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India to auction 56 oil and gas blocks on revamped terms

January 06, 2014 16:02 IST

NELPIndia will offer at least 56 oil and gas blocks for bidding under completely revamped terms, Oil Secretary Vivek Rae said on Monday.

"We will profile 56 blocks at the Petrotech conference next week. “But notice inviting tender (or bids) will come out some time next month," he said on the sidelines of an industry event in New Delhi.

The 10th round of auction under the New Exploration Licensing Policy will require bidders to quote the amount of oil or gas output they are willing to offer to the government from the first day of production, he said.

The terms are the same as those suggested by a panel headed by Prime Minister's Economic Advisory Council Chairman C Rangarajan for awarding future oil and gas block contracts.

The company offering the highest share of oil or gas produced from the field would get the block, Rae said.

Currently, oil companies can recover costs of exploration and production before sharing profit with the government.

The Comptroller and Auditor General of India had criticised this approach on grounds that it encourages 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


“There will be no profit petroleum, no cost recovery, no investment multiple," he said.

The shift from the production-sharing contract 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," he said.

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, Rae said.

"The ultimate call will be taken by the Cabinet," he said.

Though a shift to the new regime may not result in additional revenue for the government, it will ensure that if companies earn more, the government gets progressively higher revenue.

It will also safeguard the government's interests in case of a windfall arising from a price surge or a surprise discovery.

This will create greater transparency and foster a hassle-free operational environment.

A total of 254 blocks have been awarded in the nine rounds of NELP since 1999.

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