Cabinet approves MFP for development of hydrocarbon discoveries

The Union Cabinet on Wednesday gave its approval to the Marginal Fields Policy (MFP) for the development of hydrocarbon discoveries made by national oil companies

These discoveries could not be monetized for many years due to isolated locations, small size of reserves, high development costs, technological constraints and fiscal regime.

The new policy will open the competitive bidding for 69 oil fields which have been held by ONGC and OIL for many years, but have not been exploited.

The exploration companies will be able to submit bids for exploiting these oil fields. These oil fields have not been developed earlier as they were considered as marginal fields, and hence were of lower priority. With appropriate changes in policy, it is expected that these fields can be brought into production.

Significant changes have been made in the design of the proposed contracts, keeping with the principle of 'Minimum Government Maximum Governance'.

The earlier contracts were based on the concept of profit sharing and under the profit sharing methodology and it became necessary for the government to scrutinize cost details of private participants which led to delays and disputes.

However, under the new regime, 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 and other petroleum products.

The licence granted to the successful bidder will cover all hydrocarbons found in the field. Earlier, the licence was restricted to one item only (e.g. oil) and separate licence was required if any other hydrocarbon was discovered and exploited.

The new policy for these marginal fields also allows the successful bidder to sell at the prevailing market price of gas, rather than at an administered price.

This decision is expected to stimulate investment as well as higher domestic oil and gas production.