ONGC and Oil India will gain via new Oil policy

Recently new revenue sharing model has been approved by the union cabinet, under which government and explorer will share the revenue of the crude and gas explored from the field at an agreed proportion. This has been long demanded by the companies operating in oil and gas sector as earlier production sharing contract (PSC) is quite controversial as it leads to various litigation regarding the amount of cost incurred by explorer, particularly the private players. Government has now moved to “more equitable” revenue sharing model both in low oil and high oil price scenarios.

Also government has moved a proposal for the auctioning of marginal fields owned by state run explorers ONGC and Oil India to private players via bidding process. As per sources there are around 69 marginal fields available with these two companies that holds around 90 MT of oil and gas equivalent worth Rs70000 crore. These resources have been discovered by ONGC and Oil India during last 2-3 decades but couldn’t be developed as they weren’t considered viable due to high exploration cost.  Government has now decided to do the auction of these marginal fields to private players that will boost investment into Indian oil and gas sector on one and will prove beneficial for ONGC and Oil India as well.
Though the new policy is silent about any kind of payment to ONGC and Oil India but experts are of the opinion that in all probability ONGC and Oil Indian are going to receive royalty payment for these marginal fields, that will be a windfall for the companies, which till now shouldered the burden of subsidy discounts on Kerosene and LPG. In addition to this as per the new policy if any explorer, which has been allotted any field, doesn’t start the work within three years from onshore fields and six years from deep-water areas, the blocks will be relinquished. This will again provide some sort of security to ONGC and Oil India. All in all new policy will boost investment into Indian oil and gas space and may prove beneficial for government oil companies.