ONGC to auction over 60 fields to private operators2 min read . Updated: 16 Jun 2019, 11:17 PM IST
- Advisory services firm KPMG has received the mandate to run PEC process for ONGC
- The marginal and small fields will be auctioned under the PEC mechanism, to enhance production
MUMBAI : Oil and Natural Gas Corp. Ltd (ONGC) will shortly auction more than 60 of its discovered small and marginal fields to private companies, said two people aware of the development.
The fields will be auctioned under the production enhancement contracts (PEC) mechanism, followed by global energy firms to enhance production from mature oil fields. Under PEC, the private company invests and introduces comprehensive technologies to improve production, while the ownership of the fields rests with ONGC. In January this year, the government allowed state-owned explorers to rope in the private sector to raise production to better exploit its hydrocarbon resources and cut dependence on foreign oil.
“Global advisory services firm KPMG has received the mandate to run the PEC process for ONGC," said the first person cited above. “PEC is a priority as the government is attributing an enormous amount of importance to it. Besides, stagnating domestic production of oil and gas is a major concern. So, as a consequence of that, ONGC has decided to offer its hydrocarbon blocks to other explorers," this person said.
ONGC and KPMG did not respond to emails sent on Friday.
The small and marginal fields are said to contribute only 5% to ONGC’s total production while 95% of its production comes from 60 large fields. Marginal fields are discovered fields but are considered uneconomical for development at the government-mandated price of $3.69 per million British thermal units for the April and September 2019 period, which is below the cost of production for most fields to be given for PEC.
Thus, ONGC prefers to concentrate on producing from its large fields and outsource production from the small and marginal fields to private players, saving its time, effort and investments.
During the March quarter, ONGC’s net profit fell the most in 13 quarters due to lower crude oil prices and higher costs. Net profit slumped 51% sequentially to ₹4,045 crore in the January-March period. Its net realization was at $61.29 a barrel versus $66.4 in the previous quarter. While crude sales were down 4.9% year-on-year to 5.9 million metric tonnes, gas sales rose 7.9% to 6.558 billion cubic metres.
In November 2017, as a production enhancement measure, the Directorate General of Hydrocarbons (DGH), a regulatory body under the ministry of petroleum and natural Gas, had proposed to sell a 60% stake in the hydrocarbon fields of ONGC and
Oil India Ltd (OIL) to private exploration firms. The two firms would retain the rest 40%. The plan was expected to include 15 blocks—11 of ONGC and four of OIL.
The plan, however, could not go through as ONGC strongly opposed the DGH proposal, countering it with its own proposal that it be allowed to outsource operations on the same terms as the government plan.
“While the terms of the condition of the PEC are still being worked out, ONGC is looking at something that is more holistic than what it has attempted in the past," said the second person, adding that the PEC process is underway for some time. “The idea is to look at a broader set of assets and investors. So, attracting new investors, inducting new technology and talent is part of this plan in addition to enhancing production," he said. The first person said ONGC feels it should be allowed to seek revenue-sharing partnership for its fields. Field operations could be outsourced to foreign or private firms that offered the highest revenue or production share over and above a baseline production.