US watching as ONGC strikes oil in Gulf

NEW DELHI: A consortium of Indian oil companies, led by ONGC, has struck it rich in the Persian Gulf: a find of an estimated 10 trillion cubic feet of natural gas and 1 billion barrels of oil in the Farsi block. This development comes even as New Delhi and Washington are engaged in tough negotiations over finalising a controversial nuclear deal and US senators have been warning India against making military and energy deals with Iran.

The consortium of Indian oil majors, led by ONGC Videsh (OVL), the overseas investment arm of ONGC, has IOC and OIL as members. Gas reserves in the block are estimated to go up to 10 trillion cubic feet, while oil reserves in the block are estimated to be in the region of 1 billion barrels.

The oil and gas find by the consortium could have large geo-political ramifications. Senior US Senators and congressional supporters of the nuclear deal have written to prime minister Manmohan Singh to ‘terminate’ all cooperation with Iran in the energy sector. Pressure has been mounting on India to take a more cautious approach on Indo-Iran bilateral ties.

The US had, in September 2006, extended the scope of economic sanctions under the Iran-Lybia Sanctions Act, by which foreign companies making an investment of more than $20 million in one year in Iran’s energy sector would be blacklisted.

Though the Indo-US nuclear deal has always had political overtones that had little to do with energy, it is difficult for energy-starved India to ignore the hydrocarbon potential of Iran. India has signed a $20 billion deal to buy liquefied natural gas (LNG) from Iran and is also pursuing a pipeline project along with Pakistan to bring Iranian gas to India.The consortium of oil companies, which began work in 2003, found the first traces of oil and gas in late 2006.

Testing work is still on and it may be a while before the actual extent of reserves can be fully ascertained. Speaking to ET, OVL managing director RS Butola said: “We have made a discovery in the Farsi block. The assessment process is on and we will have a fair idea on the reserves only after it is completed.” Oil company spokesmen tend to be cagey on the subject of the size of reserves till these are certified by appropriate regulators. Production from these fields is estimated to begin in another five years.

The oil and gas discovery in the Farsi block could come as a substantial source for India in the medium term. As per the understanding with Iran, the Indian companies can buy back the oil and gas as well as earn a margin on their production.

In December 2002, the consortium (in which OVL and IOC hold 40% stake each and OIL the rest) had signed a contract with National Iranian Oil Company (NIOC) to carry out exploration in the Farsi block located in the Persian Gulf. At the time of signing the contract, the consortium committed exploration obligation of $27 million.

At that time, it was estimated that the exploration would result into oil discovery in excess of 500 million barrels. The block, covering an area of around 3,500 sq km, is located in Persian Gulf with an average water depth of 20-90 metres. According to the minimum work obligation, the Indian oil consortium was expected to drill four wells. The first well was spudded in April, 2006.