Second Covid-19 wave: Cairn Oil and Gas seeks force majeure extension

With oil and gas exploration activities taking a hit because of Covid-19, Cairn Oil and Gas has sought another year’s relaxation on its open acreage licence policy (OALP) blocks under a force majeure clause in line with what public sector undertakings got last year.

Oil and Natural Gas Corporation, Cairn Oil and Gas, and Oil India had invoked force majeure in April 2020 for new exploration blocks, where they have petroleum exploration licences and were required to carry out a committed work programme (CWP) under a contract with the government.

This allowed the companies to legally approach the government to allow moratorium and extend the period defined for the CWP. Cairn Oil and Gas got only a year’s relaxation, which expired in February.

One of the reasons the force majeure was invoked was because after the initial gestation period, necessary for obtaining various approvals and clearances, the ground work could not be undertaken.

Though initially oil and gas production was included as an essential service, which meant operators could work during the lockdown, new exploration was not included. “This was a huge challenge for the industry. Once the Petroleum Exploration Licence (PEL) is obtained, the operator is contractually obligated to carry out the committed work programme, which means the operator has to complete a certain amount of on-ground work to meet the contractual terms and conditions,” said a person close to the development.

Globally, oil and gas firms had availed of relaxations in exploration contracts to deal with the disruption. With a more severe second wave and a possible third wave in India, oil companies are looking at further extension of moratorium. “Oil and gas exploration is a capital intensive business and the government must look at ring-fencing these players from facing financial crisis to realise India’s dream of achieving energy self-sufficiency,” said the person quoted above.

Exploration requires mobilisation of a huge resource base, people, and stakeholder engagement at the grassroots level. “While the country came out of the lockdown by June 2020, the impact of Covid continued to make on ground exploratory operations extremely challenging. Just when it seemed that the situation was improving and stabilising at ‘new normal’ during the first quarter of 2021, the country was hit by the second wave,” said the person.

While operations continued wherever it was feasible after the initial lockdown period, the remaining areas saw slowing of activities. Cairn Oil and Gas has 53 OALP and discovered small blocks, the highest. It invoked force majeure in 38 blocks in April 2020 and included six more later. These blocks are in Assam, Arunachal Pradesh, Mizoram, Tripura, Gujarat, Maharashtra, and Andhra Pradesh.

Eight blocks in the Krishna Godavari, Ganga Valley, and Mahanadi basins were excluded as PEL in these blocks was still awaited.

The blocks that were allowed a moratorium, however, had some ongoing works like desktop studies. In some of the blocks, on-ground activity was also commenced, but the pace was slow because of the Covid challenges.