KOLKATA (miningweekly.com) - The Indian government was working on tweaking rules to enable government-owned oil and exploration (E&P) majors to first surrender marginal oil and gas blocks and then bid on these same blocks at forthcoming auctions.

According to a senior government official, E&P majors like ONGC Limited and Oil India Limited (OIL), had been awarded 60 marginal oil and gas blocks on a ‘nomination’ basis but had been directed by the government to surrender these as the companies had been unable to develop the assets owing to several reasons, including low economically recoverable resources and difficult geographical terrain.

But with the government modifying the rules of the forthcoming auctions, both ONGC and OIL would be permitted to first surrender the oil and gas blocks and subsequently still be eligible to participate in the auction of the same blocks, the official said.

Explaining how ‘surrender first and bid again’ would help the government E&P companies, the official said that the development of the marginal oil and gas blocks required higher capital outlay and deployment of higher end imported technology and equipment.

However, participating and securing the same blocks at the auctions under the New Exploration Policy (NELP), would free the E&P companies from having to share part of the revenue earned from the blocks with downstream oil refining and marketing companies to part-fund the subsidies paid to keep retail prices of oil products like kerosene, diesel and liquefied petroleum gas, low.

The sharing of revenue to fund subsidies was mandatory for OIL and ONGC since these 60 blocks had been discovered by the two companies, and awarded to them for development, prior to formulation of the NELP regime.

However, once the onus of sharing revenue was removed by securing same blocks through auction under NELP, E&P companies were expected to improve internal revenue generation even after higher capital costs for development, the official added.

The auction of the marginal oil and gas blocks would also be used as a test case for the tenth round of auction, known as NELP X.

The marginal blocks would be used as the first attempt by the government to move from production sharing agreements to revenue sharing agreements with successful developers.

Under the existing rules for the award of oil and gas blocks, successful bidders were permitted to first recover developmental costs before sharing production and profits with the government, and this had led to several charges and legal disputes over developers allegedly increasing capital costs for development and thereby reducing resources to be shared with the government.

Under the revenue-sharing agreements, blocks would be awarded on the basis of the highest assured revenues guaranteed to the government.

Auction of 56 major oil and gas blocks under NELP X had been pending since January 2014, largely owing to the government’s delay in finalising terms of engagements with private sector oil and gas developers.