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Marginal Fields - Delayed Development: Need for some alternate policy initiatives, Dr V K Rao, Sr. Vice President & OSD (E&P/Gas Business), RNRL

Preamble

In the course of its sojourn in its exploration ventures over the past more than five decades, ONGC has accumulated a number of small sized discoveries in their nomination areas in onland and offshore . These discoveries have not been exploited for long. Some of the factors are:

  • Very small size of reserves/pool extent not being economically viable
  • Lack of infrastructure in the vicinity and want of profitable consumers
  • Prohibitive development costs, fiscal levies and technological constraints
  • All the above leading to unfavourable techno-commercial viability, not withstanding the priorities of exploration policy of ONGC.

These fields have been categorized as "Marginal Fields". In order to obtain oil/gas production from these fields in an optimal way, a thorough analysis was carried out by ONGC in consultation with DGH and MoPNG to evolve a suitable business model. After due deliberations, a SERVICE CONTRACT business model was formulated by ONGC on development of Marginal fields. Till date 25 oil/gas fields have been awarded by ONGC under two tender Rounds.

Salient Points/Features of ONGC Service Contract

The terms and conditions of ONGC Service Contract for these Marginal fields development are heavily loaded towards ONGC rather than the Contractor. The Bid Evaluation criteria envisages pre-qualification of either E & P experience or alternately having 4 technical consultants(2 from Geo-science and 2 from Production/drilling discipline with minimum 5 years experience in the domain) for the bidder. Besides, a turn over of Rs. One crore (for Indian bidder) or US$ 227,000 (for foreign bidder) is stipulated as financial capability. Bidder has to indicate in detail the Work programme proposed to be carried out in the block both in Assessment phase of 2 years and in the development phase of next 10 years for Oil field and for next 15 years for gas field. A walkout option at the end of assessment phase exists in the Contract.

Most importantly, a certain percentage share of oil/gas revenue receivable by the bidder is required to be bid. The oil price is in the range of US$18 and 35 as floor price and ceiling price respectively for the second Round of offer, whereas for gas end user gas price will be computed on the basis of FOB. For the First Round fields the ceiling price was fixed at US$25 only. The fields were awarded based on the total score of highest points obtained by bidder for work programme commitment and percentage share of receivables quoted by the bidder.

Other salient points in brief are :

  • The Contract is a Service Contract, wherein the ownership vests with ONGC holding PEL and ML. Awardee is required to carry out exploratory, development, production and supply activities to ONGC.
  • Oil produced will have to be delivered to ONGC only
  • Gas produced can be used for captive power generation by the Contractor to be supplied to ONGC listed Companies/Agencies.
  • Assessment period is 2 years and if opted by the Contractor, development /production period is 10 years (oil field) and 15 years (gas field)
  • Contractor can not quote the reserves etc as assets. They belong to ONGC
  • All taxes to be borne by Contractor

Details of Fields Awarded Under Various Rounds

A total of 25 fields have been awarded by ONGC on Service Contract Policy . Under 1st Round 8 onland fields and 3 offshore fields were awarded during 2004/2006. Under 2nd Round, 14 onland fields were awarded during, 2007. The details showing Company names, year of award and estimated Recoverable Reserves at the time of award are given as under:

S.No. Basin Field Awardees Year of Award State RES, O+OEG (MMT)
1 Rajasthan Bankia Deep Industries Limited 2007 Rajasthan 0.04
2 K-G Basin Bantumilli Hydrocarbon Resources Development Co. (P) Ltd 2007 Andhra Pradesh 0.27
3 Assam Barsillia Assam Company limited 2004 Assam 0.00
4 Assam Bihubar Assam Company limited 2004 Assam 0.00
5 Assam Charaideo Shiv-vani oil & Gas Exploration Services Ltd. 2007 Assam 0.00
6 K-G Basin Chintalapalli KEI-RSOS Maritime Limited 2007 Andhra Pradesh 0.13
7 Rajasthan Ghotaru Deep Industries Limited 2007 Rajasthan 0.66
8 Cambay Hirapur* Prize Petroleum Company Limited. 2004 Gujarat 0.00
9 Cambay Kamboi GSPCL 2006 Gujarat 0.01
10 Cauvery Karaikal KEI-RSOS Maritime Limited 2007 Tamilnadu 0.00
11 Cambay Khambel Prize Petroleum Company Limited 2004 Gujarat 0.01
12 Rajasthan Kharatar Deep Industries Limited 2007 Rajasthan 0.17
13 Assam Laxmijan Assam Company limited 2004 Assam 0.00
14 K-G Basin Magatapalli KEI-RSOS Maritime Limited 2007 Andhra Pradesh 0.01
15 K-G Basin Manepalli B G Shirke Construction Technology Pvt. Ltd 2007 Andhra Pradesh 0.51
16 K-G Basin Medapadu KEI-RSOS Maritime Limited 2007 Andhra Pradesh 0.03
17 K-G Basn Mullikipalle KEI-RSOS Maritime Limited 2007 Andhra Pradesh 0.01
18 Cauvery Neyveli KEI-RSOS Maritime Limited 2007 Tamilnadu 0.01
19 K-G Basin Sirikattapalli KEI-RSOS Maritime Limited 2007 Andhra Pradesh 0.09
20 Cambay South Patan GSPCL 2006 Gujarat 0.04
21 Cauvery Vadatheru KEI-RSOS Maritime Limited 2007 Tamilnadu 0.03
22 Cambay West Bechraji Prize Petroleum Company Limited. 2004 Gujarat 0.07
23 Mumbai Offshore B-192 Prize Petroleum Company Limited. 2006 WOB 4.79
24 Mumbai Offshore B-45 Prize Petroleum Company Limited. 2006 WOB 0.61
25 Mumbai Offshore WO-24 Prize Petroleum Company Limited. 2006 WOB 1.17

