Bid & Tender
RIL, Shell May Not Seek Extension of Panna-Mukta Oilfield' Contracts

Date : Apr 15, 2019

Reliance Industries and Royal Dutch Shell plan to exit the Panna-Mukta oilfields when their contracts with the government expire this year, people familiar with the matter said. This would likely leave the task of managing these depleting fields with state-run Oil & Natural Gas Corp.

 

Reliance and Shell each own a 30% participating interest in the Panna, Mukta and Tapti (PMT) fields, located close to the Bombay High offshore facility of ONGC, which holds the balance 40%.

 

The two companies have conveyed to the government that they don’t want their production-sharing contract for PMT extended beyond December 2019 when the 25-year term ends, the people said.

 

Panna and Mukta produced 1.08 million barrels of crude oil and 13.5 billion cubic feet of natural gas in the October-December quarter, as per Reliance’s earnings report. Tapti stopped producing three years ago. Some of its facilities have been handed over to ONGC.

 

Reliance, Shell and ONGC declined to comment for the story.

 

Reliance and Shell are engaged in arbitration with the government over the state’s share of revenue from the PMT fields. ONGC is not party to the arbitration, but will have to honour the arbitration award.

 

Last year, the oil ministry ordered Reliance, Shell and ONGC to together pay $3.8 billion as the increased share of the government’s earnings from the PMT fields, following an arbitration award in the government’s favour. Reliance and Shell challenged the award in a UK court, which upheld the arbitration panel’s decision on most counts but referred the matter over how much development cost the companies could recover back to the tribunal, which is again hearing it.

 

Exit of Reliance and Shell from these fields will have no bearing on the final arbitration award as and when it comes, the people familiar with the matter said.

 

The government will likely get ONGC to be the sole contractor of the Panna-Mukta fields after Reliance and Shell exit. Given a chance, ONGC too might want to withdraw, given the fields’ low and declining output, a person familiar with the matter said. But someone has to keep managing these as long they are producing, the person added.

 

India’s crude oil production has been falling for seven straight years, making it hard to abandon declining fields.

 

Once Reliance and Shell exit, the fields might become more remunerative for ONGC as the shares of the two private companies in the revenue will go away, another person said.