THE OIL & GAS: EZINE August 2014

PNGRB Order(s)

M/s Welspun  Maxsteel Limited. and M/s Ispat Industries Limited v M/s Gas Authority of India Limited and Union of India
Case Nos Legal PNGRB /02/2011 with Legal 02A/2011

Facts

The petitioner had been purchasing natural gas from GAIL under the Gas Supply Agreement since 1993 and

lately they entered into a Gas Sales and TransmissionContract (GSTC) on 30.12.2006 for supply of gas.Union of India revised the price of non-APM natural gas by issuing a direction on 24.11.2010 and made this revision of price effective retrospectively. The GSTC stated that GAIL had reserved the right to fix the gas price at any time in future in furtherance of the direction of the Ministry of Petroleum and Natural Gas (PNGRB), and thus implemented the revised rate of gas with retrospective effect.

Issue

Whether charging revised rate of gas with retrospective effect is in violation of principles of natural justice and principle of fair trade and practice?

Order

The PNGRB held that “the action of retrospective realisation of the amount of increase in price of natural gas by the respondent from the complainants is unlawful” and “the act of respondent of realisation/ recovery of enhanced price of natural gas with retrospective effect is against the principle of fair trade and is detrimental to the interest of consumers.”

New enactments & amendments

Amendment in Petroleum and Natural Gas Regulatory Board (Authorizing General Entities to Lay, Operate, Build or Expand Local Natural Gas Distribution Networks) Regulations, 2008
April 7, 2014

Petroleum and Natural Gas Regulatory Board (Authorizing General Entities to Lay, Operate, Build or Expand Local Natural Gas Distribution Networks) Regulations, 2008 has been amended. Regulation 7(1)(c) of the said Regulations which deals with bidding criteria has been amended whereby provisions have been made for more specific criteria.

Policy

New Report of the Expert Committee on Auto Fuel Vision and Policy 2023
May 2014

The Ministry of Petroleum & Natural Gas (MoPNG) vide Office Memorandum dated 19 December 2012 constituted an Expert Committee to prepare a “Draft Auto Fuel Vision & Policy 2025” (Policy). MoPNG has come up with Policy in May, 2014. Key recommendations of the Policy are following:

– Recommend a road-map for auto fuel quality till 2025 for the country, taking into account the achievement under the last Auto Fuel Policy, emission reduction of in-use        vehicles, growth of vehicles and the supply and availability of fuels.

– Recommend suitable mix of automotive fuels including natural gas and its specifications, considering the availability of infrastructure and logistics of fuel supplies, processing  economics of auto fuels, and improvement in the quality of fuel vis-à-vis improvement in vehicle engine technology.

-Recommend vehicular emission norms for various categories of vehicles and roadmap for their implementation.

– Recommend use of alternate fuels to minimise impact on environment.

– Recommend fiscal measures for funding requisite up-gradation of Oil Refineries, logistics and removal of inter-fuel pricing distortions.

NELP X Announced
JULY 2014

Under the New Exploration and Licensing Policy (NELP), for exploration and production of oil and natural gas, excluding coal bed methane (CBM), which became effective in February 1999, acreages are offered to the participating companies through the process of open international competitive bidding.

As on date 360 exploration blocks have been offered and 254 blocks have been awarded under NELP. Presently, 166 blocks area active and 88 have been relinquished. 34 blocks were offered and 30 were awarded under the CBM policy out of this 14 blocks have been relinquished/ under relinquishment and 16 blocks are under exploration and production operations.

The Oil & Gas and CBM operate under two separate contractual regimes, which have different fiscal terms and conditions. The Government has now proposed that going forward, the award of acreages for hydrocarbon exploration and production will be under a uniform licensing policy covering all types of hydrocarbons, with new fiscal terms ensuring ease of operation for E&P companies.

Out of the total of 46 blocks (17 on-land, 15 shallow water and 14 deep water blocks) are being offered under NELP-X in 13 prospective sedimentary basins of India for exploration of oil and natural gas, covering an area of 0.166053 million sq.km. These 46 blocks are falling in basin of Gujarat-Kutch, Gujarat-Saurashtra, Mumbai, Kerala- Konkan, Cauvery, Krishna Godavari, Mahanadi-NEC, Andaman, Bengal, Punjab plain, Rajasthan, Cambay & Deccan Syneclise.

