Under criticism for falling production, state-run Oil and Natural Gas Corp. Ltd (ONGC) is betting big on the new hydrocarbon exploration policy based on a revenue-sharing model. ONGC’s strategy stems from some of the blocks on offer under the new Hydrocarbon Exploration and Licensing Policy (HELP) been relinquished by the state-run explorer, even as it had done work on them. Surrender of blocks is mandatory once an explorer exhausts the time period allotted for it.
With the New Exploration Licensing Policy unable to attract the desired level of investments, the National Democratic Alliance approved marketing freedom for crude oil and natural gas under HELP in March this year. “The ongoing activities will continue. At the same time, we are waiting for HELP so whenever the new areas are offered we will be bidding. Lot of mandatory relinquishment has happened for last several years, those areas will be available and then of course some of the deep-water areas as well. These areas will be targeted and as far as our past experiences are concerned, we should be able to win some of these areas,” said a senior ONGC executive requesting anonymity.
“Past experiences say so,” confirmed another ONGC executive aware of the strategy who also didn’t want to be identified. The first HELP round is expected next year. This also comes at a time when production is declining from ONGC’s assets. Its crude oil output fell to 6.34 million tonne (MT) in the June quarter compared with 6.48 MT last year. Similarly, its gas production was down 5.6% to 5.49 billion cu. meters.
The new policy marks the culmination of the government’s bet for a revenue-sharing model from the controversial cost-recovery model which involves cost recovery by firms before the government receives its share of the revenue. The cost recovery model was also criticised by the Comptroller and Auditor General of India due to it being inadequate to incentivise private contractors to reduce capital expenditure.
The new policy also allows for exploration for all types of hydrocarbon resources including coal-bed methane or gas hydrates under a single licence. Moreover, an open acreage approach would finally allow firms to choose the areas of their liking for exploration. Experts remain circumspect about the new exploration policy. “It shall be interesting to see how HELP pans out. The government has come up with a new licensing policy replacing the old one with open acreage policy. It is only once the bids are over and production begins will it be open for analysis,” said Raju Kumar, partner at EY, a consultancy.
Queries emailed to an ONGC spokesperson on 5 October remained unanswered. ONGC is grappling with fall in domestic production due to sliding yields from its ageing fields. Worried that the falling natural gas prices will affect its profitability, ONGC also plans to approach the government to seek concessions such as lower taxes and levies to shore up its finances, InfraCircle reported on 6 October.
This comes in the backdrop of the natural gas price being cut by 18% to $2.50 per million British thermal unit on 30 September for a period of six months till March helping consumers. According to ONGC’s Perspective Plan 2030, it plans to produce 130 million tonne (MT) of oil and natural gas with 70 MT coming from its domestic production and the rest from its overseas subsidiary, ONGC Videsh Ltd. ONGC’s turnover slid 21.41% to Rs.177.84 billion in the first quarter of financial year 2016-17. It had posted Rs.226.28 billion as turnover during the same period last year. Seth Roberts Authentic JerseyShare This