Govt to auction 69 marginal oil and gas fields to private sector on revenue sharing basis

02 Sep 2015


Th government will auction 69 idle oil and gas fields of state-owned ONGC and Oil India to private firms on a new revenue sharing model and liberalised terms, including pricing and marketing freedom.

The union cabinet chaired by Prime Minister Narendra Modi today also gave its approval to the Marginal Fields Policy (MFP), for development of hydrocarbon discoveries made by national oil companies.

The 69 small and marginal fields holding 89 million tonne of oil and gas resources, worth Rs70,000 crore at current rates, will be given to explorers offering the maximum revenue from hydrocarbon produced to the government.

These discovered oil and gas fields, allocated to state-run Oil & Natural Gas Corporation Ltd (ONGC) and Oil India Ltd (OIL), could not be monetized for many years due to various reasons such as isolated locations, small size of reserves, high development costs, technological constraints, fiscal regime etc.

These oil fields have not been developed earlier as they were considered marginal fields, and hence were of lower priority. With appropriate changes in policy, it is expected that these fields can be brought into production.

Under the new policy, exploration companies will be able to submit bids for exploiting these oil fields.

In keeping with the principle of 'Minimum Government Maximum Governance', significant changes have been made in the design of the proposed contracts.

The earlier contracts were based on the concept of profit sharing. Under the profit sharing methodology, it became necessary for the government to scrutinise cost details of private participants and this had led to many delays and disputes.

Under the new regime, the government will not be concerned with the cost incurred and will receive a share of the gross revenue from the sale of oil, gas etc.

The second change is that the licence granted to the successful bidder will cover all hydrocarbons found in the field.

Earlier, the licence was restricted to one item only (eg, oil) and separate licence was required if any other hydrocarbon, for example, gas was discovered and exploited.

The new policy for these marginal fields also allows the successful bidder to sell at the prevailing market price of gas, rather than at administered price.

This decision is expected to stimulate investment as well as higher domestic oil and gas production.

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