Government okays auctioning of 69 oil fields under new policy

Source: PIB, Government of India

The Union Cabinet chaired by Prime Minister Narendra Modi on Wednesday gave its approval to the Marginal Fields Policy (MFP), for development of hydrocarbon discoveries made by national oil companies; Oil & Natural Gas Corporation Ltd. (ONGC) and Oil India Ltd. (OIL). These discoveries 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. Under the new policy, 69 oil fields which have been held by ONGC and OIL for many years, but have not been exploited, will be opened for competitive bidding. Under this policy, exploration companies will be able to submit bids for exploiting these oil fields. These oil fields have not been developed earlier as they were considered as marginal fields, and hence were of lower priority. With appropriate changes in policy, it is expected that these fields can be brought into production. 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 scrutinize cost details of private participants and this 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 (e.g. 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.

September 02, 2015 | 4:34pm IST.