With grant of drilling moratorium, the objective of accelerated exploration of hydrocarbons in the country would be accomplished, which may lead to new discoveries of oil & gas.

The proposal would be implemented immediately and the contractors would be asked to complete the drilling commitments during the moratorium period of three years.

There is no financial expenditure involved on behalf of the Government. The drilling moratorium dispensation would apply to 30 PSCs involving three contractors.

The main objective of the drilling moratorium dispensation is to enable the contractors to meet the drilling commitments under various PSCs, which have been adversely affected on account of world-wide shortage in availability of deepwater rigs since 2007 due to the then prevailing high crude oil prices. The brief details of the dispensation are as follows:

A drilling moratorium of three years starting from 1st January, 2008 to 31st December 2010 is granted to deepwater block PSCs signed upto NELP-V, where drilling commitments are existing as on 1st January, 2009 ( total of 30 exploration blocks). This policy will apply to all types of drilling, viz. exploratory and appraisal drilling where commitments are pending as on 1st January, 2009 except for development drilling commitments.

In the deepwater blocks where exploration phase has already expired with unfulfilled drilling commitments, the provisions of PSC or the extension policy will apply and contractors will be required to regularize the intervening period, if any, by seeking normal extensions under the PSC or the extension policy till the effective date of the proposed relaxation.

In case a contractor fails to complete the drilling commitment at the end of the said moratorium period, the contractor would be required to deposit with the Government the cost of un-finished work programme along with interest as per the SBI PLR (Prime Lending Rate) plus 2% from the start of the drilling moratorium till the date of payment by the Contractor, in case the relevant exploration phase duration and maximum extension as per extension policy has already been availed.

Background

Under the Production Sharing Contracts (PSC), there is commitment on the part of the contractor to carry out Minimum Work Programme (MWP) specified under each exploration phase. The PSCs signed till NELP-V constitute 3 exploration phases with phase-l, II & III comprising of 8 years (4+2+2) for deepwater blocks. In case of non-completion of MWP at the end of an exploration phase, the block stands relinquished and the contractor has to pay the equivalent amount of un-finished work programme with the Government. An exploration phase can be extended, as per PSC, by a period of 6 months in order to complete the MWP. Further, an extension policy is in place which grants further extension in exploration phases by a period from 12-18 months on payment of pre-estimated liquidated damages @ 10%-30% and furnishing of BG @ 50%-100% of the amount of un-finished work Programme or additional work programme as the case may be.

There has been a sudden spurt in exploration activity world wide since 2007 due to high crude oil prices, which led to acute shortage in availability of deepwater rigs world wide. The non-availability of deepwater rigs has adversely affected the completion of the minimum work commitments of drilling by various contractors of deepwater blocks. The contractors of these deepwater blocks and Association of Oil & Gas Operators requested the government to grant a drilling moratorium of 3 years to compensate for the time being lost on account of non availability of deepwater rigs.