KOLKATA (miningweekly.com) – In a bid to increase domestic output and fuel investments in the sector, the Indian government has approved offering marketing and pricing freedom to oil and natural gas exploration and production (E&P) companies for their yet-to-be developed assets.

In addition, the government has offered a lower royalty rates if national government owned-E&P companies are able to increase production from their existing assets based on specific benchmarks.

The marketing and pricing freedom will be offered to all new discoveries wherein field development plan or investments are yet to be approved and both public E&P companies like ONGC, Oil India Limited (OIL), as well as private sector companies like Reliance Industries and Vedanta will be eligible for the incentives.

Officials said last week that royalty reduction would be offered to State-run companies like ONGC and OIL to produce additional oil and natural gas from their existing fields at the rate of 10% on additional production over and above business-as-usual programme, wherein the latter would need to be approved by the Directorate General for Hydrocarbons.

The inclusion of national E&P companies within the ambit of incentives was significant against the backdrop of a recent government decision that smaller discovered oil and gas fields of ONGC and OIL would be taken away and put up for auction for allocation to private investors, drawing criticism of asset stripping of government companies.

This decision could lead to as many as 97 small and discovered fields currently in the portfolios of national companies going to private oil and natural gas E&P companies.

At the same time, as reported by Mining Weekly Online, the Indian government on Wednesday put in play the older system of awarding post-auction contracts to successful bidders based on exploration work commitment, replacing the two-year old revenue sharing based contracts.

The Cabinet of Ministers approved that in case of Category I basins, where commercial and production had already been established contracts would be basis on a combination of work commitment and revenue share in ration of 70:30.  However, in case of category II and III basins future contracts would be entirely based on exploration work programme submitted by bidders at the auction stage.

The national E&P companies have welcomed the reforms and incentives offered by the government.

“This is positive for us as we will be able to fast track at least three projects that were ready to be developed by not commercially viable,” said ONGC chairperson Sashi Shanker, adding that these three discoveries had reserves of 30-billion cubic meters and expected to have peak production of around 10-million metric standard cubic meters a day.