ONGC faces a KG moment in Iran
India's flagship explorer Oil and Natural Gas Corporation (ONGC) is facing a repeat of the Krishna
Godavari (KG) basin fiasco in Iran, as lengthy negotiations on terms may drive it to a point where its
discovered gas reserves in Farzad-B field in the Persian Gulf may be drawn out by neighbouring Saudi
Arabia.
State-owned ONGC alleges that 11.12 billion cubic meters of natural gas worth Rs 11,055 crore has
flowed from its idling KG basin blocks in Bay of Bengal blocks to neighbouring KG-D6 fields of Reliance
Industries.
The same is now on the verge of repeating in the Farzad-B field, which it had discovered in 2008 but no
contract to exploit the 12.5 trillion cubic feet of recoverable reserves has so far been concluded with
Iran.
Sources said a portion of Farzad-B field extends into territorial waters controlled by Iran's regional arch-
rival Saudi Arabia. Saudi Arabia has already drilled wells on the area falling in its territory, which it has
named Hasbah field, and has begun production.
The two fields are connected, with the area falling in Iranian territory holding larger share of 12.5 Tcf of
recoverable reserves while the Saudi territory has only 3 Tcf or so. But the two fields are connected and
whosoever is able to move first would extract more benefits.
Sources said in the dispute with RIL, ONGC is claiming compensation for its gas flowing through under-
sea connected reservoir to KG-D6 and the government has constituted a one-man committee to look
into the issue and suggest compensation.
But such a thing may not be possible for Farzad-B as rivalry between Saudi Arabia and Iran may prevent
from arriving at any internationally recognised practice of splitting the spoils in conjoined fields.
It was expected that Prime Minister Narendra Modi's visit to Tehran today and tomorrow may see
finalising of a contract, giving developmental rights of Farzad-B field to ONGC Videsh Ltd, the overseas
arm of the state explorer.
But Iran is yet to agree to USD 4.3 billion master development plan submitted by OVL. Also, it is yet to
agree on the price at which OVL can take all of the gas produced from the field, they said adding that no
definitive contract for the development of the field would be signed during Modi’s visit.
Previously, Iran was to pay OVL a fixed fee for its
effort for discovering and producing gas from Farzad-B field. The gas ownership was to be with Iran and
so Tehran was pushing for a low price of gas.
But now a new modified contract is being talked about which will part ownership of the gas produced to
OVL. And so naturally, Iran is now seeking a higher gas price, they said.
Once investment in the field and the gas price are frozen, possibly by August-end, an agreement
confirming development rights on OVL will be signed. But after that negotiations on the terms of the
contracts – fixed fee or ownership of gas as well as marketing of the fuel, will begin, sources said adding
the entire process may take one year time.
Also, Iranian Parliament, Majlis is yet to approve new Iran Petroleum Contract (IPC) under which the
Farzad-B field is to be given to the OVL-led consortium.
IPC ends two-decade old buyback system that prevented foreign companies from booking reserves or
taking equity stakes in Iranian companies. Under some circumstances, the new model allows reserves to
be booked, but foreign companies would still not own oil fields.
While previously foreign firms were paid a fixed fee for discovering and bringing to production an oil and
gas field, the new model raises their profit by grading the fee based on the risk of the fields, allows
contracts to last for up to 25 years and no ceiling on capital expenditure.
Foreign firms are to be paid a fee per barrel and they will also be entitled to an increase in profits in the
face of dramatic oil price fluctuations.
Back home, ONGC believes the KT-1/D- 1 gas find in its Krishna Godavari block KG-DWN- 98/2 (KG-D5)
and G-4 Pliocene gas find in Godavari Block extend outside the block boundaries into KG-D6.
According to ONGC, RIL's D6-A5, D6-A9 and D6-A13 wells drilled close to the block boundary may be
draining gas from the G-4 field while the D6-B8 well may be sucking out gas from DWN-D- 1 field of KG-
DWN-98/2 block.
RIL has denied allegations saying RIL it has "scrupulously followed every aspect of the production sharing
contract and has confined its petroleum operations within the (boundaries of its) KG-D6 block" in
Krishna Godavari basin.
https://www.business-standard.com/article/companies/ongc- faces-a- kg-moment- in-iran-
