On Wednesday The Union Cabinet announced a new policy for the auction of 69 small and marginal oil fields to private and foreign companies and gave its approval for shifting to a revenue sharing model. The winning bidders will be given a 20-year uniform licence for all hydrocarbons in the field instead of a license per hydrocarbon.
Announcing the decision, Petroleum and Natural Gas Minister, Dharmendra Pradhan called the move to a revenue sharing model a ‘paradigm shift’ from the prevailing profit sharing contract regime and said it could later be implemented for the entire sector.
“We have made a paradigm shift from cost-recovery model to revenue sharing. At the same time, we have decided to implement unified licensing regime. This is a primary step towards ease of doing business,” said Mr Pradhan.
The move, as part of the Modi government’s ‘Minimum Government, Maximum Governance’ agenda, will allow the successful bidders to sell crude oil or natural gas at market-determined prices, without any government interference. Under the profit sharing model the government had to scrutinise the various costs incurred by private companies, which often led to delays and disputes.
“The revenue sharing and royalty sharing mechanism with the government will be benchmarked against the prevailing market price of oil on the day. If the company sells at below this price, then the sharing will still have to be done at the market price. If the company manages to sell at a higher price than the market rate, then the sharing will be based on this higher price” the Minister said.
The current proven reserves of these fields stands at 89 million tonnes of oil and oil equivalent, which could increase as the fields are still only partially explored. “As exploration can continue for the entire duration of the license, these reserves can go up” an Oil Ministry official stated.
Of the 69 fields to be put on the block, 63 are owned by ONGC and 6 by Oil India, both of whom are allowed to participate in the auctions. The winning bidders of onshore fields will have to start production within 3 years of the date of handover, shallow fields within 4 years and deep water fields within 6 years.
“While we have given the deadlines for production, some fields can start production in a year and half. Oil production can start quicker but gas may take time as necessary infrastructure needs to be present” an official said.
The bid document is to be made public in three months.
In related news, the Indonesian government announced that next year it would be putting up for tender 21 oil-and-gas blocks as part of efforts to boost output and secure future energy supply. The blocks to be offered up for open tender include 13 conventional oil-and gas fields, 3 shale gas blocks and 5 coal bed methane (CBM) blocks.
The shale gas blocks for tender are the Jambi, Central and East Sumatra and Central and Southeast Sumatera blocks.
Article continues below this message
Have your opinion heard with Shale Gas International
We accept interesting, well-written opinion and analysis articles of up to 1,500 words, that offer unique insights into the shale industry. The articles cannot be overtly promotional in nature and need to fit into at least one of our content categories.
If accepted, the article must be exclusive to Shale Gas International website and cannot appear on any other websites, publications, etc. Each article may contain up to three links to external websites relevant to the content discussed in the piece.
If you would like to contribute to Shale Gas International website, please contact us at: editor[at]mw-ep.com