Small fields: New firms bet on pricing freedom, new contract regime
First-time entrants to India’s hydrocarbon space believe that pricing freedom and a new contract regime for monetising the discovered marginal fields have made the business attractive.
The recently concluded Discovered Small Field (DSF) Bid Round 2016 saw a large number of first-timers trying their luck in the otherwise high risk hydrocarbons production and exploration business.
Dubai-based South Asia Consultancy FZE, the only foreign player to have bagged a block in this round, expects to maximise gains from the pricing freedom assured in the auctions.
The company is essentially a manpower supplier with presence in West Asia, Asia, and Africa, specialising in offshore, onshore drilling and workover sectors. The company has pledged 82 per cent revenue to the government, according to the company’s Managing Director DS Rajput.
Rajput told BusinessLine that, “In the present market scenario, when crude oil prices have been depressed, there are only a few countries where an operator can enjoy marketing and pricing freedom. When crude was at $30/barrel, most of the countries in the world we cutting down on capital expenditure. But the Indian government was still going ahead.”
Rajput is upbeat about the block as there already are two producing wells but required some work over job. He said, “We expect to start within six months from landing on the well after completing contract related modalities.”
City gas distributor SKN Haryana City Gas Distribution Private Ltd has won a block with Enquest Drilling Private Ltd as a technical partner. The government will get a revenue share between 35 per cent and 40 per cent, according to Karan Chopra, CEO of SKN Haryana City Gas.
He too is pinning his hopes on the marketing freedom promised by the government.
Hindustan Oil Exploration Ltd, one of the few old timers in the business, has won two blocks, the Kherem and the B-80 block in the round.
The company’s Managing Director P Elango expects to cut enough costs to make the project viable. He said, “We estimate a margin of $10/bbl for a 4,000-barrel production in a $50/bbl scenario. That’s a saving of $40,000 per day for the operator, which is a huge amount for a small to medium sized company.”
Explaining the rationale for these savings, Elango said, “In respect of D-18, we have partnered with Abban Offshore, which is a rig company that has participated through its subsidiary. Ultimately we expect to drill an offshore well within $78 million. There is an ONGC rig in the range of about 20 km which then can be hooked up so we don’t need to have an independent offshore platform.
“Under this DSF (bid parameters), the option is available for the operators to access the nearest facility at a pre-determined tariff. Using ONGC’s facilities, we will be able to commence production without a huge capital expenditure.”