New marginal oil fields policy comes into effect

The policy aims at bringing into production 69 economically unviable oil and gas fields with Rs 75,000 cr worth of reserves

The oil ministry today announced the new Marginal Fields Policy approved by the cabinet last month has become operational with immediate effect. The policy aims at bringing into production 69 economically unviable oil and gas fields with Rs 75,000 crore worth of reserves on the back of a slew of fiscal incentives.

The fields with 89 million tonne reserves were earlier rejected by national oil companies Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL). These companies are now allowed to bid for the blocks apart from domestic and foreign private sector explorers.

The policy allows for grant of a single license for exploiting conventional and non-conventional hydrocarbons, lifts restriction on exploration activity during contract period, exemption from payment of oil cess and customs duty on machinery and equipment.

Contractors would be free to sell crude oil exclusively in the domestic market through a transparent bidding process on arms length basis. However, for the sake of calculation of government revenue, the minimum price will be the price of Indian basket of crude. "If the price arrived through bidding is more than the price of Indian Basket, the government's take will be calculated based on the actual price realized," the ministry said in a statement.

The contractors will also have freedom for pricing and allocation of gas produced from the fields on arms length basis and the government's share of revenue will be calculated as per the Natural Gas Pricing Guidelines. However, if the discovered price is more than the calculation based on the Domestic Natural Gas Price Guidelines, the Government's take will be calculated based on the actual price realized.

The policy also states the royalty rates applicable under New Exploration Licensing Policy (NELP) regime will be adopted in the new policy too. The contract duration for development and production from the offered marginal fields would be a maximum of 20 years or till the economic life of the field, whichever is earlier, but may be extended for a further period of 10 years.

Research and ratings agency ICRA had last month said the revenue sharing model of development to be used for the auction of the 69 marginal fields will help address the national auditor's earlier concern over gold-plating of costs by operators but increase their risks. However, ONGC Chairman D K Sarraf had said the company would be willing to participate in the bidding rounds after proper due diligence of the fields on offer.