ONGC tears into DGH proposal to auction its oil, gas fields

State-owned ONGC has torn into regulator DGH's proposal for auctioning its discovered oil and gas fields, saying national oil companies can raise production if they are offered the same fiscal concessions as being extended to private companies.

In para-wise comments on the Directorate General of Hydrocarbons' (DGH) proposal to auction 60 per cent stake in some producing oil and gas fields of ONGC and Oil India Ltd, ONGC said national oil companies (NOCs) should also be allowed to participate in the auction.

DGH has identified 15 discovered and producing fields - 11 of Oil and Natural Gas Corp (ONGC) and four of Oil India Ltd - with a cumulative in-place reserve of 791.2 million tonnes of crude oil and 333.46 billion cubic metres of gas, for auctioning on the plea that private involvement will raise output.

The fields "may be offered to NOCs in case the NOC assures to raise the production by working out financial viability of the field with the extending of incentives like lesser royalty and no cess to the NOC", ONGC said on the DGH's draft Production Enhancement Contract Policy.

DGH has in the policy proposed to auction the fields to the bidder who commits the maximum investment and pledges the largest share of its net revenue to the government.

The bidder, who would pay reduced royalty rates and be exempted from payment of oil cess and import duty on capital goods under the Hydrocarbon Exploration and Licensing Policy (HELP), would get 60 per cent equity in the field and receive 60 per cent of net proceeds from sales from the fourth year after production.

ONGC said the provision of the selected bidder getting a 60 per cent of net proceeds from sales should apply only when output rises above a predecided base profile.

ONGC said as per proposal, DGH shall invite bids from interested parties, evaluate and finalise the selection.

"The methodology proposed to finalise a private company does not foresee any role for ONGC," it said demanding a leading role in defining bid evaluation criteria and bid evaluation.

"Alternatively, freedom to farm-in (take sake) may be given to ONGC itself," the company said.

Also, the provision of reverting back the field to NOC may be made in the policy in case of non-performance by a selected partner, without any compensation, it said.

The firm also said it should be examined if the state governments would accept the reduction in royalty payment and no cess.

ONGC questioned DGH's mathematical formula which used indices like cut-off reserve volume, exploitation rate, current recovery rate and average production decline to identify the 15 fields.

Techno-commercial factors such as crude oil quality, its price, proximity to market, etc needed to be taken into account before handing over to the private players, it said.