Oil and gas contracts are generally long term contracts which involve huge capital investment and multi stakeholders. Oil and Gas contracts being multidimensional and complex contracts are not immune from disputes.  Contractual disputes in such contracts may cause huge monetary loss as well as damage to reputation, and carry the potential for ruining future joint ventures between parties. Dispute may arise out of disagreement between the parties concerning a matter of fact, law, or policy where a claim or assertion of one party is met with refusal, denial or counter-claim by another. Dispute may arise between the parties either from the express or implied contract wording. Dispute may also arise on non-fulfilment of obligations by any party or with respect to rights and liabilities of any party. Dispute resolution refers to finding out the best way to settle these disputes. Parties are open to various methods, mainly, arbitration, expert referral, mediation, negotiation, litigation, multi-tier dispute resolution, ADR. ‘Arbitration’ is preferred over litigation, since in most jurisdictions, arbitration involves relatively quick proceedings, is cost effective and the proceedings are kept confidential. ‘Expert determination’ is most appropriate when the dispute is ‘technical’ in nature. The contract should identify the technical and non-technical issues in order to avoid any ambiguity regarding the ‘nature’ of dispute. Parties may not desire ‘expert determination’ as there may be a reluctance on part of professionals to lose control and entrust their faith to another professional no more qualified than themselves. Mediation, though a non-binding procedure, has gained popularity amongst parties due to its satisfactory results. Parties to the dispute may be operators, non-operators and joint venture partners in property acquisition, exploration developments, supply and marketing arrangements and construction projects, amongst others. The issue of dispute resolution becomes particularly significant when dealing with a government entity or nationalised entity. There are jurisdictions, where an award or judgment may be enforceable only if it is ‘recognised’ by relevant authority. It may happen that the best of ‘dispute resolution’ provision and the best of ‘awards’ may be rendered ineffective on grounds of weak enforcement or sometimes, even lack of enforcement. Thus, ‘enforcement’ of awards / judicial pronouncements is an important element that needs careful examination, particularly in case of cross-border contracts.

Next Issue

December, 2014

In-house contributors

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

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

Alaya Legal presents its fifth issue on Oil and Gas: Ezine to its readers. We have now combined our ‘Natural Gas: Information and Updates’ and ‘Petroleum: Information and Updates’, for ease of our Readers. In order to provide a ready context and reference, we have furnished web-links for certain basic background information under the head ‘Reference material’. The contents are presented with a view to allow comprehensive update in a systematic manner, from the business and legal perspective.

Reference material

MARKET DEVELOPMENTS

Genel Energy Plc acquires 15% working interests in Blocks 38 and 39 offshore Angola
April 3, 2014

Genel Energy Plc, together with White Rose Energy Ventures, have agreed to acquire 15% working interests in Blocks 38 and 39 offshore Angola. Blocks 38 and 39 are situated in the Kwanza Basin and cover an area of c.14,000 km square in water depths of 1,500-2,500 metres in the Llanos 34 Block.

Shell announced exploration discovery in Malaysia
April 17, 2014

Shell announced an exploration discovery offshore Malaysia. The successful ‘Rosmari-1’ well is located 135 kilometres offshore in Block SK318, and was drilled to a total depth of 2,123 metres.

Saphir-1XB exploration well on Block CI-514 evidenced the presence of liquid hydrocarbons
April 17, 2014

The Total operated Saphir-1XB exploration well on Block CI-514 proved the presence of liquid hydrocarbons in the deep offshore west of Ivory Coast.

Schlumberger introducing the first-ever reservoir mapping-while-drilling service
May 19, 2014

Schlumberger is introducing the first-ever reservoir mapping-while-drilling service that enables customers to map their reservoirs using unprecedented depth of investigation measurements around the wellbore combined with a novel mathematical inversion methodology. This enables asset teams to seamlessly integrate the data provided by the reservoir mapping-while-drilling service with other downhole measurements to optimize production and reservoir management.

ExxonMobil Exploration Argentina discovers oil and gas in unconventional shale well
May 21, 2014

Exxon Mobil Corporation announced that its affiliate, ExxonMobil Exploration Argentina jointly with Gas y Petróleo del Neuquén, has discovered oil and gas in an unconventional shale well in Neuquén Province of Argentina.

Gas discovery by GDF SUEZ E&P UK Limited
May 28, 2014

GDF SUEZ E&P UK Limited has made a new gas discovery in the UK Southern North Sea. The Cepheus 44/12a-6 exploration well encountered a gas column within the Permian Lower Leman Sandstone which was the primary reservoir target.

