6 September, 2015
The Union Cabinet has given its approval to the Marginal Fields Policy (MFP), for development of hydrocarbon discoveries made by national oil companies, Oil & Natural Gas Corporation Ltd. (ONGC) and Oil India Ltd. (OIL), which could not be monetized for many years due to reasons such as isolated locations, small size of reserves, high development costs, technological constraints, fiscal regime, etc.
Under the MFP, 69 oil fields (with estimated 89 million tonnes of oil and gas equivalent worth Rs 700 billion at current prices), which have been held by ONGC and OIL for many years, but have not been exploited, will be offered for competitive bidding. With appropriate changes in policy, it is expected that these fields can be brought into production. For example, significant changes have been proposed in the design of the contracts for development of these discoveries. Instead of the profit sharing concept being currently used under the production sharing contracts, it is proposed that a gross revenue sharing concept will be used. Unlike the profit sharing methodology presently followed where the Government scrutinized cost details of private contractors which led to delays and disputes, under the new regime the Government will not be concerned with the cost incurred and will receive a share of the gross revenue from the sale of oil, gas, etc.
Further, it is proposed that the licence granted to the successful bidder will cover all hydrocarbons discovered in the field. Earlier, the licence was restricted to one item only (for example, oil) and a separate licence was required if any other hydrocarbon (for example, gas) was discovered and exploited. The MFP also allows the successful bidder to sell at the prevailing market price of gas, rather than at an administered price.
It has been suggested that bidders will be evaluated on the basis of two parameters – minimum work programme and revenue share – in a ratio of 20:80. The bidders will have to quote revenue share at the minimum and maximum revenue points decided by the government for all fields.
If successful, the Government’s decision will stimulate investment as well as higher domestic oil and gas production. It will also increase the role of the private sector in oil and gas. The Government is likely to announce a new policy for major fields in three months or so that would include provisions for revenue sharing as well as uniform licensing but not free pricing of gas.
For further information, please contact:
Alfred Adebare, Lex Counsel Law Offices