The Telegraph
Monday , January 13 , 2014
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Policy flux dogs oil hunt drill

New Delhi, Jan. 12: The government today showcased as many as 46 oil and gas blocks that will be put up for sale but is yet to finalise the bidding rules, casting grave doubts on the success of the exercise.

The oil ministry was veering towards a revenue sharing model for the 10th round of the New Exploration Licensing Policy (Nelp) against the current arrangement of a production sharing contract, but a recent report supported the latter, which could prompt a rethink. Any shift in norms will require cabinet approval.

In the face of such an uncertainty, Prime Minister Manmohan Singh’s assertion at an oil conference here today, where the blocks were also showcased, that India had investor friendly policies may not curry favour with foreign players, who had stayed away from the previous round of oil hunt.

The uncertainties stem from the divergent views proposed by two panels — one headed by C. Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, which had proposed revenue sharing; and the other headed by Vijay Kelkar, whose report followed Rangarajan’s. Kelkar suggested continuing with production sharing contracts.

Under the revenue sharing model, bidders will quote the amount of oil or gas output they are willing to offer to the government from the first day of production.

The bidder offering the highest share of oil or gas will win the block. It was considered as superior to the current regime that allowed operators to first recover costs and then share profit with the government. Critics observed that the present norm led to operators inflating costs.

The Kelkar committee is in favour of the production sharing regime for high-risk deep sea exploration as it guarantees recovery of all sunk costs, a condition important to attract multinationals with proprietary technology.

Industry players said production sharing was preferable to revenue sharing as just about 15 per cent of the sedimentary basin had been explored, and risks of dud wells were high.

Block profile

Oil minister M. Veerappa Moily said at the conference the number of blocks for auction would be go up to 60-65.

The 46 blocks showcased today include the discovered blocks of Reliance Industries, which the government had forced it to surrender, as well as the one given up by Cairn India.

The areas offered include most of the 6,000 square kilometres of the KG-D6 block that the ministry took away from Reliance Industries. It covers five discoveries — D4, D7, D8, D16 and D23 — for which the directorate general of hydrocarbons had said that Reliance had missed deadlines for the submission of investment plans.

Sources said Reliance had been talking to the government to get back these blocks as they had the infrastructure to drill gas.

Moreover, the fields will be viable once the new price regime, which is expected to raise the gas tariff to $8.2 per mBtu, comes into effect from April. They said there were no legal issues preventing the government to put these blocks up for auction.

Cairn’s relinquished area contains no discoveries, but the company is keen to get it back as it has become more familiar with the geology, having discovered oil and gas in Rajasthan.

Moily said of the 46 blocks on offer, 17 were onland, 15 in shallow water and the remaining 14 deepwater.

LPG quota

Amidst growing pressures to increase the number of subsidised LPG cylinder per year to 12, Moily said the Cabinet would take the final call on raising the limit from nine at present.