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Rig shortage may get oil cos tax holiday
January, 11th 2008
The government is considering a three-year rig exploration holiday for oil companies digging for hydrocarbons in the country. This is because of the acute shortage of rigs in the international markets. Oil companies have to surrender the blocks if they do not complete the minimum work programme they guaranteed at the time of allotment. However, the riders attached to the holiday are likely to upset exploration firms, especially Reliance Industries (RIL) and ONGC.

Firstly, the holiday will be with retrospective effect from January 1, 2007. Secondly, firms seeking rig holiday will have to pay a 100% bank guarantee in lieu of the value of work programme they have committed.

The move comes after companies like RIL, ONGC and Italys ENI urged the government to grant a three-year break from drilling exploratory wells. The companies had cited a global shortage of rigs for seeking a time out, a move that could give the company a breather against penalties for falling short of the work target promised to the government.

The petroleum secretary M S Srinivasan said:

A committee of secretaries will take a decision next week on granting rig exploration holiday for 2-3 years in deepwater blocks. I believe the situation is likely to ease as many rigs are under construction in the international markets.

The rig exploration holiday would call for changes in the New Exploration Licensing Policy (Nelp). The contracts signed for the exploration phases of the third and fourth rounds of Nelp may be merged to give the companies breathing space.

ONGC chairman and managing director R S Sharma said: Such a holiday is important because rigs are not available even if we are willing to pay higher, as others are willing to pay even more. Rentals have soared beyond $500,000 a day for a deepwater rig.

An official from a leading exploration firm operating in the country said: The policy of merging exploration phases to tide over rig shortage does not help since it piles up work commitments in the second and fourth phases, and does not provide respite to the contractor over the long term.

Meanwhile, ONGC and RIL are exploring the possibility of sharing rigs to tide over the supply crunch particularly for deepwater drilling units. Both companies are working on mechanisms to share rigs that will meet varying requirements for exploration and development drilling in adjacent blocks. The committee slated to take the decision is chaired by petroleum secretary M S Srinivasan. Other members include economic affairs secretary D Suba Rao, law secretary T K Vishwanathan and directorate general of hydrocarbons (DGH) V K Sibal.

Besides rig exploration holiday, the ECS is also likely to consider granting R&D status for Nelp blocks in the Kerala-Konkan region.
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