Govt okays auction of 69 oil & gas fields on new revenue share

 Minister of State for Petroleum and Natural Gas (Independent Charge), Dharmendra Pradhan said this was a “paradigm shift.” 

The 69 small and marginal fields holding 89 million tonne of oil and gas resources, worth Rs 70,000 crore at current rates, will be given to explorers offering the maximum revenue from hydrocarbon produced to the government.

“This is a paradigm shift from the controversial production sharing contract (PSC) and cost recovery model to a more equitable revenue sharing model that protects government interest in both low oil and high oil price scenarios,” said Pradhan while addressing the media after the Cabinet, headed by Prime Minister Narendra Modi.  He explained that bidders will be asked to quote the revenue they will share with the government at low and high end of price and production band to capture windfall of steep rise in prices as well as quantum jump in production.

“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,” said Pradhan. The government will allow companies to sell oil as well as natural gas produced from these fields at market price and with no restriction on who they sell the produce to.  He said the Cabinet on Wednesday approved <g data-gr-id="39">auctioning of</g> the fields that state-owned firms have surrendered because they were uneconomical due to size, geography and state-set low sale prices.

The new revenue sharing regime, which Pradhan hinted will also be followed in the next licensing round, will replace the PSC model where oil and gas blocks are awarded to those firms which show they will do maximum work. All their investments can then be recovered from <g data-gr-id="45">sale</g> of oil and gas before sharing profits with the government. This model was criticised by CAG which said it encouraged companies to keep raising cost so as to postpone higher share of profits to the government. 

Besides offering minimal interference in operations of the field, the government will allow companies to sell oil as well as natural gas produced from these fields at market price and with no restriction on who they sell the produce to,  said the minister.  The new model will replace the current practice of companies getting blocks by bidding maximum work programme and then recovering all of their investment before sharing profits with the government. This model was criticised by CAG which said it encouraged companies to keep raising cost so as to postpone higher share of profits to the government. In the new regime, the companies will have to indicate the revenue they will share with the government at different stages of production as well as at different rates.

 “This auction will also usher in a unified licensing regime which will give operators right to produce conventional oil and gas as well as unconventional resources like shale oil and gas and coal-bed methane (CBM),” he said. Pradhan said a bid document will be brought out in three months after which the auction process will begin.