NELP: 46 blocks on auction, area grabbed from Reliance Industries included

The government has put on auction the gas discovery area it snatched from Reliance Industries in KG-D6 block and the field that Cairn India is seeking to regain around its Rajasthan block.

The two areas are part of the 46 blocks that India unveiled for bidding in the tenth round of New Exploration Licensing Policy (NELP).

"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 that Barmer block that Cairn had contractually relinquished, but is now seeking it back to connect the currently producing fields in the Rajasthan block.

Also, the areas offered include most of the 6,198.88 square kilometres of KG-D6 block that the ministry took away from RIL. This area includes five discoveries - D4, D7, D8, D16 and D23 - for which the Directorate General of Hydrocarbon (DGH) had opined that RIL missed deadlines for submission of investment plans.

While Cairn's relinquished area contains no discoveries, the area taken off KG-D6 has five gas discoveries and they 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.

Mr Moily said of the 46 blocks on offer, 17 are on land, 15 in shallow water and the remaining 14 deep water. Oil Secretary Vivek Rae said the 10th round of auction 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.

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, Mr Rae said. At present, oil companies can recover costs of exploration and production before sharing profit with the government.

The Comptroller and Auditor General of India (CAG) 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 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."

The Oil Minister 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," Mr Rae said.

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