ONGC to revise marginal field development deals

India's Petroleum Ministry has asked state-owned ONGC to review its existing mechanism for developing marginal fields, in order to ensure more attractive fiscal packages to attract service contractors.

Shirish Nadkarni
OGJ Correspondent

MUMBAI, Oct. 10 -- India's Petroleum Ministry has asked state-owned Oil & Natural Gas Corp. to review its existing mechanism for developing marginal fields, in order to ensure more attractive fiscal packages to attract service contractors.

Although substantial volumes of hydrocarbons are locked up in marginal fields, they cannot be produced economically on a stand-alone basis or with conventional approaches, so the best way to exploit their full potential is by outsourcing them to smaller companies.

ONGC employs a bidding process to enter into service contracts with companies having the necessary expertise to develop the marginal fields. However ONGC finds it difficult to attract bidders, as the fiscal package it offers service contractors is not sufficiently attractive.

"Keeping in mind the element of government subsidy, the company has to also provide for cess (surcharge) and royalty from these fields," a market source said.

In addition, "There is also a cap of $35/bbl on the pricing of crude oil drawn from these fields…whatever the ruling international crude prices," the source said. This makes the offer unattractive to prospective bidders, "as all development cost has to be borne by the contractor."

The Petroleum Ministry also has asked the Directorate General of Hydrocarbons, who monitors blocks awarded under the New Exploration Licensing Policy rounds, to devise a formula for the exploration major that would yield better results from the fields.

Marginal fields, having low oil and gas reserves, are economically viable when produced with low capital cost and overhead. With the changing world oil price scenario, innovative technologies, and liberal government regulations, the development of marginal fields has assumed importance for increasing production and profit.

ONGC produced 490,000 tonnes of oil and 22.6 million standard cu m of gas from marginal fields under its control in fiscal 2006-07.

The company holds 165 marginal fields, of which 79 are offshore and 86 onshore. Of the 165 fields, 63 have already been financed, 71 are being funded, and funding for 31 is pending.

ONGC has initiated action to put about 96% of marginal field reserves on production during its eleventh 5-year plan (2007-12).

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