Cairn, ONGC, Essar benefit from pre-NELP contract extension

The Union Cabinet’s decision on Wednesday to grant extension to production sharing contracts for 10 blocks will benefit Cairn India Ltd (CIL), Oil and Natural Gas Corporation (ONGC), Essar Oil, Focus Energy, Hindustan Oil Exploration Company (HOEC), and Gujarat State Petroleum Corporation Ltd (GSPC).

The contracts for these pre-NELP (New Exploration Licensing Policy) exploratory blocks will be extended for 10 years from the expiry of their contracts. The move, the government said, will help accelerate indigenous production of hydrocarbons from existing blocks and act as a progressive step towards achieving the target of 10 per cent reduction in import of crude oil by 2022.

“There were about 28 pre-NELP exploratory blocks awarded to various operators. Out of that, 18 blocks were relinquished. The current policy for extension is applicable for 10 of the remaining blocks,” said an official source close to the development.

According to government estimates, the operators are set to invest an additional $5,430 million in these blocks in the next 10 years. The government’s share of profit petroleum during the extended period of contract would be higher at 10 per cent for these fields.

The current policy is for the 10 blocks, including Cairn India’s Barmer block, which were awarded prior to the advent of the NELP in 1999. The NELP was adopted to give a level-playing field for both public and private sector players in exploration and production (E&P), and was based on the production sharing contract (PSC) through sharing of revenues with the government after recovery of cost by the contractor. Till now, 256 blocks have been awarded to exploration companies in nine rounds of the NELP. India recently concluded its first round of discovered small and marginal fields (DSF) auctions, during which only 31 of the 46 contract areas on offer were awarded.

Oil and Natural Gas Corporation Limited (ONGC)