THE OIL & GAS: EZINE December 2015

Alaya Legal presents its ninth issue of the Oil and Gas: Ezine to its Readers. Web-links are provided for ready access to certain reference material. The contents are presented with a view to allow comprehensive update in a systematic manner, from the legal perspective.

Reference Material

Niko Resources Ltd. (NIKO) v. Gujarat State Petronet Ltd. (GSPL) –
August 14, 2015

In the present matter, NIKO filed a complaint before the Petroleum and Natural Gas Regulatory Board (Board or PNGRB) against GSPL with respect to NIKO’s locus standi in the proceedings of Provisional Initial Tariff determination relating to pipeline from the gas reserve at Hazira field to Village Mora (Questioned Pipeline).

NIKO and GSPC entered into a Joint Venture (JV) for development and production of petroleum and natural gas in respect of field in Hazira region of Gujarat. The JV had the right to carry out petroleum operations, the right to lay, build, construct and install pipelines and recover cost and expenditure. Thereafter, NIKO and GSPC also entered into a Joint Operation Agreement (JOA) which provided that in respect of Hazira field, the Participating Interest of the NIKO and the GSPC will be 33.33% and 66.67% respectively. The Questioned Pipeline was commenced and constructed by the JV. However, before the completion of construction of the Questioned Pipeline, GSPC declared that the Questioned Pipeline would no longer remain a JV project and offered a refund of INR 8,55,22,383/- to NIKO, which was not accepted by NIKO. The Questioned Pipeline was

transferred in favour of GSPL (a subsidiary company of GSPC) for consideration and possession and remaining construction was completed by GSPL and the Questioned Pipeline was commissioned around October, 2000. However, GSPL started using the Questioned Pipeline for transportation of natural gas from Hazira field and later in 2004-2005, natural gas was transported from source other than Hazira field and from there, began series of litigation between NIKO and GSPL before different courts and fora. The issue dealt by the PNGRB pertains to locus standi of NIKO in the proceedings of Provisional Initial Tariff determination relating to the Questioned Pipeline. The PNGRB referred to the directions of Appellate Tribunal of Electricity issued in “Reliance Industries Ltd. v. PNGRB and Another” and observed that the customer, who is likely to be the affected party, should be heard before determining Tariff so that opportunity could be given to customers to put forth their views. Referring to Regulation 4 of the amended PNGRB Determination of Natural Gas Pipeline Tariff Regulation 2008 (Tariff Regulations), the PNGRB gave wider connotation to the expression “stakeholder” which includes any such person, group or organization that has interest or concern in an organization. The PNGRB went on to add that stakeholders can affect or be affected by organization’s actions, objectives and policies. The PNGRB further differentiated between shareholder and stakeholder and stated that shareholders are stakeholders in a corporation but stakeholders are not always shareholders. The PNGRB took note of the fact that GSPL did not deny the contents of MOU presented by NIKO which clearly establishes the status of NIKO as stakeholder in the Questioned Pipeline. The PNGRB, therefore, upheld the amended Regulation 4 of the Tariff Regulations and concluded that NIKO is a stakeholder and has a right of being heard during the process of determination of Provisional Initial Tariff of the Questioned Pipeline.

Marginal Field Policy of ONGC & OIL
October 14, 2015

Ministry of Petroleum and Natural Gas, on October 14, 2015, passed a resolution bearing No.O-19018/22-95-ONG.III with respect to Marginal Field Policy (MFP). Many  of  the  marginal  oil  and  gas  fields  of  Oil  &  Natural Gas  Corporation  Ltd  (ONGC)  and  Oil  India  Ltd  (OIL)  could  not  be  monetized  for  years  due  to  various  reasons  such  as  isolated  locations,  small  size,  prohibitive  development  costs,  technological  constraints,  unfavourable fiscal  regime,  etc.  On  September 02,  2015,  the   Ministry of Petroleum and Natural Gas approved  the  MFP with  the  objective  to  bring  marginal  fields  to  the  production  at  the  earliest  so  as  to  augment  the  domestic  production  of  oil  and  gas. Government  has attempted  to  include  certain  reforms  in  the hydrocarbon  exploration  and  production  management  through  this  policy  with  sole intention to increase the production at the earliest. The policy contains single license forconventional and non-conventional hydrocarbons, no restriction on exploration activity during contract period, model for inviting the bids, crude oil pricing and sale, natural gas pricing, royalty, oil cess, customs duty, mining lease, contract duration, management committee, eligibility for participation in bids, site restoration. MFP will apply to 69 fields of ONGC and OIL considered under the marginal field category.

