In a major reform initiative by the Prime Minister Narendra Modi government to revive investments in the hydrocarbon sector, the Cabinet Committee on Economic Affairs (CCEA) on Wednesday decided to shift to revenue sharing model for contracts instead of cost-recovery while auctioning 69 marginal oil and gas fields in the next three months.
The successful bidders of these fields would have the freedom to sell crude oil or natural gas at ‘market-determined prices,’ without any government interference. Moreover, unlike the current regime, the companies would be given the right to sell gas to any customer and not as per government-allocation policy. Other than crude oil and gas, the firms would be free to commercially exploit unconventional resources such as shale oil and gas, if they find any, in these fields.
“We have made a paradigm shift from cost-recovery model to revenue sharing. At the same time, we have decided to implement unified licensing regime. This is a primary step towards ease of doing business,” said Petroleum Minister Dharmendra Pradhan.
Hinting at a prolific investment opportunity, Pradhan cited the example of Cairn India-operated Mangala field in Barmer block of Rajasthan saying that it was also discarded by ONGC as non-prolific. “Today, the field produces about 20-25% of country’s crude oil output,” the minister said.
On Wednesday, FE reported — Govt decision on auction of 69 small, marginal oil & gas fields likely today.
The government would auction 69 fields given up by PSU explorers ONGC (63) and Oil India (6), which has trapped resources to the tune of Rs 77,000 crore, said Pradhan. At the current crude oil price of around $45/barrel, the production of hydrocarbon from this fields would help India cut down imports to the tune of Rs 3,500 crore. The currently proved reserves in these fields stand at 88 million tonnes of oil and oil equivalent.
The bidding would take place on two parameters – 80% of revenue sharing and 20% on appraisal and development wells. For the revenue sharing, the bidders would have to quote two rates – lower revenue point and higher revenue point, which would be determined based on production and price of the hydrocarbon. In simple terms, there would a revenue sharing matrix over the life cycle of the field, which would be directly proportionate to output levels and price. The government has not kept a fixed revenue share because it would not have protected Centre’s interest in case of any wind fall gains.
While there would be no cess charged from these fields, for crude oil production, royalty has been marked at 12.5% for onshore, 10% for shallow water and 5% for first seven years for deep and ultra deep water fields. For gas fields, the royalty rates have been decided at 10% for onshore and shallow water, while it would be 5% for deep and ultra deep water.
Meanwhile, unlike the current production sharing contract, the explorers of these 69 marginal oil and gas fields would have the freedom to carry out exploration activities throughout the life cycle of the field. In the present regime, explorers cannot extend exploration after the development stage is achieved.
The contract would be for 20 years, which could be extended by another 10 years based on the life cycle of the fields. Of the 69 fields, 36 are offshore and another 33 are on shore fields. PSU explorers ONGC and Oil India would also be allowed to bid for these fields. The fields are located in Arunachal Pradesh, Assam, Tamil Nadu, Rajasthan and Nagaland.
The government has determined fixed timelines to commence production from these fields – three years for onland, four years for shallow water and six years for deepwater fields. In case, any explorers fails to meet these deadlines, the fields would be taken back.