69 oil fields to be sold on a new profit sharing model

RSTV Bureau

India-Energy-Security-03The union cabinet has decided to auction 69 ‘small and marginal’ oil fields surrendered by state–run units in order to raise funds.

This decision was taken in the cabinet meeting which took place on Wednesday morning.

This is the first time such a step is being taken in the oil and gas sector. A new revenue sharing model is being introduced which will offer full marketing and pricing freedom to the operators. The government expects to raise a whopping Rs 70,000 crore by selling the oil fields to private players. The fields to be auctioned are the ones given up by the state-run ONGC and Oil India. These fields are said to be uneconomical in terms of size, geography and state-set low sale prices. But as per government estimates these 69 oil fields hold 89 million tonne of oil and gas resources.

“Revenue sharing model is being implemented for the first time in the country..gas produced in these fields can be sold by the production company in the market …there will be no bar on that..govt’s share will be protected in this system,” said oil minister Dharmendra Pradhan.

“We are committed to our Prime Minister’s moto of minimum government, maximum governance. The new model will ensure that there is least government interference in the operations while also providing a fiscal and policy regime that encourages investments,” Pradhan added.

The new model will replace the current method of companies getting blocks by bidding maximum work programme and then recovering all of their investment before sharing profits with the government. Almost 250 oil and gas blocks have been auctioned since 1999. And the government received a cut of the profit only after the company recovered its production costs.

Firms who successfully bid for the oil fields will be entitled to a share of the revenue. Companies offering the maximum revenue share or percentage of oil and gas to the government will acquire the field.

69 oil fields in which production is yet to begin will be clubbed into clusters and offered for bidding within 3 month based on the new formula. The government has also approved of a unified licensing regime for operators to produce hydrocarbons in auction for 69 small and marginal oilfields.

Interestingly, this one-of-a-kind move has come at a time when global oil prices are falling sharply. In fact, on a day that the cabinet announced the new model, global crude oil prices fell by another 2 per cent. Oil is currently hovering around $48 a barrel.

India is the fourth largest consumer of oil and meets only a fraction of its demand through domestic sources and wants to boost private and foreign participation in the industry.

Experts say that ONGC and OIL will benefit from this new model as they are extremely cash-strapped.