The Government on Wednesday said that it would auction 69 idle oil and gas fields of State-owned oil and gas majors - ONGC and Oil India - to private firms on a new revenue sharing model with liberalised terms, including pricing and marketing freedom.
“This is a paradigm shift from the controversial production sharing contract (PSC) and cost recovery model to a more equitable revenue sharing model that protects Government interest in both low oil and high oil price scenarios,” Oil Minister Dharmendra Pradhan told reporters here.
The 69 small and marginal fields holding 89 million tonne of oil and gas resources, worth around Rs70,000 crore at current rates, will be given to explorers offering the maximum revenue from hydrocarbon produced to the Government.
In the new model, the Government will allow companies to sell oil as well as natural gas produced from these fields at market price and with no restriction on who they sell the produce to. While oil is priced at global benchmark currently, a complex international hub based formula determines gas price, which is roughly half of the rate at which India imports gas.
“The Cabinet on Wednesday approved auctioning of the fields that State-owned firms have surrendered because they were uneconomical due to size, geography and state-set low sale prices,” said Pradhan.
The new revenue-sharing regime, it seems, will replace the PSC model where oil and gas blocks are awarded to those firms which show they will do maximum work. All their investments can then be recovered from sale of oil and gas before sharing profits with the Government.
Also, the bidders will be asked to quote the revenue they will share with the Government at low and high end of price and production band to capture windfall of steep rise in prices as well as quantum jump in production.
“We are committed to our Prime Minister’s moto of minimum Government, maximum governance. The new model will ensure that there is least the Government interference in the operations while also providing a fiscal and policy regime that encourages investments,” he said.
This model was criticised by CAG which said it encouraged companies to keep raising cost so as to postpone higher share of profits to the Government.
Asked if big international firms will show interest in the auction at a time when oil prices are at 6-year lows, Pradhan said the Government was targeting small companies with lean structure and sound technology. “After all the Rajasthan fields were discovered by Cairn Energy after biggies like Shell and ONGC had said there was no much oil in Thar desserts,” he said.
When oil prices are low, he said, the cost of field services like drilling rigs also come down and it is the best time to invest in exploration. First output from the 69 fields is not expected before three years by when oil prices may correct.
“This auction will also usher in a unified licensing regime which will give operators right to produce conventional oil and gas as well as unconventional resources like shale oil and gas and coal-bed methane (CBM),” he added.
Presently, a licensing regime governs production of oil and gas while exploitation of unconventional resources are on a separate regime. Pradhan said a bid document will be brought out in three months after which the auction process will begin.
In all Oil and Natural Gas Corp (ONGC) has 110 small and marginal oil and gas discoveries in the blocks or areas it got from the Government on nomination basis. Of these, the company has been allowed to retain 47 where some work has been done and rest have to be surrendered.
Oil India ltd has surrendered all of its 6 small and marginal discoveries. Of the 69 fields to be auctioned, 36 are offshore and 33 onshore. These will be regrouped and clubbed together before offering. The 69 fields have so far been clubbed into 48, which may further go changes. Companies winning the blocks will have to pay royalty as prevailing rates but there would be no oil cess.
Meanwhile, shares of oil exploration companies were in huge demand on Wednesday, surging up to 20 per cent, as the Government decided to auction 69 idle oil and gas fields of state-owned ONGC and Oil India to private firms on a new revenue sharing model and liberalised terms.