Oil regulator to submit gas premium formula by month-end

Upstream oil regulator DGH will by the end of the month submit a formula to determine the premium over and above the recently hiked price to be paid for natural gas produced from difficult fields.

The government while raising natural gas price by 33% to $5.61 per million British thermal unit, had announced that gas discoveries made in deepwater, ultra-deep sea or high-temperature and high-pressure fields will be given a premium.

"DGH (Directorate General of Hydrocarbons) will by end of month submit a transparent formula for calculating the premium on such projects," Oil Secretary Saurabh Chandra said at Energy Security conference here today.

The regulator has already collected comments and feedback on the proposed mechanism from industry players.

The Cabinet headed by Prime Minister Narendra Modi had in October approved a revised natural gas price and stated that discoveries made after this announcement in difficult regions would be given a premium as exploration and drilling is costly and challenging.

DGH will suggest if there should be a uniform premium or different rates for deepwater, ultra-deep sea and high-pressure and high-temperature (HPHT) fields. Also, it will suggest if the premium should be a percentage of the existing gas price or a fixed rate or a completely new formulation.

Chandra said the relaxation in the implementation of the production sharing contract (PSC), granted by the Cabinet at the same meeting in October, has led to 30 oil and gas projects being cleared by the DGH.

"These fields have an estimated hydrocarbon resource of $5 billion or Rs 30,000 crore," he said.

In a bid to make it easier to produce oil and gas, the Cabinet had granted operational flexibility to help firms like Cairn India and ONGC start producing oil and gas from several discoveries that are mired in contractual disputes.

A policy framework for relaxation, extension and clarification in timelines for development and production of oil and gas under the PSC was approved, he said.

Operational flexibility has been provided in enforcing contracts by way of relaxing some of timelines prescribed for discoveries so that E&P activities do not suffer on account of excessive rigidity in decision making.

The PSC between the government and the explorer has rigid timelines for each stage of exploration and actions have been initiated against firms even if deadlines are missed by a day.