Hardy delivers upstream ultimatum to India

15 June 2016, Week 23 Issue 529

Hardy Oil and Gas has threatened to walk away from India’s offshore PY-3 oilfield unless the government and project partner Oil and Natural Gas Corp. (ONGC) agree to abide by the field’s production-sharing contract (PSC).

PY-3, situated some 80 km from Pondicherry on India’s east coast, was brought on stream in 1997.

It had delivered a peak output of 3,000 barrels per day of light crude before technical reasons led to declining yields and the field’s eventual shutdown in 2011.

London-listed Hardy, which operates the field with an 18% stake, has struggled in vain over the past two years to convince New Delhi and state-run ONGC to a back a further field development plan (FFDP) that would allow production to resume.

In a guidance report last week, the UK explorer said it had come to a consensus on the investment with its project partners earlier this year. But the accord had been derailed “by parties to this consensus linking unrelated issues and reneging on commitments,” it said. The company warned that unless the FFDP was adopted in a “timely” manner, it would begin planning for a withdrawal from the project.

ONGC owns a 40% stake in PY03, while fellow Indian producers Hindustan Oil Exploration and Tata Petrodyne each hold 21%.

The FFDP aims to bring one well back with an output rate of around 3,000 bpd. Two more production wells plus a side-track will be sunk, raising production to an average of 8,000 bpd, according to Hardy.

The company said it supported the government’s recent changes to energy market policy, which include new regulations on marketing, pricing and licence arrangements for deepwater acreage. But the reforms have not helped matters at PY-3, Hardy said.

It is uncertain whether Hardy, having already threatened to quit the project several times in the past two years, is simply posturing in the hopes of speeding up the government’s decision-making process.

Hardy owns a total of three licences in India, none of which are producing. The company’s rocky relationship with New Delhi is the chief cause of its failure to build up a production portfolio.

Along with partners Reliance Industries Ltd (RIL) and BP, Hardy withdrew from the Krishna Godavari (KG) Basin’s D3 block in December 2014 after development was prevented by the Indian Defence Ministry.

It is currently tied up in legal proceedings with the government over the control of the CY-OS/2 licence, situated close to PY-3.

In 2009, New Delhi claimed that Hardy and partner GAIL (India) had forfeited their rights to the block after failing to declare commerciality within two years of making a discovery. The government cited legislation relating to the discovery of oil.

Hardy rejected this ruling, however, arguing that as it was gas it had found in 2007, it was allowed to wait five years from the date of the discovery before declaring whether it was commercially viable. The dispute went to court and in February 2013 a panel of Indian arbitration judges ruled in favour of Hardy and GAIL.

New Delhi is now making its second appeal against the decision, but the court date has been repeatedly pushed back, mostly recently from February to July this year.

Hardy suffered a net loss of US$16.8 million in the fiscal year ending March 31. The company blamed the poor result on writedowns and deferred tax assets amounting to US$12.9 million. As of March, Hardy had US$17.6 million in cash and short-term investments, but no debt.

Edited by

Andrew Kemp


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