Rosneft and ONGC Videsh Limited sign Memorandum of Understanding (MOU)
May 28, 2014

Rosneft and ONGC Videsh Limited signed MOU for cooperation in exploration, appraisal and hydrocarbon production on the continental shelf of the Russian Federation.

E.ON and RasGas Company Limited (RasGas) signed a medium-term flexible contract for supply of LNG
May 28, 2014

E.ON and RasGas have signed a medium-term flexible contract, with immediate effect, for the supply of LNG from Qatar to the Isle of Grain in the United Kingdom. The three-year contract has the potential to supply up to around two billion cubic meters over its term.

Total signed on 31 May 2014 a 10-year liquefied natural gas (LNG) sale and purchase agreement with Pavilion Gas
June 4, 2014

Total signed on May 31, 2014 a 10-year LNG sale and purchase agreement with Pavilion Gas, a subsidiary of Pavilion Energy, for the supply of 0.7 million tonnes per year of liquefied natural gas to Asia, including Singapore, starting in 2018. In addition, several LNG cargoes will be supplied prior to 2018. This LNG will be sourced from Total’s global LNG Portfolio.

GAIL Gas Limited and Uttar Pradesh State Industrial Development Corporation (UPSIDC) signed Memorandum of Understanding (MoU)
June 12, 2014

GAIL Gas Limited, a wholly owned subsidiary of GAIL (India) Limited and UPSIDC signed a MOU at New Delhi to expand the natural gas downstream distribution network in the state of Uttar Pradesh, India.

British Petroleum (BP) and the China National Offshore Oil Corporation (CNOOC) announced a heads of agreement for the supply of liquefied natural gas (LNG)
June 17, 2014

BP and the CNOOC announced a Heads of Agreement for the supply of up to 1.5 million tonnes of LNG per year over 20 years starting in 2019. This is important for all countries and regions looking at the diversity of energy supply and energy security – It gives BP greater flexibility to respond to the changing energy demands from Europe, Asia and other regions.

Eni signed a new Production Sharing Contract
June 20, 2014

Eni signed a new Production Sharing Contract with CNOOC for the exploration of one block offshore Hainan Island, in the South China Sea.

ONGC Videsh Limited (ONGC Videsh) entered into a Memorandum of Understanding (MOU) with Turkish Petroleum Corporation (TPAO)
June 2014

ONGC Videsh entered into a MOU with TPAO on the sidelines of World Petroleum Congress, 2014 at Moscow. The MOU paves the way for joint cooperation between two National Oil Companies in the hydrocarbon sector. The MOU envisages two companies working together for E&P activities in Turkey, joint participation in bidding for opportunities including exploration bid rounds in third countries and pursuit of hydrocarbon area related research and development activities.

Shell announces its third major discovery in the Norphlet play
July 15, 2014

Shell announces its third major discovery in the Norphlet play in the deep waters of the Gulf of Mexico with the successful Rydberg exploration well.

Bashneft to acquire a network of filling stations in Russia
July 17, 2014

Bashneft has reached agreement to acquire a network of filling stations operating under the OPTAN brand name and comprising 92 filling stations and 11 land plots in 12 regions of Russia: the Chelyabinsk, Kurgan, Ulyanovsk, Vladimir, Nizhny Novgorod, Samara and Sverdlovsk Regions and the Republic of Bashkortostan, the Republic of Mordovia, the Chuvash Republic, the Republic of Tatarstan and the Mari El Republic.

GAIL (India) Limited (GAIL) signed Memorandum of Understanding (MOU) with Sumitomo Corporation, Japan (Sumitomo)
July 25, 2014

GAIL announced the signing of a MOU with Sumitomo. Under the MOU, GAIL and Sumitomo will pursue business opportunities in natural gas and LNG value chain business globally, specifically covering cooperation in petrochemicals, natural gas procurement, pipelines and liquefied natural gas.

Gas discovery by Eni
July 31, 2014

Eni has made an important gas and condensates discovery in the Nyonie Deep exploration prospect located in block D4, approximately 13 kilometres from the coast of Gabon and 50 kilometres from the capital city Libreville. Preliminary estimates suggest the new gas discovery is significant, with initial potential in place estimated at 500 million barrel of oil equivalents (boe).

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.

Doc ID: 1O&G14

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