Govt allows ONGC, OIL to induct foreign partner

Oil minister Dharmendra Pradhan on Monday said the government will allow state-owned ONGC and Oil India to induct private and foreign partners in oilfields to raise output and also give special incentive to make their discoveries in difficult areas viable.

Speaking at the launch of second bid round for 14 exploration blocks under open acreage licensing policy, Pradhan said Oil and Natural Gas Corp (ONGC) and OIL will have the freedom to decide which of their currently producing fields they want to retain and in the ones where they would like to induct a partner.

This is a climb down from the 2017 position where the oil ministry's upstream technical advisory body Directorate General of Hydrocarbons identified 15 fields -- 11 of ONGC and four of OIL -- for giving out 60 per cent stake to foreign and private companies. The move couldn't go through because of tough resistance from the state-owned firms.

Then again in October last year, the ministry wanted ONGC to concentrate on large fields as they contribute to 95 per cent of its production and leave out the rest for private firms.

"They can decide on the fields they want to retain and the stake they want to give (to foreign and private firms)," he said.

Pradhan said "special incentive besides the incentive already provided" will be given to difficult fields of ONGC.

"Previously, the government objective was revenue maximisation but now enhancing production is the only motive," he said.

He, however, did not elaborate on the special incentive. Natural gas discoveries in difficult areas like deepsea currently command a higher price but this is applicable only for future finds and not currently discoveries of ONGC.

ONGC and OIL haven't been able to develop some of their discoveries or bring them to production as the current gas price of USD 3.36 per million British thermal units (MMBtu) is way lower than the cost of production.

ONGC has about 35 billion cubic metres of recoverable reserves in discoveries in the shallow sea off Andhra Pradesh on the east and off Gujarat and Mumbai on the west coast blocks.

The three blocks in Krishna Godavari basin, Gulf of Kutch and Mumbai offshore can produce about 10 mmscmd of gas and an equivalent amount can be produced from its onshore discoveries in blocks like Bantumili, Mandapeta and Bhuvanagiri. About 5 mmscmd of production can be added by making some investment in existing fields like Mumbai High South, Neelam and B-127 Cluster in the Arabian Sea.

Oil India has an onland discovery in the Krishna Godavari basin in Andhra Pradesh with over 3 billion cubic metres of recoverable reserves but needs a higher price to bring it to production.

Pradhan said ONGC and OIL will soon come out with production enhancement contracts (PECs) wherein foreign or private companies will be allowed to take a stake in identified currently producing fields in return for raising output beyond an agreed level.

The state-owned firms, he said, would devise the contracts and implement them.

"They will be given autonomy and freedom but will have greater accountability," he said.

In October 2017, the DGH had identified 15 producing fields with a combined reserve of 791.2 million tonne crude oil and 333.46 billion cubic metres of gas of national oil companies for handing over to private firms in the hope they would improve upon the baseline estimate and their extraction.

The plan, however, could not go through as ONGC strongly countered the DGH proposal with its own proposal that it be allowed to outsource operations on the same terms as the government plan, which involved pricing and marketing freedom.

The fields identified in 2017 Kalol, Ankleshwar, Gandhar and Santhal -- the big four oil fields of ONGC in Gujarat.

The DGH also had identified 44 other fields of ONGC and OIL which could take on partners for production enhancement work where bidders would get the 'tariff' that they bid as a return for increasing the output 'over the baseline production' for an initial period of 10 years.

The oil ministry has been unhappy with the near stagnant oil and gas production and believes giving out the discovered fields to private firms would help raise output as they can bring in technology and capital.

It has been tasked by the prime minister to cut dependence on oil imports by 10 per cent by 2022 from the over 77 per cent dependence in 2014-15. But the dependence has only increased and is now over 83 per cent.