1. Govt to auction 69 marginal oil fields to private players

Govt to auction 69 marginal oil fields to private players

The petroleum ministry would soon auction 69 small and marginal fields taken away from PSU firms ONGC and Oil India, petroleum secretary...

By: | New Delhi | Updated: April 22, 2015 1:15 AM
Dharmendra Pradhan, Oil ministry, petroleum ministry, oil fields auction, Indian economy

Marginal field policy will have approval soon and 69 fields, which ONGC and OIL very happily have given up, will be put (up for bidding). (Reuters)

The petroleum ministry would soon auction 69 small and marginal fields taken away from PSU firms ONGC and Oil India, petroleum secretary Saurabh Chandra said on Tuesday. Auctioning small and marginal fields afresh with attractive incentives is in keeping with the government’s plan to pick low-hanging fruits for increasing the country’s oil and gas output.

“Marginal field policy will have approval soon and 69 fields, which ONGC and OIL very happily have given up, will be put (up for bidding). We hope to put them out to bidding soon,” Chandra said at an industry conclave organised by Ficci. He did not divulge details of the reserve in these fields. The bidding of marginal fields would be on the basis of revenue share or the share of oil and gas a bidder offers to the government upfront, and work programme.

These 69 fields were left idle by ONGC and Oil India after finding it difficult to put these acreages under production since they are ‘not economically viable.’ Petroleum minister Dharmendra Pradhan targets to up hydrocarbon output from domestic fields by exploiting the marginal fields, a strategy he believes would yield immediate results.

The petroleum secretary also said, “Once the new model (revenue sharing) gets approval, we will soon have NELP-X. Chandra explained that the better model is revenue sharing where bidders upfront bid the percentage of production they will share with the government.

In the revenue sharing mechanism, explorers would need to pay the government a predetermined amount form day one, based on production levels at the block. In other words, the government’s remuneration is de-linked from the quantum of investment made in developing the block and extracting the hydrocarbons. Under the present regime (applicable for blocks auctioned under NELP), an explorer gets to recover all costs incurred during the exploration cycle.

The petroleum ministry is trying to put forward an attractive fiscal regime for these marginal fields. For instance, an explorer would be allowed to combine multiple fields and develop it as a cluster. At the same time, if any of the auctioned marginal fields is in the vicinity of existing asset of any firm, it would be allowed to prepare a development plan in parallel with its old asset, the official added.

The petroleum ministry wants to go ahead with the revenue-sharing approach believing it to be transparent and having less room for government interference. In addition, the model would safeguard the government’s interest in the event of any windfall gains arising out of higher-than-estimated output from unexpected finds.

While ONGC has 165 marginal fields (86 onshore and 79 offshore), only 74 are currently under production. These marginal fields have estimated total reserves of 1,510 million tonnes of oil equivalent (mtoe). Of this, nearly 340 mtoe is recoverable hydrocarbon.

In FY14, only 7.19% of ONGC’s standalone crude oil production and 13.74% of its gas output came from marginal fields.

According to industry watchers, the gas drilled from marginal fields not connected to the pipeline network could be filled into cylinders and transported. The life of these fields would be less than a decade and, of this, four-five years would yield higher production.

Earlier, ONGC had sought a market-driven price for the hydrocarbon produced from its marginal fields. This means the company wants these fields to be exempted while forking out subsidy for compensating oil-marketing companies.

The ONGC board, under former chairman and managing director Sudhir Vasudeva, had decided to bid out 26 marginal fields comprising six in KG onshore, seven in Western onshore and 13 fields in Western offshore to private explorers as ‘service contracts’ under a fixed international pricing model. However, fluctuations in net realisation because of the higher subsidy burden did not allow the government firm a go-ahead.

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