ONGC Videsh Limited to acquire 15% interest in Vankor Field located in East Siberia of the Russian Federation
September 04, 2015

ONGC Videsh Limited (ONGC Videsh) signed definitive agreements to acquire up to 15% shares in CSJC Vankorneft, a company organized under the law of Russian Federation which is the owner of Vankor Field and NorthVankor license. Rosneft Oil Company, National Oil Company of Russia holds 100% shares in Vankorneft. The acquisition is subject to relevant Board, Government and regulatory approvals and is expected to close by mid of 2016.  Vankor is Rosneft’s (and Russia’s) second largest field by production and accounts for 4% of Russian production. The daily production from the field is around 442,000 bpd of crude oil on an average with ONGC Videsh’s share of daily oil production at about 66,000 bpd. The present transaction provides an opportunity to ONGC Videsh to enhance its presence in Russia and is consistent with its stated strategic objective of adding high quality international assets to its existing Exploration & Production portfolio. This acquisition also has significant strategic importance to India, both in terms of augmentation of India’s Energy Security as well as enhancing India’s stature in the global political and economic arenas.

Commencement of GAIL’s Jagdishpur-Haldia Pipeline Project connecting Barauni in Bihar
September 15, 2015

GAIL’s pipeline welding of 12 inch pipeline connecting HFCL Barauni to IOCL Barauni commenced on September 15, 2015 at Barauni. It is the first phase implementation of GAIL (India) Limited’s Jagdishpur- Haldia Pipeline.  The phase –I of pipeline project consists of laying of trunk pipeline from Phulpur (Allahabad) to Dobhi (Gaya) for a length of 341km and spur pipeline connectivity to Barauni and Patna from Dobhi for a length of 228 km. This gas network will supply fuel to major industries such as the Barauni Refinery and the Barauni fertilizer plant. The pipeline will also help in setting up of City Gas Networks in major cities of Bihar including capital Patna. An investment of over Rs. 2300 crore is expected to be made in Bihar on this project.

ExxonMobil Corporation to Produce Flagship Mobil 1 Synthetic Engine Oil in Singapore
September 15, 2015 

ExxonMobil Corporation is expanding its operations in Jurong to produce synthetic lubricants, including Mobil 1, the company’s flagship synthetic engine oil. The expansion will further strengthen the company’s manufacturing capabilities and ability to meet the growing demand for ExxonMobil synthetic products in the Asia Pacific region. When completed in the second half of 2017, the facility will be the only plant in the Asia Pacific producing Mobil 1, the world’s leading synthetic motor oil. The facility will be one of six locations where Mobil 1 is produced.

ExxonMobil Corporation Starts Oil Production at Erha North Phase 2 Project ahead of Schedule and under Budget                                                                                                      Sepember 16, 2015

Exxon Mobil Corporation announced that its subsidiary, Esso Exploration and Production Nigeria Limited, has started oil production ahead of schedule at the Erha North Phase 2 project offshore Nigeria. The Erha North Phase 2 project includes seven wells from three drill centers tied back to the existing Erha North floating production, storage and offloading vessel, reducing additional infrastructure requirements. The project is estimated to develop an additional 165 million barrels from the currently producing Erha North field.

Shell commences production from Bonga Phase 3 project in Nigeria
October 5, 2015

Shell Nigeria Exploration and Production Company Ltd (SNEPCo) has announced the start-up of production from the Bonga Phase 3 project. Bonga Phase 3 is an expansion of the Bonga Main development, with peak production expected to be some 50,000 barrels of oil equivalent. This will be transported through existing pipelines to the Bonga floating production storage and offloading (FPSO) facility, which has the capacity to produce more than 200,000 barrels of oil and 150 million standard cubic feet of gas a day.