The status of the different Marginal Fields

Of the above 25 fields, 6 fields have been either relinquished or Contract terminated due to non-performance. They are: West becharji, Khamboi and Khambel in Cambay Basin , and the three offshore fields of Mumbai offshore region. The two Cauvery Basin fields viz; Vadatheru and Neyveli have not taken off well. The Krishna-Godavari fields and Rajasthan fields have been worked out and are ready for production or on production.

Possible steps to accelerate development in these fields

The salient aspects in the Service Contract which might be hampering the expected progress in these fields are:

  • The offered price for oil and Gas is far too below the international market price. The operational costs have increased many fold, thus are not commensurative with Price offered
  • The Reserves established can not be quoted nor can be shown as the assets by the Contractor
  • The Contractor has only Service Provider Status, unlike in PSCs. This would not help him to quote as Operator Experience, although he is performing almost all activities of Operator
  • Denial of free marketability of the products produced
  • No cost recovery component unlike in PSCs

In view of the dis-incentivising factors enumerated above, it is suggested that the MoPNG may introspect on offering these marginal fields too on similar terms as that of Development field bidding round made in 1995/2001.

This would definitely encourage small investors to participate in the bid rounds and accelerate development of these marginal /small fields at a faster pace.

Future Round of Marginal Fields

It is contemplated that the Future Round of Marginal Fields is being drafted and altogether 21 fields have been shortlisted for offer. Some of these fields are the relinquished fields.

Marginal fields likely to he offered by ONGC
Field Location Initial in place Reserves
Oil Condensate Gas Oil Condensate Gas
Million tonnes Million Tonnes Million Cubic Metres Million Tonnes Million Tonnes Million Cubic Metres
Gokararapuraim Onland 0.01 47.03 0 28.22
Kaza Onland 15.4 9.24
Pendurru Onland 115.17 69.10
Bhimanapalli Onland 21.83 13.1
Palakollu Onland 236.93 142.16
Kamboi Onland 0.13 0.01
Khambel Onland 0.07 0.01
S Patan Onland 0.44 0.04
W Bechraji Onland 0.74 0.07
Elao Onland 34.72 2.8
Hilara Onland 0.04 0.92 0.01 0.73
Lankapalem Onland 226.65 6.72
Mummidivaram Onland 58.73 35.24
Total 13 fields
Offshore Fields
B-174 Offshore 394.3 236,6
B-51 Offshore 243.1 145.86
D-12 Offshore 617.8 370.68
D-13 Offshore 3.78 535.57 0
SD-1 Offshore 0.61 0.03 420.6 0.09 0.02 252.3
SD-14 Offshore 72.3 43.4
SD-4 Offshore 0.15 0.02 165.6 0.02 0.01 99.3
KD Offshore 2.39 50.2 0.24 0 30.12
Total 8.35 0.06 3256.85 0.49 0.03 1485.57
Total 8 fields

Onland Offshore
Basin Fields Reserves (IOIP) Basin Fields Reserves (IOIP)
KG basin 7 (Gas) Mumbai 7 (4G+3O) 5.96
Cambay Basin 6 (OIL) Kutch 1 (Oil) 2.39
Total 13 8

It is suggested that these fields may now be offered as small Fields under Development Bid Round with similar or improved PSC conditions. This step would incentivize the investors . Since there has been a good response to "S " type exploration blocks since its introduction under NELP rounds, we have every reason to think that this initiative by the Government would accelerate the delayed development of small/Marginal Fields with greater enthusiasm among the investor community.