Discovered Small Field Policy

The Cabinet Committee on Economic Affairs (CCEA) recently gave its approval to 31 contract areas of discovered small fields by ONGC and Oil India Limited.

Background

The Government had approved the Discovered Small Field policy in 2015 with its main objective to bring Discovered Small Fields to production at the earliest so as to enhance the domestic production. There areas has been discovered long back but these reserve could not be put into production due to various reasons such as Isolated locations of  oil field; Small size of hydrocarbon reserve; high development costs and constraint in technology etc.

These small fields have been discovered by National Oil Companies i.e. Oil & Natural Gas Corporation Ltd (ONGC) and Oil India Ltd (OIL). In the bidding of discovered small field both oil and non-oil companies participated. The biggest pulling factor was the prospect of owning an oilfield without having to invest in discovery. This has provided many companies an opportunity to invest in the lucrative business of hydrocarbons.

Based on HELP

Discovered small oil field policy is based on Hydrocarbon exploration and licensing policy (HELP). Four main facets of HELP policy are as follows:

1. Uniform license for exploration and production of all forms of hydrocarbon,
2. An open acreage policy,

• Easy to administer revenue sharing model and

1. Marketing and pricing freedom for oil and gas produced.

All this facets is also the part of small discovered oil policy. The following table shows difference between HELP and NELP.

Present fiscal system of production sharing based on Investment Multiple and cost recovery production linked payment will be replaced by an easy to administer revenue sharing model. The earlier contracts were based on the concept of profit sharing where profits are shared between Government and the contractor after recovery of cost. Under the profit sharing methodology, it became necessary for the Government to scrutinize cost details of private participants and this led to many delays and disputes. Under the new policy, the Government will not be concerned with the cost incurred and will receive a share of the gross revenue from the sale of oil, gas etc.

Other Key Highlights of DSF Policy

Some of the key highlights of the DSF policy are as follows:

• The new DSF policy is based on the principle of ‘ease of doing businesses’. This policy is an outcome of a long consultation process between the government and the industry. A simple and easy to administer contractual model in line with Government’s effort to promote ‘Ease of doing business’ has been included in it.
• Up to 100% FDI participation  by foreign companies, joint ventures.
• Single licence for exploration and extraction of all type of hydrocarbon resources will be allowed.
• No restriction on exploration activity during contract period: Contractor will be allowed to carry out exploration during entire contract duration.
• Crude Oil & Gas Pricing and Sale:Freedom to sell crude oil exclusively in domestic market. For Gas pricing, contractor will have freedom for pricing of gas produced.
• Open to all:To incentivize new investors, technical capability is not kept as a pre-qualification criteria.
• No carried interest by National Oil Companies (ONGC, OIL) or State participation.
• Revenue sharing after onset of Production: Biddable Government share of revenue (net of Royalty) shall be payable only after onset of production.
• Custom duty:Customs duty is exempted on import of goods and services for Petroleum operations
• No Oil Cess:No Oil Cess will be applicable on crude oil production

Conclusion

The new discovered small field policy is expected to provide faster development of fields and facilitate production of oil and gas, thereby increasing energy security of the country. Increasing domestic supply will help manage import dependence issues.