India has identified 15 discovered fields — with collective reserve of 791.2 million tonnes of crude oil and 333.46 billion cubic metres of gas — that are already in production through national oil companies for handing over to private firms with the hope that they would improve upon the baseline estimate and its extraction.
As per the preliminary guideline outlined by the Directorate General of Hydrocarbons (DGH), the successful bidder for each field would be the one who commits the maximum capital investment within 10 years of the contract award as well as pledges the largest share out of its net revenue to the government. Both parameters would get equal weightage in the competitive bidding process which would be administered by the DGH which also went through data of 202 fields operated by NOCs Oil & Natural Gas Corp and Oil India Ltd to carve out the 15 fields (see box) for development under unincorporated joint venture.
“The partner selected for production enhancement work under this model shall acquire 60 per cent of the farm-in interest in the field on payment of signature bonus declared upfront in the competitive bidding process,” says the draft policy paper prepared by quasi-regulator DGH. Besides majority equity, the partner “shall operate the field for the entire duration of the production enhancement contract” which has been currently pegged at 20 years or the remaining field life, whichever is earlier.
The first phase of two years would allow the newcomer to complete technical studies, drilling, appraisal or development wells to prepare a field development plan. Within one year of the second phase, the firm would be handed over the operatorship of the field during which it would make the committed investment.
Any expense beyond this committed investment would be shared between the partner and the NOC in ratio of their equity. All operational costs and liabilities — cess, royalty and other statutory payments — would also be shared between the two in terms of percentage interest in the field.
In return, “the selected partner shall receive a 60 percent of the net proceeds from sales of oil and gas produced from the field from the commencement of the fourth year of Phase II,” says the draft policy paper. As for incentives, the DGH has recommended that production
enhancements contracts be given the same royalty rates as under Hydrogen Exploration Licensing Policy which will come into effect after the second phase kicks in.
These producing fields would now be exempted from paying cess from commencement of Phase II “on the production of crude oil”, recommends the DGH. The DGH zeroed on to these producing fields as they hold reserves 20 or more million tonnes of oil equivalent (MTOE) and they crossed the half-way mark on a score (indicative of poor field performance) combining exploration index, current recovery and production decline rate in the last three years.
It eliminated 141 out of 202 fields as they were either less than 10 years of age or had shown some positive change in the year-on-year production rate. The DGH has also identified 44 fields of ONGC and OIL who could take on partners for production enhancement work through Technical Services Model.
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.