration from the state-run firm’s KG-D5 block to RIL’s KG-D6 block in the Krishna-Godavari basin off the Andhra coast.

The guidelines recommend adoption of unitisation (joint development) in case a reservoir is found to extend underneath contiguous contract areas. If part of a single oil & gas field is located in one contract area and extends into the contract area of a different contractor, the contractors may enter into an agreement with the proper executive authority to utilise the field.

"It is required that the parties first attempt to secure Unitisation by voluntary agreement. If the parties cannot agree voluntarily, a unitisation plan will be imposed on them through government intervention," the guidelines state. In the case of RIL-ONGC gas row, while the PSC provides for joint development, the volume of gas remaining after the migration might not be economically viable, international consultant DeGolyer & MacNaughton had reportedly said in its study.

Currently, PSCs prescribe adoption of generally accepted international petroleum practices or international petroleum standards in carrying out petroleum operations efficiently, safely and in an environmentally sustainable manner. E&P companies in India follow the standards notified by industry bodies -- American Petroleum Institute, Society of Petroleum Engineers, and World Petroleum Congress.

In the absence of codification of such standards by the DGH, enforcement and adherence to GIPIP is fraught with subjectivity and prone to unnecessary disputes. Codification of the standards is expected to render objectivity to the decisions of the regulator, operator and other stakeholders. The code is also expected to impart stability to contract management under the PSC regime.

The Rangarajan committee had in 2013 also recommended codification of GIPIP in its Report on PSC Mechanism in Petroleum Industry, stating "codification of GIPIP that are of relevance in the Indian geological setup is required to be taken up at the earliest. This may resolve the issues facing the contractors regarding ambiguities in technical and safety-related aspects".

The 10-member committee, which framed GIPIP-2016, has clarified that these will be revised after two years and are only meant to act as guiding principles for E&P activities and cannot be taken to override the PSC provisions, Indian law, oil ministry's notifications or other statutory provisions including Indian Accounting Standards.

OILING THE WHEELS

• GIPIP-2016 framed by 10-member panel will be recommendatory in nature and revised after two years
   
• Guidelines cover key areas of E&P sector, including practices to be followed in cases of contiguous contract areas, contract extension and cost of unfinished work programme
   
• Codification of standards expected to impart objectivity to decisions of regulator, impart stability to contract management under PSC regime