Centre Plans To Auction Undeveloped Oil Fields Amid Low Recoveries

Centre Plans To Auction Undeveloped Oil Fields Amid Low Recoveries
Image for representation purpose only. Source: ABP Asmita

For better energy security and increased hydrocarbon production, the government is offering up unmonetised oil and gas fields of state-owned Oil and Natural Gas Corp. (ONGC) and Oil India Ltd (OIL). According to government officials, the move to monetise undeveloped and mature fields with lower output has stemmed from a low recovery rate of oil and gas from the domestic fields and a growing anti-fossil fuel sentiment. The natural gas production has stagnated and crude oil production of state-owned upstream players has been falling for five consecutive years. The natural gas production remains unchanged, despite both companies reporting net additions of crude oil and natural gas reserves through fresh discoveries and acquisitions. The majority of India’s crude oil demand is imported. 

In addition to the burgeoning demand for natural gas, ONGC has decided to monetise the fields as it has failed to find any significant gas on the lands. “For some time, we have not discovered any giant field on land. Our efforts are on to find big ones, but except for Cairn India’s Rajasthan field, no other company has been able to discover any big find,” state oil giant ONGC chairman A.K. Hazarika told Business Standard.

According to the publication, the company owns 79 percent of India’s crude oil production and 54 percent of the country’s natural gas. ONGC has outlined a plan to develop and monetise new and marginal fields to boost production and profitability. In an email statement to Business Standard, the company said that the recent rise in oil prices has given a new dimension to the economics of field development. A number of previously marginal deposits are now commercially viable.

As a result of the price increase, the company will be able to reduce the number of subsidies it needs to pay. Due to its status as both an oil producer and a gas distributor, ONGC shares its crude oil generation burden with oil marketing companies. Since crude oil returns are greater when produced from marginal fields that have small reserves, production becomes profitable for ONGC. At one point in time, marginal fields were discovered but were deemed uneconomical for development under the fiscal, technological, or regulatory regime.

Dharmendra Pradhan, the Cabinet Minister for Petroleum & Natural Gas and Steel, said that government companies cannot hold on to undeveloped resources indefinitely. “Resources don’t belong to a company. They belong to the nation and the government. They cannot lie with a company indefinitely,” said Pradhan.

 

Read more: IEA Urges Countries To End Their Fossil Fuel Investments

 

He suggested these companies look for technology partners and investors who can make use of the expertise to monetise these resources quickly. During his address, he called on the Directorate General of Hydrocarbons and oil ministry officials to “develop innovative ways for early monetization of resources, including expediting production schedules under DSF I & II.” 

The plan aims to bolster domestic production and help meet India’s energy needs by leveraging the expertise of private and foreign firms. It is understood that the government is pressuring ONGC to sell off its stakes in oil and gas fields that require significant capital investments to maintain production levels. The company intends to accelerate production in its Krishna Godavari basin oil and gas blocks by bringing in foreign partners.

A government official, who wished to remain anonymous, told the Indian Express that there is growing opposition to fossil fuels after the IEA’s (International Energy Agency) report and the judgment against Shell. Thus, oil and gas (in the future) will be reluctantly invested in by the general public, and resources will remain untouched until a market is created for them right away. “Whatever resource we identify underground, hardly 30-40 per cent are recoverable (by state-owned companies), why not 50-60 per cent?” said the official to the Indian Express, stressing that the government wanted to ‌offer a more competitive environment to oil and gas development activities. Bringing in more players could potentially provide new technology to the domestic hydrocarbon production sector. India, the world’s third-largest oil importer, is expected to be a growth driver of global energy demand, as articulated by Igor Sechin, CEO of Rosneft Oil Co., at the 24th St. Petersburg International Economic Forum.

The third round of contracting is underway covering 32 contract areas and 75 discoveries. The blocks are expected to hold 230 million tonnes of hydrocarbons, and cover 13,000 square feet kms. The deadline for bid submission is August 31. According to the Mint, during the first and second rounds, 30 and 24 revenue sharing contracts were signed, respectively. As of March 2015, Prime Minister Narendra Modi set a target of reducing import dependency on crude oil by ten percentage points to 67 percent by 2022. The country will depend on imported goods in the near future because domestic production has been unable to meet the rising demand so far.

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