Govt to not recover Samudra Manthan funding for dry deepwater wells

New Delhi: The government will not recover the money it puts into deepwater oil and gas wells that come up dry under its Rs 84,084 crore Samudra Manthan scheme. The Ministry of Petroleum and Natural Gas (MoPNG) set out these terms in the scheme’s operational guidelines, released on Thursday. Support for an unsuccessful well “shall not be recoverable by the Government,” the guidelines stated. They defined such a well as “a dry well or a well encountering hydrocarbons that are not technically or commercially recoverable.”

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Where a funded well leads to a commercial discovery, the support “shall become recoverable from the operator’s revenue.” Repayment will begin after seven years of commercial production, or once the operator has recovered half its exploration and development cost, whichever comes first. The company will repay in annual instalments, “without inflation indexation or time-value adjustment,” according to the guidelines.

Petroleum Secretary Neeraj Mittal set out the thinking behind the scheme in his preface to the guidelines. “Samudra Manthan marks a structural break in India’s approach to offshore exploration,” he wrote. The scheme, he said, “addresses head-on the constraint that policy reform alone could not resolve the economics of deepwater exploration.” Its second component “shares the high geological and capital risk of deepwater and ultra-deepwater drilling with operators through structured milestone-linked funding.”

Petroleum Minister Hardeep Singh Puri made the same point in his foreword. The scheme will “carry exploration into the deepwater and ultra-deepwater frontiers, with the Government standing alongside operators to share the geological risk,” he wrote.

Support capped at Rs 675 crore a well

The scheme will support 60 wells in waters deeper than 400 metres. For 56 of them, the government will pay up to half the actual cost, with a ceiling of Rs 675 crore a well. The other four are stratigraphic wells, which are drilled to study a basin’s rock layers. These can be funded in full up to Rs 1,350 crore each, but only state-owned companies, or groups they lead, can apply.

Any spending above the cap will fall on the company. “Expenditure beyond the approved cap shall be borne entirely by the operator,” the guidelines stated. Funding will not rise automatically to cover cost overruns, delays or changes in scope. The guidelines ruled out one cost altogether. “The Government of India shall not pay for blowout control costs from Samudra Manthan funds under any circumstances,” they stated. Corporate overheads, interest costs, penalties, lobbying and public relations spending are also excluded.

Payments will follow drilling progress. Operators will receive 40 percent of the approved support once a well reaches 40 percent of its approved depth. The remaining 60 percent will be released after the well is completed and its report is approved. The guidelines summed up the model in one line: “Government partially underwrites drilling risk while operators retain majority capital exposure and full operational responsibility, preserving commercial discipline.”

Pending drilling commitments must be met first

Only blocks held under revenue sharing contracts will qualify. Blocks under production sharing contracts and coal-bed methane blocks are excluded unless the government notifies otherwise. “Development wells are not eligible for funding under Samudra Manthan,” the guidelines stated. Support is therefore limited to exploration wells and, in some cases, wells that appraise a find. Acreage awarded under the Discovered Small Field (DSF) policy can also qualify, “subject to an established exploration need assessed by the TAB,” the guidelines stated. The TAB is the Technical Assessment Board, which will vet every well proposal.

Operators must also be up to date on drilling they have already committed to. A company that pays damages instead of drilling an obligated well will not qualify. A new well can be approved while such an obligation is pending, but no money will be released until the obligated well is drilled. The board can also cap the number of funded wells per block, per unit of area or per operator. After the board’s review, an executive committee chaired by the petroleum secretary will appraise each proposal, and the minister will sanction the funding.

Review after 30 wells

Funding will run from FY2027-28 to FY2030-31, with the current financial year set aside for preparation. The scheme notification, issued with the guidelines, provides for a mid-term evaluation “after drilling of 30 deepwater wells.” A final independent evaluation at the end of the first phase will form “the basis for any decision on Phase-II.” After that, the guidelines expect exploration to be sustained through company-led investment “without continued budgetary funding.”

Shared hubs for stranded finds

The scheme will also part-fund common offshore infrastructure for discoveries that are too small to develop alone. Several finds in basins such as Mahanadi and Kutch “remain stranded or commercially unviable on a standalone basis,” according to the guidelines. Support will go first to the Mahanadi basin, with token funding for Kutch. The operators involved will form a jointly owned company to build the facilities, and other operators will get “fair and non-discriminatory access” to them.

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On data, the government will fully fund new 2D seismic surveys of offshore basins and own the data. Operators can then access it for a fee. 3D surveys will be co-funded with private data companies, which will get exclusive rights to sell the data for a fixed period. The national hydrocarbon data function will be moved out of the Directorate General of Hydrocarbons (DGH) into a separate organisation. The DGH must also set up a single-window portal for environment, coastal, defence and security clearances within six months.

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