Small Oil & Gas Fields – Big Opportunities
Discontinuing the nine rounds of NELP, that failed to give a free hand to the participants in terms of choice of the block they wish to acquire, the Indian government in FY’2015 successfully evaded this keeping the interests of private players up float.
Bringing a revolutionary change in the Indian upstream segment, GoI in FY’2015 announced the auctioning of 67 small and marginal oil and gas fields surrendered by ONGC. The initiative is not only expected to tighten the loosing interest of private and foreign players but shall also pump heavy investments into the drying sector. Additionally, as India is looking for being self sufficient in terms of catering their domestic demand for oil and gas , this initiative is a definite step towards fulfilling that dream. At present, nearly 80% of the crude oil demand and 30% of gas requirements are fulfilled through imports.
By taking such initiatives government is planning to bring down the import dependence of crude in India to 67% till 2022.
Under the policy for “Discovered Small Fields” (DSF), GoI has offered 67 small O&G fields spread over 9 sedimentary basins with the prime objective of monetizing discovered fields to boost domestic oil and gas production. Further, these fields are clustered and are being offered in 46 contract areas, which have over 625 MMBBL oil and oil equivalent gas deposits. Additionally, off these 46 discoveries, 26 fields are Onland, 18 are Offshore in shallow water and 2 are Offshore in deep water. Given below are the salient features of the DSF policy.
Single license for conventional and unconventional hydrocarbon: Single license to explore and extract all hydrocarbon resources including CBM , shale gas / oil , tight gas, gas hydrates and other resources to be identified in future
Revenue sharing contract: A simple and easy to administer contractual model in line with government’s effort to promote “Ease of doing business” requiring minimum regulatory burden for field monetization
Eligibility for Bidding: Upto 100% participation by foreign companies, joint ventures will be allowed. No mandatory state participation and no carried interests by ONGC and OIL is envisaged
Crude Oil & Gas Pricing and Sale: Contractor will be free to sell the crude oil and natural gas exclusively in domestic market through a transparent bidding process at arm’s length
Oil Cess and Royalty: No oil cess will be applicable on crude oil production. Applicable royalty rates will 12.5% for onshore contract areas and 10% for offshore contract areas. For deep-water , 5% royalty will be applicable for an initial period of 7 years.
Custom Duty: Customs duty exemptions for specified goods and services will be available for contract areas being offered under this policy.
About the Bidders – Who can bid ?
The bidder must be a company. Up to 100% participation by foreign companies is permitted. Domestic companies, including NOCs are also permitted to bid. Companies, either alone or in association with unincorporated or incorporated joint ventures, may bid for one or more contract areas. The bidder need not have any exploration and production industry experience. This has been introduced in order to promote new companies to enter the E&P sector. The bidder is required to have an adequate net worth. The net worth of the bidder should be equal to or more than its share of the value of the biddable work programme commitment cumulated across all its bids.
Opportunity to Market & Price Hydrocarbons
The contractor or producer is free to sell both oil as well as gas produced from the contract area exclusively in the domestic market through a transparent bidding process on arm’s length sales principle. The price of gas for calculating the government’s share of revenue will be higher of the price actually obtained or the price determined by the government from time to time under the Domestic Natural Gas Pricing Guidelines. Similarly, the price of crude oil for calculating the government’s share of revenue will be higher of the price actually obtained or the price of the Indian basket of crude oil as published by the Petroleum Planning and Analysis Cell (PPAC) on a monthly basis.