A Group of Ministers on Wednesday approved major game changers in oil and gas exploration and production sector, including asset stripping of state-run Oil & Natural Gas Corp and Oil India Ltd. Based on the proposal from the Petroleum Ministry, the GoM — headed by Finance Minister and assisted by Coal, Commerce, Power and Petroleum Ministers — identified 97 oil and gas fields that could be taken away from ONGC and OIL for auctioning to private companies.
On January 29, a bureaucratic panel headed by Niti Aayog CEO Amitabh Kant recommended that ONGC should bid out 64 fields and OIL two to “new operators” without charging any past costs for their discovery or development efforts. The Indian Express had reported these changes in a series of reports last week.
These fields — discovered by the two national oil companies (NOCs) in exploration basins that were given under nomination — are out of the 118 smaller fields that contribute 5 per cent of the country’s crude oil output of 35.68 million tonnes and natural gas production of 32.65 billion cubic metres. The report was approved by Petroleum Minister Dharmendra Pradhan on February 5, a week ago, and immediately put up before the GoM, as directed by the Prime Minister’s Office, on Wednesday. In the first and also the last sitting, the GoM approved it. The two NOCs would be left with 52 discovered “small and marginal fields” which could be taken away if they do not adhere to the promised “enhanced production profile” duly vetted by “an internationally reputed third party”. In case the oil and gas output fell below 10 per cent of the agreed performance for the next three years, the committee recommended that these could be taken away from the two NOCs and given away to private companies.
As for the large 66 producing fields which account for 95 of the country’s oil and gas output, the diktat is that ONGC form a joint venture, farm it out to a third party or, hire a technical service provider to demonstrate that their output would climb. ONGC and OIL would get three months for showing the output enhancement in seven of its largest fields and six months for the rest after inducting the global giants — whether producers or technology providers — in these sought-after fields.
The GoM also approved the panel’s recommendation that the current revenue sharing model between the oil and gas producers and the government be done away with in lesser unexplored basins until annual revenue touches $2.5 billion while in prolific basins, revenue sharing should not kick in unless it touches $7 million per day.
This is a sharp departure from the profit sharing regime followed earlier under the production-sharing contract and revenue-sharing under Hydrogen Exploration Licensing Policy (HELP) announced by Pradhan a couple of years ago. Blocks in these basins would be bid out “exclusively based on exploration work programme” with “no revenue/production sharing other than payment of statutory levies (including royalties)”, said the committee’s recommendations.
Another major advantage would be reduced royalty if production commences within four years in onland/shallow water blocks and within five years in deepwater/ultra-deepwater blocks. If not, the current rates would apply. Discoveries in all the above exploration and producing areas would get full marketing and pricing freedom of their oil and gas produce at arm’s length basis provided it’s done through a competitive bidding process.
“There would be no allocation (of crude oil and gas) by the government. No exports would be allowed,” says the report ‘Enhancing Domestic Oil & Gas Exploration and Production’. The GoM, whose recommendations have to be approved by the Cabinet which approved the HELP regime, also backed the need for taking the Directorate General of Hydrocarbons (DGH) out of the ambit of the Petroleum Ministry and made an independent regulator.
Just in case the government decides against creating a regulator, the DGH’s authority should be “strengthened” as the quasi-regulator to ensure compliance of all terms and conditions of all approvals; to issue standard operation procedures (SOPs); and, act as a single interface between various departments and authorities for processing approvals and clearances, the GoM agreed.
That would entail creating an empowered committee of officials from concerned ministries under the Cabinet Secretariat to coordinate and streamline the grant of approvals and clearances.
These changes are easily implementable as Section 8 of the Oilfields Regulation and Development Act of 1948 allows the government to offload any of its power exercised under the ORDA to an officer or authority as specified in its gazette notification.
The GoM pact follows a meeting taken by Prime Minister Narendra Modi on October 12 where it was suggested that smaller fields be handed over to private firms allowing NOCs to concentrate on big ones. The PMO first instructed that the recommendations be brought before the Cabinet Committee on Economic Affairs but later conveyed that it be first looked at by a GoM to clear inter-ministerial hurdles.