NELP-X: Govt to offer 46 blocks, including areas taken from RIL, Cairn

The government proposes to auction 46 oil and gas blocks, including the gas discovery area taken back from Reliance Industries Ltd and part of the onshore Barmer block in Rajasthan that Cairn had contractually relinquished, under the tenth round of the New Exploration Licensing Policy (NELP).

While Cairn is seeking the area back in order to connect it to the currently producing fields in the Rajasthan block, Reliance Industries had to forego 65 per cent of the area falling within the KG-D6 block for failure to start production within the stipulated time.

"We are today profiling 46 blocks but eventually 60 to 65 blocks will be offered after clearances are obtained," oil minister M Veerappa Moily said on Sunday, while launching the NELP-X.

The blocks offered include some of the 9,000 sq km area in the Barmer block that Cairn had contractually relinquished and most of the 6,198.88 square km of the KG-D6 block that the ministry took away from RIL.

This area includes five discoveries - D4, D7, D8, D16 and D23 – on which the Directorate General of Hydrocarbon (DGH) had disallowed investments as RIL had missed deadlines for submission of investment plans.

The area taken off KG-D6 has five gas discoveries that hold 0.805 trillion cubic feet of reserves, or about one-fourth of the restated reserves in the currently producing Dhirubhai-1 and 3 (D1&D3) fields, and are worth $10 billion at current imported cost of gas.

Of the 46 blocks on offer, 17 are on land, 15 in shallow water and the remaining 14 deep water.

The government has tweaked the production sharing contract with explorers for the 10th round of auction, under which the bidders will have to quote the amount of oil or gas output they are willing to offer to the government from the first day of production, oil secretary Vivek Rae said, adding that the company offering the highest share of oil or gas produced from the field would get the block.

The terms are as suggested by a committee headed by C Rangarajan, chairman of the prime minister's economic advisory council, for awarding future oil and gas block contracts.

Under the existing production sharing arrangement, oil companies can recover costs of exploration and production before sharing profit with the government. This has been criticised by the Comptroller and Auditor General of India (CAG) on grounds that it encouraged companies to increase capital expenditure and delay the government's share.

"We are proposing to move to revenue-sharing model from the current production-sharing scheme. There will be no profit petroleum, no cost recovery, no investment multiple," he said.

The shift from the production sharing contract (PSC) regime, where operators are first allowed to recover costs, to a revenue-sharing model will be decided by the cabinet. "We are going to the cabinet shortly for approval of the production-linked payment regime for NELP-X."

Petroleum minister Veerappa Moily said the offer inviting tenders will come after cabinet approves the terms. The production-linked payment regime is considered more transparent, requiring less intervention in routine exploration and development activities.

However, the new regime is opposed by some operators, which say riskier deepwater exploration would be best suited if the government were to guarantee that all sunk costs will be first recovered from any oil or gas produced.

The Kelkar Committee too has favoured continuing with the existing system. "The ultimate call will be taken by the cabinet," Rae said.

Under NELP, the government had so far offered 360 exploration blocks, of which 254 blocks have been awarded to various parties for exploration on production sharing basis. However, only 148 of the blocks are active while 106 have been relinquished.

NELP results:

• So far, 128 hydrocarbon discoveries (82 gas and 46 oil) have been made in 42 NELP blocks.
• An in-place reserve of about 745 MMT (O+OEG) has been accreted as of 1 April 2013.
• An investment of about $21.3 billion has been made so far in NELP blocks.
• The first deepwater commercial oil production in the country commenced in September 2008 and first deepwater gas production commenced in April 2009 from the block KG-DWN-98/3 (KG-D6).