India Gears Up For Auction Of Small And Marginal Oil Fields

India is gearing up for the auction of small and marginal oil fields relinquished by government-run oil companies in a bid to revive hydrocarbon exploration in the country. The objective is to monetise Discovered Small Fields (DSF) at the earliest to increase the domestic hydrocarbon production, according a press statement issued by the government after approving the policy for the same.

Under the policy, the ministry of petroleum and natural gas has decided to put up for auction 67 oil and gas fields across 46 contract areas, estimated to hold over 625 million barrels of oil and oil equivalent gas, spread over 1,500 square kilometres in onshore, shallow water and deep-water areas. These fields were held by government controlled Oil and Natural Gas Corporation Ltd. (ONGC) and Oil India Ltd. (OIL) and relinquished after the earlier fiscal regime did not allow them enough leg room to monetise the assets. Under the new policy, interested companies will bid for the amount of revenue they can share with the government once these discoveries are monetised.

Analysts and industry watchers expect smaller oil sector firms to express interest in the auction. Welspun Enterprises Ltd. will bid for the marginal fields up for auction through its existing joint venture with the Adani Group, the company’s Managing Director Sandeep Garg told BloombergQuint in an interview. The joint venture company, Adani Welspun Exploration Ltd. (AWEL), holds one block in the prolific Mumbai Offshore basin and is yet to commence production from the reserve.

Given lower crude oil prices, Hindustan Oil Exploration Company Ltd. (HOEC), Deep Industries Ltd. and Selan Exploration Ltd. could be among the companies that will bid for these marginal fields, Sumit Porkhana, deputy vice-president and oil and gas analyst at Kotak Securities said in a phone interview.

These are marginal fields and not much work has been done on them. Companies aim to estimate the potential reserve of a basin and they try to monetise the resource by selling their stake to a larger company, instead of getting into the tedious business of exploration.

Sumit Porkhana, Deputy Vice-President And Oil & Gas Analyst, Kotak Securities

HOEC confirmed to BloombergQuint that they will look to bolster their portfolio in the coming auction. “The government has got the fiscal regime right this time. Companies just have to commit the number of wells they dig and then share the revenues they promise with the government. There is no pass cost reimbursement to ONGC, oil cess is exempted and marketing freedom has been promised for these blocks. You cannot ask the government for anything more,” P Elango, managing director at HOEC said.

HOEC has participating interest (PI) in 10 hydrocarbon discoveries with a controlling stake in 7 such reserves.

Map of all contract areas on offer under marginal oil field bidding rounds (Source: Directorate General of Hydrocarbons)

The Most Lucrative Fields

Among the offered fields, those in Mumbai high offshore basin will be the most sought after, a top official with a private sector oil company said. Next in priority will be those in the Krishna-Godavari offshore basin.

However, onshore reserves are not likely to see very aggressive bids, the official said. The size of an onshore block – at 10 square kilometres – is rather small, which limits the exploration play only to a restrictive area, he explained.

Another oil top industry official said that explorers may offer to share around 25-50 percent revenue with the government based on the cost profile of the well, and the estimated crude oil price. Both officials requested anonymity as they did not want to disclose their company’s strategy before bids open.

But all is not going to be easy for newbies to India’s upstream oil and gas sector. Established public sector units like ONGC and OIL will be looking to win back their relinquished fields. ONGC Chairman, DK Saraff told BloomberQuint in an earlier interview that the company will bid in the marginal oil field auction.

ONGC could not develop fields due to unfavorable fiscal regime, the ministry of petroleum and natural gas has improved the fiscal regime to make marginal fields viable. We believe some fields will become economically viable under the new regime.  

DK Saraff, Chairman, ONGC