NEW DELHI, January 1: The Oil and Natural Gas Corporation (ONGC) has initiated negotiations with oil multinationals Slumburger and Halliburton Inc subsequent to a petroleum ministry suggestion that it explore a technical services agreement for the controversy-ridden upgradation plans of the Neelam oilfields.Revised estimates have put the production losses of the Neelam oilfields at a massive $5 billion, because of damages caused to oil structures while evacuating oil.ONGC had sought the ministry's nod for a 50:50 JV for shoring up the falling production levels in Neelam but the government is instead suggested a technical services deal, involving profit sharing on incremental output.ONGC had wanted to rope in one of the the seven shortlisted exploration conglomerates - Amoco, Occidental, Arco, Shell, Total, Marathon and Chevron - for a possible joint venture. The idea was to allow one of these companies to bid for the upgradation project on the basis of the future earning potential.The partner would then pump in money by way of a "signature bonus" and embark on an equal profit and production sharing deal with ONGC. The mode of enlisting the partner was proposed to be a transparent one - the selection being pegged to the quantum of the "signature bonus", provided intrinsic technical qualification norms were met.A technical services deal, however, is an entirely different ball game. The shortlisted exploration companies would not qualify, since petroleum services providers are a different genre of outfits.A technical services deal, of the kind sponsored by the ministry, has its pitfalls. The difficulties in estimating incremental production levels is one of them. For quantifying the extra output, a base production level will have to be calculated and over a long term period of about 20 years.This benchmarking is apparently a difficult proposition, especially as otuput is on a declining scale in Neelam. Production has slowed down from 90,000 barrels a day three years ago to around 38,000 barrels today and is likely to come down to 30,000 barrels a year in the future, unless corrective measures are taken. The calculations involved are complex and are likely to be contested by one or the other partner.What is more, service providers, as is evident from agreements signed in the past for similar jobs, are prone to base their arithmetic on a recovery-of-cost basis. Exploration companies, on the other hand, look at earnings potential and, therefore, a profit-sharing deal is more suitable for them.Given the scepticism regarding the viability of a technical services deal, ONGC seems to be keeping alive the original joint venture proposition for Neelam. ONGC is of the opinion that a good joint venture partner will be able to recover 40 per cent of estimated oil reserves in the field as against the company's own extrapolation of only 25 per cent. This translates into an incremental output of a whopping 25 million tonnes of oil.ONGC is also keeping alive a third option: to go it alone. The initial Neelam upgradation costs have been estimated at around Rs 800 crore.
