Govt to auction oil fields of ONGC to private companies

New Delhi: Government plans to auction 69 small and marginal oil fields of state-owned Oil and Natural Gas Corp. Ltd (ONGC) and Oil India Ltd to private firms on a new revenue sharing model.
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, sources 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, sources said.
The weightage for revenue share will be 80% while 20% would be for work programme that may include drilling of exploratory and development wells and seismic studies. ONGC and OIL too are likely to bid for the fields, which they had originally discovered.
As many as 63 discovered oil and gas fields are being surrendered by ONGC and another six by OIL. Developing these small and marginal fields was uneconomical after paying for fuel subsidies. ONGC and OIL have to pay up to $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 win the fields in the auction, they will not have to pay fuel subsidy on them. The fuel subsidy payouts are only for 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 New Exploration Licensing Policy (NELP) since 1999. The marginal field will be treated at par with NELP blocks, they said.
The ministry is reasoning the auctioning of the marginal fields to they being uneconomic for a large firm with huge overheads to develop or bring to production. Smaller firms with a fraction of operating cost can develop them at a much faster and economic rate. The revenue sharing model is a shift from the much-criticized production sharing contract (PSC) regime where blocks were allocated to firms that bid the highest amount of work in the area.
It 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. Of the 165 fields, with total ultimate reserves of 340 million tonnes, operations are going on in 139 and work is yet to start on 26.
Source: Mint; 14 April 2015
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