Cabinet clears auctioning of ONGC, Oil India fields to private firms

New Delhi: Government will auction 69 small and marginal oil and gas fields taken away from state-run ONGC and Oil India to private firms on a new revenue sharing model, offering operators full marketing and pricing freedom. The fields hold 89 million tonne of oil and gas resources which are worth Rs 70,000 crore at current prices. The 69 fields will be clubbed into clusters and offered for bidding within 3 months, Oil Minister Dharmendra Pradhan said.[caption id=“attachment_2254286” align=“alignleft” width=“380”]  New policy. Reuters[/caption] They will be bid out on the basis of revenue share or the share of oil and gas a bidder offers to government upfront. Besides offering minimal interference in operations of the field, the government will allow companies to sell oil as well as natural gas produced from these fields at market price and with no restriction on who they sell the produce to, Pradhan said. While oil is priced at global benchmark currently, a complex international hub based formula determines gas price, which is roughly half of the rate at which India imports gas. Pradhan was briefing reports after the Cabinet, headed by Prime Minister Narendra Modi, approved auctioning of the fields that state-owned firms have surrendered because they were uneconomical due to size, geography and state-set low sale prices. Seeking to revive interest in oil and gas exploration by simplifying rules, the government will replace the controversial Production Sharing Contract (PSC) with simpler revenue-sharing regime. The new model will replace the current practice of companies getting blocks by bidding maximum work programme and then recovering all of their investment before sharing profits with the government. This model was criticised by CAG which said it encouraged companies to keep raising cost so as to postpone higher share of profits to the government. In the new regime, the companies will have to indicate the revenue they will share with the government at different stages of production as well as at different rates. “This auction will also usher in a unified licensing regime which will give operators right to produce both conventional oil and gas as well as unconventional resources like shale oil and gas and coal-bed methane (CBM),” he said. Presently, a licensing regime governs production of oil and gas while exploitation of unconventional resources are on a separate regime. Pradhan said a bid document will be brought out in three months after which the auction process will begin. In all Oil and Natural Gas Corp (ONGC) has 110 small and marginal oil and gas discoveries in the blocks or areas it got from government on nomination basis. Of these, the company has been allowed to retain 47 where some work has been done and rest have to be surrendered. Oil India Ltd has surrendered all of its six small and marginal discoveries. Of the 69 fields to be auctioned, 36 are offshore and 33 onshore. An oil ministry official said ONGC and OIL will be reimbursed the cost they had incurred on these 69 fields by the new operator. Operators of onshore fields will have three years to begin production while they will have 4 years from the date of signing contract to start output from offshore fields. The timeline for starting production from the two deep sea fields is six years. Companies winning the blocks will have to pay royalty as prevailing rates but there would be no oil cess. “These discoveries could not be monetised for many years due to various reasons such as isolated locations, small size of reserves, high development costs, technological constraints, fiscal regime etc,” Pradhan said. The fields will be bid out on the basis of revenue share or the share of oil and gas a bidder offers to the government upfront, and work programme. Companies offering the maximum revenue share or percentage of oil and gas to the government, and committing to do more work, will win the field. The weight for revenue share will be 80 per cent while 20 percent would be for work programme that may include drilling of exploratory and development wells and seismic studies. So far, 254 blocks for exploration and production of oil and gas have been auctioned in nine rounds of New Exploration Licensing Policy (NELP) since 1999. These have been on production sharing basis where profit is shared with the government after recovery of cost. ONGC has surrendered 63 discovered oil and gas fields which it had found uneconomical to develop considering small reserve size and high economic cost as it had to pay for fuel subsidies from the hydrocarbons produced from it. Oil India Ltd (OIL) has surrendered six such fields. ONGC and OIL have to pay a part of their revenue they earn from selling oil produced from their fields to help subsidise kerosene. Earlier they had to foot subsidy for domestic cooking gas (LPG) and diesel as well. Sources said that in case ONGC and OIL also decide to bid and end up winning the fields in the auction, they will not have to pay fuel subsidy on them. PTI