Modi govt rewrites rules for auction of marginal oil & gas fields valued at Rs 77 k crore

Apart from entrenched players, start-up firms and new players with little experience in operating

hydrocarbon blocks would also get the chance to bid for the 67 discovered marginal oil and gas fields

that would go under the hammer starting Wednesday.

Apart from entrenched players, start-up firms and new players with little experience in operating

hydrocarbon blocks would also get the chance to bid for the 67 discovered marginal oil and gas fields

that would go under the hammer starting Wednesday. The Modi government had put in place a

dynamic policy for potential operators of these fields by offering them the freedom to sell crude oil or

natural gas at ‘market-determined prices’, without any government interference. Moreover, unlike the

current regime, the companies would be given the right to sell the gas to any customer, without being

constrained by any prioritisation by the government.

Proven reserves in these fields are estimated to be 88 million tonnes of oil equivalent worth over Rs

77,000 crore at current crude oil price of $45 per barrel. Production of hydrocarbon from these fields

would help India cut down imports to the tune of Rs 3,500 crore annually, petroleum minister

Dharmendra Pradhan had said.

“The policy offers the provision to companies which have not been operators of any hydrocarbon block

to bid for these fields. The idea is to get start-ups and new players into the business of production of oil

and gas and not just restrict the access to big energy giants,” said a senior petroleum ministry official.

The ministry has held discussions with several domestic and international players who have evinced

interest to take up these blocks, the official added.

Unlike the areas auctioned under the New Exploration Licensing Policy adopted by India in 1999, the 67

fields to be auctioned are “discovered” ones, meaning the reserve position is known. The operators

could therefore proceed to the development stage straight away without spending time and funds on

exploration.

“There are several investors (who do not own blocks) who are keen to buy stake in hydrocarbon blocks

and this is the best opportunity for them. Moreover, marginal fields give the chance to various services

provider firms to take up these blocks that are small and discovered, particularly the onshore ones,” said

an industry expert.

KPMG has been appointed as the knowledge partner for the auction process.

The bidding, sources said, would take place on two parameters — 80% weightage would be on the

revenue the bidders offer to share with the government and 20% on appraisal and development wells.

For the revenue sharing, the bidders would have to quote two rates — lower revenue point and higher

revenue point, which would be determined based on production and price of the hydrocarbon. In simple

terms, there would a revenue-sharing matrix over the life cycle of the field, which would be directly

proportionate to output levels and price. The government has not kept a fixed revenue share because it

would not have protected the Centre’s interest in case of any windfall gains, the sources explained.

While there would be no cess charged from these fields, for crude oil production, royalty has been

marked at 12.5% for onshore, 10% for shallow water and 5% for first seven years for deep and ultra

deep water fields. For gas fields, the royalty rates have been decided at 10% for onshore and shallow

water, while it would be 5% for deep and ultra deep water.

The government has determined fixed timelines to commence production from these fields — three

years for onshore, four years for shallow water and six years for deep water fields. In case any explorers

fails to meet these deadlines, the fields would be taken back.

NGS INDIA