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Business News/ Industry / Energy/  Auction of 69 marginal fields to start from December
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Auction of 69 marginal fields to start from December

Sale of discovered but undeveloped oil and gas resources can unlock `70,000 crore worth of reserves, says oil minister

For the auction of marginal fields, the oil ministry has taken three major initiatives. Photo: BloombergPremium
For the auction of marginal fields, the oil ministry has taken three major initiatives. Photo: Bloomberg

Mumbai: The auction of 69 marginal fields—discovered but undeveloped oil and gas resources—is expected to start from the first week of December and can potentially unlock almost 70,000 crore worth reserves, said oil minister Dharmendra Pradhan on Monday.

He was addressing the media after presiding over a meeting on the marketing of petroleum products in a competitive environment.

Pradhan said the auction of marginal fields will be a test case to see whether the new policy initiatives can be replicated in the auction of new oil and gas blocks expected next year.

Industry experts have already raised doubts on the policy’s success.

“I have my doubts on whether India will see a highly successful marginal field auction at current prices," said Piyush Jain, equity research analyst-energy, industrials and basic materials, Morningstar Investment Advisor Pvt. Ltd.

According to Jain, while the policy has made a shift to market-linked prices, it talks about a minimum benchmark price on which the market price is to be decided.

He said if the pricing is such that it cannot ensure even a 15% return on investment, it will be difficult to lure investors, especially overseas companies.

“A better way is to leave it to the market forces, enabling companies to price in project risk and return like anywhere else in the world," he added.

For the auction of marginal fields, the oil ministry has taken three major initiatives.

First, a revenue-sharing model where the company shares revenue from day one, unlike the earlier model which allowed cost recovery by the company first.

Second, the licence granted to a successful bidder will cover all commodities found in the field, unlike earlier where it was limited to one hydrocarbon, and a separate licence was required if any other hydrocarbon, such as gas, was discovered.

Third, the new policy allows the successful bidder to sell at the prevailing market price of gas, rather than at an administered price.

India Ratings and Research Pvt. Ltd, part of global rating agency Fitch Group, called it a welcome move but pointed out that the new policy shifts the risk to developers of the oil and gas fields.

Salil Garg and Vivek Jain, director and associate director at Indian Ratings, respectively, wrote in a note on 7 September that it remains to be seen whether the revenue-sharing model “will be a fixed percentage over the life of the block or will be a sliding scale dependent on gross revenue and cost incurred by the developer".

They wrote that the sharing percentage will determine developers’ interest in the auctions.

Pradhan, while apprising the media on the developments of the meeting in Mumbai, said the oil ministry has begun talks with the ministry of skill development and entrepreneurship to prepare skilled labour for the next phase of growth in petroleum product marketing by state-owned oil marketing companies (OMCs).

“At present, there are 53,800 retail outlets in the country and an estimated 32,000 new retail outlets are required over the next 10 years to cater to growing customer needs. Our plan is to convert most of them into multi-purpose utility hubs that can generate employment at the stations," said Pradhan.

He said from being simply retail outlets, these will act as service-delivery points such as payment banks.

The oil ministry is in talks with the finance ministry to allow state-owned oil marketing companies to convert these into payment bank kiosks, Pradhan said.

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Published: 22 Sep 2015, 12:41 AM IST
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