ONGC, Oil India may seek cost recovery on marginal fields

Mumbai: State-owned energy explorers that surrendered 69 inoperative oilfields to the government in 2014 want to be paid for the initial exploratory work they did before these fields are put up for auction, four persons familiar with the development said.

The 69 so-called marginal fields were discovered and granted to Oil and Natural Gas Corp. (ONGC) and Oil India Ltd but were not developed due to factors such as small reserve size, economic unviability and lack of infrastructure.

The government plans to auction these fields—63 surrendered by ONGC and six by Oil India—under a Marginal Fields Policy it announced in October, hoping to bring into production reserves worth Rs.75,000 crore. The fields together hold 89 million tonnes in reserves.

“Marginal fields are nominated blocks. We would look at recovering the cost that we had incurred on these fields as part of initial exploratory work done. Though accounting for depreciation, the cost to be recovered could be anywhere between Rs.1-10 crore depending on the fields,” said a senior official from ONGC, requesting anonymity.

Nominated blocks are granted by the government unlike others, which are won in auctions.

“Notice inviting offer is yet to be launched by the government on marginal fields and decision on the number of fields/amount can only be taken after detailed study of the offer,” an ONGC spokesperson said in an email.

Emails sent to Oil India went unanswered.

Energy industry executives said that there is considerable interest among Indian and international exploration and production companies in the marginal fields auction expected this year. Exploration and production companies from West Asia and South-East Asia are interested in bidding for marginal fields, these executives said.

The chief executive of a private exploration and production company, requesting anonymity, said that his company has received interest from some international exploration and production companies to partner for marginal field bidding.

“The only deterrent, however, could be the cost-recovery factor from ONGC and Oil India and it is a concern for international companies too,” he added.

Winners of marginal fields get a single licence to explore conventional and non-conventional hydrocarbons and are exempted from oil cess and customs duty on machinery and equipment. Also, contractors will be free to sell crude oil exclusively in the domestic market through a transparent bidding process on an arm’s length basis. Both ONGC and Oil India will also participate in these auctions.

However, ONGC and Oil India want the cost-recovery issue settled first. “The cost recovery could be a paltry sum for us. But since we are a government company and answerable to the comptroller and auditor general of India, recovery becomes imperative. We need to account for all the money spent,” said a senior official from Oil India on the condition of anonymity.

According to a former director of the Directorate General of Hydrocarbons, the upstream advisory and technical regulatory body under the ministry of petroleum and natural gas, ONGC and Oil India are eligible to recover cost on the marginal fields, though the value to be realized would be subject to depreciation. He did not want to be identified.

“Reimbursement of costs incurred by the PSU upstream companies in the exploration of these marginal fields seems a legitimate demand as the data obtained on seismic survey and exploratory drilling will be useful to prospective bidders. Moreover, such costs may not materially impact the viability of such fields as the prospective bidders have been given several incentives under the marginal fields policy, which will provide significant upside to their cash flows,” said K. Ravichandran, senior vice-president and co-head, corporate ratings, ICRA Ltd.