ONGC may revise terms of production-boosting plan for 64 oil and gas fields

Topics ONGC | ONGC Oil | oil sector

Based on existing guidelines, the new contractor was expected to be selected on a revenue sharing basis
State-run Oil and Natural Gas Corporation (ONGC) is likely to revise the terms of the much-hyped production enhancement plan for 64 oil and gas fields, after concerns raised by prospective bidders over the operating cost and other bidding criteria.

According to multiple sources, at least 14 of the 23 companies that participated in the pre-bid meeting on September 17 had asked for “compensation covering the operating cost to be borne by the contractor related to the baseline production”. Following this, the Directorate General of Hydrocarbons (DGH) and ONGC have decided to revise the contract terms.

It was in February this year that the Union Cabinet had cleared the handing over of 66 discovered marginal oil and gas fields by ONGC and Oil India (OIL) to private players. 

Industry sources said the revised terms might have to be again cleared by the Cabinet. A government official, however, said, “The process does not need any Cabinet clearance, as the modality of bidding was supposed to be finalised by ONGC and OIL only.”

Major companies that participated in the pre-bid meeting included Schlumberger, Baker Hughes, Weatherford International, and Halliburton. ONGC Chairman Shashi Shankar said the board of directors had already raised its concerns regarding the bidding process and a final call on revising the contract should be taken by the government.

On October 4, ONGC's director (onshore), S K Moitra, had written to DGH on the issues raised by investors in the pre-bid meeting. Their concerns, he'd said, were on non-inclusion of a compensation fee for baseline production and wanted to be recompensed on operating expenses for maintaining this level. The existing provisions include only payment of share of incremental revenue to the contractor. 

On June 28, ONGC had come out with a Notice Inviting Offer, for 17 contract areas involving 64 marginal fields notified by the government. The areas had an estimated oil and oil-equivalent gas of 300 million tonnes oil equivalent (MToE).

“Another major issue the prospective bidders raised was related to estimates, which was decided based on third-party evaluation. There were also issues related to revenue and penalty, as these were producing fields and our mandate was to enhance production,” said an official from one company that evaluated the bids in the early stage. ONGC got around 440 questions from 21 prospective bidders regarding the process before the pre-bid meeting. 

Based on existing guidelines, the new contractor was expected to be selected on a revenue sharing basis. The revenue was expected to be shared on incremental production over and above the baseline production in a normal scenario. Another industry source said the entire incremental revenue was supposed to go to a separate account and the new contractor allowed to use it after ONGC deducted its share. “We wanted this clause to be reviewed as well and also relief on penalty clauses,” he said.


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