46 oil, gas fields up for global auction under revenue share model

By Sarkaritel May 25, 2016 15:03

46 oil, gas fields up for global auction under revenue share model


New Delhi, May 25  Petroleum Minister Dharmendra Pradhan on Wednesday launched the first auction process for hydrocarbons exploration under a new revenue sharing contractual model for 46 small oil and gas fields.

“Bidding for the Discovered Small Field Bidding Round 2016 will open on July 15 and the last date of bidding is October 31,” Pradhan said at the launch here.

Under the Discovered Small Field Policy, the government is offering for bidding 67 discovered small fields in 46 contract areas spread over nine sedimentary basins on land and in shallow and deep water areas. The fields offered hold 625 million barrels of in-place oil and gas reserves.

The previous exploration licensing round ended in March 2012.

The ministry, through a newspaper advertisement, on Tuesday invited bids for the auction, where companies can bid for multiple exploration blocks.

A ministry source here said operators will be issued a single licence for exploration of conventional and non-conventional hydrocarbons and will have the freedom to sell oil and gas at “arms length” market prices, adding there would be no cess on crude oil.

Of the 46 small fields, 26 are on land, 18 offshore in shallow water and two in deep water. While 28 discoveries are in the Mumbai offshore, another 14 are in the east coast Krishna Godavari basin.

This first auction of small oil and gas fields since 2012 were announced last year for being awarded as per contracts that will now be based on a revenue-sharing model, as opposed to the existing cost-and-output-based norms.

The new revenue sharing model will replace the controversial production sharing contracts (PSCs) – by which oil and gas blocks are awarded to those firms which show they will do maximum work on a block – that has governed the bidding under the earlier nine New Exploration Licensing Policy (NELP) rounds.

The PSC regime, which allows operators to recover all investments made from sale of oil and gas before profits are shared with the government, was criticised by India’s official auditor, who said it encouraged companies to keep inflating costs – “gold plating” – so as to postpone giving higher share of profits.

The change in model is designed to help keep the government share in cases of windfall from both steep rise in prices as well as quantum jump in production.

The small fields up for auction have been surrendered by state-run explorers ONGC and Oil India, which they found uneconomical to develop in view of small reserve size and high economic cost.

Cumulatively the surrendered fields hold about 50.8 million tons of oil and 53.45 billion cubic meters of gas. The biggest discovery is D-18 in the Mumbai offshore that holds 14.78 million tons of oil reserves.

Fitch group firm India Ratings and Research (Ind-Ra) has said the new marginal fields policy, with a revenue sharing mechanism and market prices for output, would shift the key risks to developers.

By Sarkaritel May 25, 2016 15:03

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