ONGC, Reliance to get gas pricing and marketing freedom for new discoveries

To raise domestic output and cut imports, the government will give ONGC and Reliance industries pricing and marketing freedom for yet to be developed discoveries and will levy a lesser royalty in case of state-owned firms raising production from existing fields.

Officials said the Cabinet headed by Prime Minister Narendra Modi on Tuesday approved a new exploration policy that contains a slew of measures for boosting domestic production of oil and gas.

Marketing and pricing freedom will be given to those new gas discoveries whose field development plan (FDP) or investment proposal is yet to be approved. This would apply for both state producers like ONGC and private ones like Reliance.

ONGC is sitting on two dozen discoveries which it had not been able to produce because of current government mandated price being less than cost of production. Reliance too has discoveries in east coast block NEC-25 where it can produce after the new freedom.

Officials said an incentive to produce additional gas from APM or nomination fields of state-owned firms like ONGC and Oil India Ltd (OIL) will be given in form of royalty reduction at the rate of 10 per cent on additional production over and above business as usual (BAU) scenario.

BAU scenario will be approved by upstream regulator DGH.

Alongside these, the government reverted back to a two-decade old system of awarding areas based on exploration work commitment, which will replace a two-year-old method of awarding them to companies offering the highest revenue share to the government.

The Cabinet approved awarding of exploration blocks in Category-I basins, where commercial production of hydrocarbon has already been established, on the basis of a mix of work commitment and revenue share in the ratio of 70:30, they said.

Exploration blocks in Category II and III basins will be awarded purely based on the exploration work programme.

This, they said, was based on the recommendation of a six-member panel, headed by NITI Aayog Vice Chairman Rajiv Kumar, which was formed on directions of Prime Minister Narendra Modi last year to give a boost to domestic exploration.

There will be no revenue or production sharing in these contracts but the government will get a share in case of windfall gains.

The trigger for such a sharing has been fixed at USD 2.5 billion in a financial year from the block.

The BJP-led NDA government had two years back moved from production sharing contracts, where acreage for exploration of oil and gas was allocated to firms offering the largest work programmes (such as carrying out seismic survey and drilling of wells), to revenue sharing contracts, where the firm offering highest revenue to the government was given the blocks.

In the older system, the explorer was guaranteed that his entire cost will be allowed to be recovered once commercially exploitable oil and gas is found. But in revenue sharing contract, the cost has no bearing and the companies are supposed to bid the revenue or production that they would give to the government at different levels of output and price.

The move to revenue sharing was despite several industry players stating that prospectivity in the country was poor and there was a need to give incentives to companies for exploration.

India has 26 sedimentary basins measuring 3.14 million square kilometers. These are classified into four categories: Category-I basins where commercial production has been established like Cambay, Mumbai Offshore, Rajasthan, Krishna Godavari, Cauvery, Assam Shelf and Assam-Arakan fold belt; Category-II basins with known accumulation of hydrocarbons but no commercial production so far such as Kutch, Mahanadi-NEC (North East Coast), Andaman-Nicobar and Kerala-Konkan-Lakshadweep.

The category-III basins have hydrocarbon reserves that are considered geologically prospective such as in Himalayan Foreland basin, Ganga Basin, Vindhyan basin, Saurashtra basin, Kerala Konkan basin, Bengal basin; and Category-IV which are the ones having uncertain potential which may be prospective by analogy with similar basins in the world. These include Karewa basin, Spiti-Zanskar basin, SatpuraSouth RewaDamodar basin, Chhattisgarh basin, Narmada basin, Deccan Syneclise, Bhima-Kaladgi, Bastar basin, Pranhita Godavari basin and Cuddapah basin.