In what is being seen as a pre-cursor to further freeing
the oil and gas sector, the government has decided to auction 69
marginal fields of ONGC and Oil India under a unified licence regime
with marketing and pricing freedom.
Of the 69 fields, 63 belonged to ONGC and six to Oil India. Both companies can, if they choose to, participate in the auctions
Resources worth
₹70,000 crore (89 million tonnes of oil and gas reserves) are locked in
these fields with estimated annual production of ₹3,500 crore. The
government aims to complete the auctions in three months and the winners
will be given a 20-year licence.
The industry terms Wednesday Sep 02,2015 Cabinet decision as ‘better late than never’, as the proposal has been in the works for over five years, experts say ‘read the fine print’. The government has not only allowed exploration of all types of hydrocarbons — oil, gas, shale (oil and gas), coal bed methane — under a revenue-sharing model, but also given operators the freedom to sell the discovered gas at market price. Currently, only crude is allowed to be sold at market price.
“With this, the government has sent out a bigger message: that it is opening up the gas market as well. If you allow market price from these isolated and smaller fields, you may not have a valid reason to stop contractors of larger fields from getting higher prices,”
The industry terms Wednesday Sep 02,2015 Cabinet decision as ‘better late than never’, as the proposal has been in the works for over five years, experts say ‘read the fine print’. The government has not only allowed exploration of all types of hydrocarbons — oil, gas, shale (oil and gas), coal bed methane — under a revenue-sharing model, but also given operators the freedom to sell the discovered gas at market price. Currently, only crude is allowed to be sold at market price.
“With this, the government has sent out a bigger message: that it is opening up the gas market as well. If you allow market price from these isolated and smaller fields, you may not have a valid reason to stop contractors of larger fields from getting higher prices,”
The decision will incentivise the sector and attract global firms that
have not looked at India till now, local industry players are quick to
point out that a lot will depend on how it is implemented and regulated
Minister of State for Petroleum and Natural Gas
Dharmendra Pradhan said the move to a revenue sharing model
(production-linked) is a paradigm shift from the prevailing production
sharing contract regime. Under the existing production sharing contract,
the contractor first recovers his expenditure before sharing profit.
The government is working on the tenth edition of the New Exploration
Licensing Policy and is keen to come out with a policy for marginal
fields before the launch of NELP X. The revenue sharing model will also
be extended to future hydrocarbon contracts as well, Pradhan indicated.
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