ONGC to develop marginal fields once cap goes

Feb. 19, 2008
India likely will abolish the artificial $35/bbl cap on oil that it has maintained for years, an act designed to attract private service contractors to develop marginal fields held by ONGC.

Shirish Nadkarni
OGJ Correspondent

MUMBAI, Feb. 19 -- India likely will abolish the artificial $35/bbl cap on crude oil that it has maintained for years, an act designed to attract private service contractors to develop marginal fields held by explorer-producer Oil & Natural Gas Corp. (ONGC). The corporation hopes to put about 96% of these reserves on production during the course of its eleventh 5-Year Plan (2007-12).

The crude price after removal of the cap would be more attractive, but still lower than what ONGC realizes by selling crude to oil marketing companies—about $54/bbl.

Substantial total volumes of hydrocarbons are locked up in the marginal fields. The best way to exploit their full potential is to outsource them to smaller companies. Through a bidding process, ONGC enters into service contracts with companies that have expertise in developing marginal fields, but because of the artificial price cap, response from contractors has been lukewarm.

A few weeks ago, India's Petroleum Ministry asked ONGC and the directorate-general of hydrocarbons (DGH) to review the existing mechanism for development of marginal fields that would result in attractive fiscal packages for the service contractors.

"A good fiscal package would encourage many competent bidders to participate in the marginal field tenders, attracting better competition," a senior ONGC official said, requesting anonymity.

The ministry also asked DGH, which monitors the blocks awarded under the New Exploration Licensing Policy (NELP) rounds, to work out a formula for ONGC that would yield better results from these fields.

ONGC holds 165 offshore and onshore marginal oil fields but for years didn't develop them because field development costs would be higher than the production price cap. Of the fields, 63 have been monetized, 71 are currently under monetization, and 31 are to be monetized, ONGC said.

Last year, ONGC had entered into service contracts for development of 14 onshore marginal fields. Simultaneously, the corporation is continuing its efforts to develop new and marginal offshore and onshore fields through in-house efforts.

"We plan to offer 22 marginal fields, mainly onshore, during the current calendar year for development by service contractors. Four of these fields had been contracted out by us earlier. However, since no development work took place, we are planning to withdraw these fields from the contractors and put them up on offer again."