Tearing into DGH’s proposal for auctioning oil and gas fields discovered by national oil companies (NOCs) to private firms, Oil & Natural Gas Corp (ONGC) has said that it should also be allowed to participate in the auction and given the same concessional terms that were being offered to the private bidders.
“Those fields which qualify under UJV (Unincorporated Joint Venture-Farm In) and TSM (Technical Services Model) may be offered to NOCs in case the NOC assures to raise the production by working out financial viability of the field with the extending of incentives like lesser royalty and no cess to the NOC,” ONGC said on the DGH’s draft Production Enhancement Contract Policy.
Based on past experience where fields were returned by a private operators, ONGC wants a “provision of reverting back the field to NOC in case of non-performance by the partner, without any compensation”.
Directorate General of Hydrocarbons (DGH) has identified 15 producing or discovered fields — with collective reserve of 791.2 MT of crude oil and 333.46 billion cubic metres of gas — held by ONGC or Oil India Ltd (OIL) for handing over to private firms under UJV to improve upon the field reserves and its exploitation.
Successful bidder for each field would be the one which commits the maximum investment as well as pledges the largest share of its net revenue to the government. It would get 60 per cent equity in the field and receive 60 per cent of net proceeds from sales from the fourth year after production.
As a sweetener, the DGH has proposed that these operators be eligible for reduced royalty rates as under the Hydrogen Exploration Licensing Policy (HELP) as well as be exempted from paying cess and import duty on capital goods.
Under HELP, though the onland royalty has been kept at 10 per cent, shallow water fields have to pay 7.5 per cent while deep and ultra-deep do not pay royalty for first seven years which kicks in subsequently at 5 per cent and 2 per cent, respectively.
But in the pre-New Exploration Licensing Policy (NELP) contracts, to which these NOC fields belong, royalty and cess are charged at 10 and 20 percent, respectively, without exemption on paying import duty. This effectively sucks away the investible surplus for improving upon the acreages. “This means that the operating and fiscal regime will change from concession to (revenue sharing) contract regime. This may require examination from the legal angle,” ONGC said. As for giving away 60 per cent of net proceeds to the private firm, ONGC said this should kick only when the latter achieves “incremental” volumes beyond the usual production rate.
ONGC also questioned DGH’s mathematical formula which used indices like cut-off reserve volume, exploitation rate, current recovery rate and average production decline to identify the 15 fields out of 202 fields which were discovered in exploration blocks that were given on nomination.
The DGH zeroed on to 15 fields as they hold reserves of 20 or more MT of oil equivalent and crossed the half-way mark on the mathematical score. It eliminated 141 fields as they were either less than 10 years of age or had shown some positive change in the year-on-year production rate.
But ONGC claims these indices were based on techno-commercial factors such as crude oil quality, its price, proximity to market, etc. which needed to be taken into account before handing over to the private players.
“All parameters are technical. No financial parameter has been considered for field data analysis and selection of fields. For extraction of oil and gas, future investment needs to be taken into consideration. Also, expected economic rate of return from investment in the field would be a relevant factor to decide on the strategy of mode of development of the field,” it argued.
“It would, therefore be required that after working out a mode of development of these fields, the mode would need to be validated against aforesaid techno-commercial parameters and also the future plans of the NOCs for these fields.”
Another objection was to DGH’s unilateral decision to identify the fields even though the policy claimed it would be done after consulting the Ministry. “Views of NOCs would also be useful before the policy is finalised as the cut-off points may vary with the type of reservoirs.” Senior ONGC officials recently wrote to the Prime Minister claiming handing over these fields would be counter-productive.
The DGH has also identified 44 fields of ONGC and OIL who could take on partners for production enhancement work through TSM. However, these technical tie-ups would get the “tariff” that they bid as a return for increasing the output “over the baseline production” for 10 years initially.