Government to auction small oil fields of ONGC, Oil India to private companies
New Delhi: The government will soon auction 69 small and marginal oil fields of state-owned ONGC and Oil India to private firms as a precursor to a full fledged licensing round, Oil Secretary Saurabh Chandra said on April 21.
"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," he said at FICCI Roundtable on Hydrocarbons here.
The Oil Ministry has floated a note for Cabinet Committee on Economic Affairs (CCEA) for auctioning of the fields that state-owned firms are surrendering because they were uneconomical to develop due to government's subsidy sharing mechanism.
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, he said. 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 weightage for revenue share will be 80 per cent while 20 per cent would be for work programme that may include drilling of exploratory and development wells and seismic studies. "Once new model get approval, we will soon have NELP-X," Chandra said.
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.
Chandra said better model is revenue sharing where bidders upfront bid the percentage of production they will share with the government. The Oil Ministry is looking at offering as many as 68 blocks or areas for exploration of oil and gas in the 10th round of NELP.
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 up to USD 56 per barrel from the revenue they earn from selling oil produced from their fields, to help subsidise domestic cooking gas (LPG) and kerosene. After the subsidy payouts, they are left with hardly any money to operate a small or marginal field.
Sources said if ONGC and OIL bid win the fields in the auction, they will not have to pay fuel subsidy on them. Of the 165 small and marginal fields, with total ultimate reserves of 340 million tonnes, operations are going on in 139 and work is yet to start on 26.
ONGC and OIL pay fuel subsidy only on production from fields allocated to the two firms on nomination basis and they don't have to share the same on blocks they won in bidding under NELP. The marginal field will be treated at par with NELP blocks, sources said.
The revenue sharing model is a shift from the much-criticised production sharing contract (PSC) regime where blocks were allocated to firms that bid the highest amount of work in the area. It (PAC) allowed the firms to recover all their cost before sharing profits with the government, a regime which was criticised by the Comptroller and Auditor General or CAG as one that provides incentive to operators to keep raising cost so as to postpone government share.
ONGC holds about 165 marginal fields (79 offshore and 86 onshore). Of which, 63 are being surrendered for auction. Marginal fields were given to ONGC before the licensing rounds on nomination basis. Hydrocarbons resources are locked up in these fields, but they cannot be produced economically on a standalone basis, or with a conventional approach.
