69 small oil, gas blocks to be auctioned under revenue-sharing

For the first time, the Indian government will soon begin the process for auction of 69 small and marginal oil and gas fields on a new revenue sharing model, where bidders will quote the revenue they will share with the government at both low and high ends of the price and production band.

An official source told IANS here that the change in model is designed to help keep the government share in cases of windfall from both steep rise in prices as well as quantum jump in production.

The new revenue sharing model will replace the controversial production sharing contracts (PSCs) - by which oil and gas blocks are awarded to those firms which show they will do maximum work on a block - that has governed the bidding under the earlier nine New Exploration licensing Policy (NElP) rounds.

The PSC regime, which allows operators to recover all investments made from sale of oil and gas before profits are shared with the government, was criticised by India's official auditor, who said it encouraged companies to keep inflating costs - "gold plating" - so as to postpone giving higher share of profits.

The source said of the 69 fields of state-run explorers of Oil and Natural Gas Corporation (ONGC) and Oil India ltd (OIl) which are to be auctioned, 27 are in Mumbai offshore while another 15 are in the Krishna Godavari (KG) basin. On offer are also 10 discoveries in the Assam Shelf.

However clubbing together of adjacent fields has brought down the number to be auctioned to 48, while the final number on offer may be still lower, the source added.

ONGC and Oil India surrendered 63 and six oil and gas fields, respectively, which they found uneconomical to develop in view of small reserve size and high economic cost.

Cumulatively the surrendered fields hold about 50.8 million tons of oil and 53.45 billion cubic meters of gas, the source added. The biggest discovery is D-18 in the Mumbai offshore that holds 14.78 million tons of oil reserves.

Earlier this month, the union cabinet approved the landmark change in India's hydrocarbons exploration regime.

Speaking to reporters after the cabinet meeting, Petroleum Minister Dharmendra Pradhan said that 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.

Stressing that with this move, producers will be spared day-to-day government interference, he said the government was unlocking 89 million tonnes of untapped hydrocarbon reserves worth Rs.70,000 crore.

Among the gas discoveries, the largest is ONGC's B-9 find in the offshore Kutch basin that has in-place reserves of 14.67 bcm.

The government approval of the marginal fields policy proposing a revenue sharing mechanism and market prices for output, would shift the key risks to developers, India Ratings and Research (Ind Ra) said in a report earlier this month.

Noting developers will need to consider an overall exploration, development and production cost along with volume and price estimates, as these would be the key variables for ensuring a reasonable internal rate of return on the projects," it said the older methodology "outlined in PSC meant lower risks for developers as it allowed them to first recover the costs incurred, followed by the sharing of profits with the government."