Gas Cooperation Agreement signed between Jharkhand Government and GAIL for creation of Natural Gas and City Gas Distribution Infrastructure                                                    October 15, 2015   

The Government of Jharkhand and GAIL (India) Limited signed a Gas Cooperation Agreement (GCA) for creation of Natural Gas and City Gas Distribution infrastructure, which will facilitate construction of “Urja Ganga” Jagdishpur – Haldia Pipeline project in Jharkhand. GAIL and the Government of Jharkhand will evaluate ways for cooperation in development of use of eco-friendly fuel Natural Gas and related infrastructure, promotion of joint venture for CGD projects and study various options to evaluate the energy demand (including for Natural Gas, LPG and other liquid hydrocarbons) in Jharkhand.

Gazprom Marketing and Trading Singapore sign LNG Supply Agreement with Pavilion Gas
October 27, 2015                              

Gazprom Marketing and Trading Singapore (GM&TS) and Pavilion Gas signed an LNG Sale and Purchase Agreement effective for 10 years. The document stipulates LNG supplies from Gazprom Group’s portfolio to Asian countries, including Singapore.

Iran to Grant Oil Contracts to JSC Zarubezhneft
October 25, 2015

Russia’s state-owned energy giant JSC Zarubezhneft has stated that it will be granted several projects worth a total of $6 billion in Iran’s oil industry. JSC Zarubezhneft’s participation in Iranian oil projects will be in line with a series of agreements that were reached with the country to expand mutual economic ties. The two countries have reportedly devised a package of projects that are collectively worth $35 billion to $40 billion.

Chevron Corporation announces first production from the Lianzi Development Offshore the Republic of Congo and Angola                                                                                          November 2, 2015

Chevron Corporation announced that its subsidiary, Chevron Overseas (Congo) Limited, has commenced oil and gas production from the Lianzi Field, located in a unitized offshore zone between the Republic of Congo and the Republic of Angola. Located 65 miles (105 km) offshore in approximately 3,000 feet (900 meters) of water, Lianzi is Chevron’s first operated asset in the Republic of Congo and the first cross-border oil development project offshore Central Africa. The project is expected to produce an average of 40,000 barrels of crude oil per day.

Acquisition of Fluid Inclusion Technologies, Inc. by Schlumberger
November 16, 2015

Schlumberger announced the acquisition of Fluid Inclusion Technologies, Inc. (FIT). FIT is a US-based oil and gas service company specializing in laboratory analysis of trapped fluids in rock material, and advanced borehole gas analysis on drilling wells. The expanded rock and fluids services and technologies enable integrated workflows from Schlumberger field and laboratory services

Indian Oil Corporation Limited’s Paradip Refinery starts product dispatch
November 23, 2015

Indian Oil Corporation Limited (Indian Oil) reportedly flagged-off the first dispatch of consignment of products from Paradip Refinery, comprising High Speed Diesel (Diesel), Superior Kerosene (Kerosene) and Liquified Petroleum Gas (LPG) on 22nd November 2015. With the commissioning of few of its process units, Indian Oil is now ready to supply products in small quantity from its 15 MMTPA state-of-the-art Paradip Refinery. Built at cost of INR 34,555 Crore, Paradip Refinery is designed to process broad basket of crude including cheaper high sulfur heavy crudes and with an overall Nelson complexity factor of 12.2. Crude processing was started in the mother unit i.e. Atmospheric & Vacuum Distillation (AVU) unit in April 2015. Subsequently, Delayed Coker Unit (DCU), Hydrogen Generation Unit (HGU), Diesel Hydro-treater Unit (DHDT), Naphtha Hydro-treater Unit (NHT) and LPG & Kerosene Treater Units were commissioned in phased manner. The whole complex is expected to become fully operational in an integrated manner in near future.

