To raise the production of hydrocarbons, the government is planning to provide fiscal incentives for fields from the nomination era. Difficult fields from the nomination era will be given additional incentives. “The current financial model is not viable for companies operating fields under the nomination era,” said petroleum minister Dharmendra Pradhan while speaking to reporters here during the launch of the second round of the Open Acreage Licensing Policy (OALP), a critical part of the March 2016-launched Hydrocarbon Exploration Licensing Policy (HELP).
The move will benefit state-run ONGC and Oil India which operate most of the fields from the nomination era. Fields nominated to ONGC and Oil India account for 70% of domestic oil output. But production from these fields have stagnated around 25 million tonne per annum for years. ONGC produces almost 87% of its crude oil production from nominated blocks.
Also read| Direct tax collections surge 14% on-year in April-December period; key figures in a nutshell
ONGC has been seeking an upward revision of the post-wellhead cost to reduce its royalty outgo on crude oil produced from nomination blocks. In 2007, the ministry of petroleum and natural gas through a gazette notification said that the wellhead price —on which royalty payment to the government will be calculated — of crude oil for nominated blocks of ONGC and Oil India shall be ascertained by deducting Rs 1,250 per tonne of oil for onshore blocks and Rs 947 for offshore blocks as operational expenditure. However, despite the companies claiming that cost have gone up significantly, the rates have not been revised.
HELP’s hallmarks are single licence for exploration of all forms of hydrocarbons (including shale gas and coal bed methane), a simple revenue-sharing model and marketing and pricing freedom for the developers. On Monday, the Directorate General of Hydrocarbons launched the second round of auctions of oil and gas fields held under OALP. The round offers 14 blocks covering 30,000 sq km.
The government expects the second round of OALP to generate about $500-600 million of revenue from commitment made under exploration work programme. Of the 14 blocks offered, 10 blocks are based on expression of interest submitted by bidders and four blocks have been carved out by the government.