Oil firms right in redefining business models: Moily

In an indication of the government's thinking on revising gas prices, Petroleum Minister M. Veerappa Moily said Tuesday oil companies were right in redefining their business models in view of rising production costs and reduced profits.

"The average production cost has risen from $2 per BOE (barrel of oil equivalent) in 2001 to $12 per BOE in 2012 and their (international oil companies') operating profit margins have reduced to 11 percent in 2012 from 16 percent in 2005," Moily said.

He was speaking at the inauguration of the 3rd IEF NOC-IOC Forum here co-hosted by ONGC and Shell.

Observing that liquefied natural gas (LNG) pricing is fast turning an issue, Moily said importers now desire to move away from oil-linked gas prices to the international Henry hub gas pricing because of the current high oil price band.

"So how new deals will take place, is fast turning into a watchable game," the minister said.

The C. Rangarajan Committee, appointed by the prime minister to look into the mechanism of exploration Production Sharing Contracts (PSCs), has recently submitted its report.

"The Rangarajan Committee report is under active consideration and the actions for implementation of Rangarajan Committee recommendations have been initiated," Moily announced at the conference of national and international oil companies.

Putting the issue in perspective, Moily said: "Government, on the other hand, all across the globe has this task of maximizing the returns from their oil and gas resources besides doing economic and social goods to their masses by and large. This will require IOCs (international oil companies) to shed off their pure commercial objectives and partnering in host government's concerns towards society and nation building."

Pointing out that top 10 IOCs have an average reserve life of only 13 years and declining further compared with 78 years for the top 10 national oil companies (NOCs), which is not a good sign for the industry, Moily said NOCs will require partnerships for extraction of huge unconventional reserves.

"Need of the hour is to undertake huge R&D activities in areas of shale oil and gas, tight oil, gas hydrates, coal gasification. We require the partnerships and investment there. There is also a need for partnerships in matured conventional fields where a lot of oil is still left to be exploited," Moily said.

"The new challenging frontiers will in all probability jack-up cost and prices. We need partnership now to contain this rising cost and provide oil and gas at affordable prices," he added.