Undertake Gas under Gas Sales Agreement

In a Gas Sales Agreement (GSA), if in respect of any nominated quantity, the quantity of gas which the buyer has taken delivery of at the delivery point is less than the quantity of gas delivered by the seller to the buyer at the delivery point in respect of that nominated quantity then the difference between the quantity of gas which the buyer has taken delivery of (if any) and the quantity of gas delivered by the seller to the buyer at the delivery point in respect of that nominated quantity shall be classified as undertake gas. Under the GSA, it is the obligation on buyer to take nominated quantity of gas. GSA may contain a provision whereby buyer shall be responsible to compensate seller for the losses suffered and or liabilities incurred on seller due to the quantity of gas undertaken by the buyer. Buyer may opt to compensate seller for actual loss suffered. Alternatively, seller may charge buyer an premium to the contract price for the quantity of gas undertaken by the buyer. The premium effectively produces the same economic result as the buyer paying liquidated damages in consequence of undertake. It is very unlikely that a buyer agrees for the undertake gas premium because in actuality, seller will not incur any real loss or liability due to the quantity of gas undertaken by the Buyer. On the contrary buyer may prefer an obligation to compensate the seller only for proven losses suffered by seller due to such undertake gas. GSA may contain an annual limit on liability of seller as well as buyer which will include an equal cap on seller’s liability for shortfall and buyer’s liability for undertake gas.  Seller shall always look for an absolute and unqualified test for undertake gas under the GSA.However at the same time, buyer may wish that the undertake gas and or undertake gas tolerance may be measured over a series of successive nominations so that the risk of undertake gas arising in respect of a single nomination may be offset. A seller may also ask for right to terminate the GSA on occurrence of prolonged undertake by the buyer, however the same will not be acceptable to a buyer. The buyer will not be liable for undertake where gas is not delivered due to an event of force majeure affecting the buyer or the seller. Other exclusions from liability may include where the undertake gas arose during the commissioning period or as a result of exercise of right to reject the delivery of off-specification gas by buyer or was initiated as a result of any act or omission of the seller including any failure of the seller to deliver gas to the buyer at the delivery point in respect of nominated quantity. Undertake Gas shall also not include any quantity of gas which the buyer is entitled to claim relief for in accordance with GSA or which is within the undertake gas tolerance.Buyer will always try to avoid the double counting in cases where the buyer has paid the undertake premium and has also incurred a take or pay liability in respect of the same quantity of gas. In such circumstances buyer may require from the seller that credit for one or other of such quantity must be given to buyer.

The Undertake Gas Tolerance shall in respect of any nominated quantity be any quantity of gas which is equal to or less than the agreed percentage of the quantity of gas represented by that nominated quantity. If in respect of any nominated quantity the buyer has undertaken a quantity of gas which is within the undertake gas tolerance then such undertaken quantity of gas shall not be undertake gas. However if in respect of any nominated quantity the buyer has undertaken a quantity of gas which is greater than the undertake gas tolerance then the entire quantity of gas which the buyer has undertaken shall be undertake gas.

 

China was the first country to use the pipelines made of bamboos to transport natural gas, in 500 BC. The pipelines were used for boiling sea water and separating the salt from the water.

Next Issue

April 2016

In-house contributors

  • Sakshi Bawa, Oil & Gas Team – Downstream
  • Neha, Oil & Gas Team – Upstream

Sources

  • Norwegian Petroleum Directorate
  • S. Energy Information Administration
  • The International Energy Agency
  • Organisation of the Petroleum Exporting Countries
  • The Oil and Gas Journal
  • Official web-sites of various oil & gas companies
  • Peter Roberts, Gas Sales and Gas Transportation Agreements Principles and Practice, Sweet & Maxwell, 2004

Disclaimer

The information in this private circulation is not legal advice and should not be treated as such. The information is taken from public domain and is purely for private and non- commercial purposes. We do not represent that the information is correct, accurate, complete or non- misleading.This disclaimer will be governed by and construed in accordance with laws of India, and any disputes relating to this disclaimer will be subject to the exclusive jurisdiction of the courts of the Republic of India.If you do not accept the terms of this Disclaimer or do not wish to receive this circulation, please reply to this email with ‘Do Not Send’.

Doc ID: 4O&G15

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