Connected oil reservoir? Share or surrender

An oil company can seek joint development of oil fields with other explorers if the underlying reservoir is connected, the oil ministry has proposed. It however added that if any party involved does not agree, the company must surrender the licence and allow others to develop the fields.

The oil ministry's draft petroleum and natural gas rules for the upstream sector allows licensees to "jointly explore, develop or produce mineral oils through mutual cooperation".

The licencees will have to enter into an agreement with the government "for development of the reservoir as a unit."

This provision could help avoid disputes like the one between ONGC and Reliance Industries (RIL), where the two companies hold licenses for adjacent fields in the KG Basin with a connected reservoir. A decade ago, ONGC accused RIL of producing gas that belonged to the state firm's licensed area, triggering a legal battle that is still underway.

The draft rules allow any licensee to issue a notice to other licensees, and the government to initiate a consultation process for joint development. Following this, all licensees and the government will work toward a mutual agreement. If any licensee refuses to follow the process prescribed by the government to arrive at a joint development agreement, it will have to relinquish the area granted under its license. Any joint development plan will require government approval.

Joint development can also mean greater economic efficiency for developers, as it avoids duplication of infrastructure. Unitisation, or joint development of connected reservoirs, is standard international practice.

When exploration blocks are initially carved out, it is not always clear whether the reservoirs beneath them are connected. It is only after companies gather seismic data and drill exploratory wells that they begin to better understand the reservoir-and sometimes discover that it may be connected. It is for such situations that the government has introduced the joint development clause, which ensures the process is not left to the discretion of any one party.