KOLKATA (miningweekly.com) – Indian oil exploration and production (E&P) majors are seeking to recover exploration and preliminary development costs incurred at the oil and gas fields that will be put up for auction in May.

The Indian government was readying to auction 67 oil and gas fields this month, which were part of 69 awarded to ONGC Limited and Oil India Limited (OIL). After initial exploratory and development work, the two firms had abandoned the assets as they were found to be marginal reserves located in difficult terrain and thought to be unviable, owing to the significant costs that would have to be incurred for infrastructure development.

Following the inability of national E&P companies to develop these assets, the government framed a new policy, including greater flexibilities in model contracts and pricing, to woo private downstream companies to invest in them through the auction route.

At least two officials in the E&P companies said that they had put in demands to be compensated for exploratory work and some infrastructure investments either by the Indian government or by the successful bidders.

The officials said that the compensation amount sought by the E&P companies had been submitted to the government but refused to divulge the details.

They said that it was up to the government to incorporate a clause relating to compensation payable for exploratory work in the bid documents, which would make the successful bidders liable to pay the amount.

It was pointed out that these marginal oil and gas fields had been awarded to ONGC and OIL on nomination basis but they had been surrendered owing to viability of development issues. The very same blocks were being auctioned to new developers under a completely liberalised and incentivised regime.

In the forthcoming round of auctions, the 67 erstwhile assets of ONGC and OIL had been clustered into 56 fields to offer greater economic viability to developers, and of these 28 were fields in Mumbai offshore, 14 in Krishna-Godavari basin and 10 in the north-eastern province of Assam.

To incentivise investors to develop these assets, the auction would be held under the new Marginal Fields Policy, which entailed replacing the erstwhile production sharing contract model with a revenue sharing model, where the bidders would submit the revenue they would offer to the government within a low and high price, and production band.

At the same time, production from these fields would be outside the ambit of the government’s administered pricing regime for oil and gas, which inter alia would give the developer the freedom to price output as per its own cost dynamics.

While both national E&P majors, ONGC and OIL, were eligible to put in bids to secure their earlier assets under the new incentive scheme, no information was available on whether they would actually do so.