ONGC, RIL to get gas pricing freedom for new discoveries

In a move to raise domestic output and cut imports, the government will give ONGC and Reliance Industries (RIL) pricing and marketing freedom for yet to be developed discoveries and will levy a lesser royalty in case of state-owned firms raising production from existing fields.

Officials said the Cabinet headed by Prime Minister Narendra Modi on Tuesday approved a new exploration policy that contains a slew of measures for boosting domestic production of oil and gas.

Marketing and pricing freedom will be given to those new gas discoveries whose field development plan (FDP) or investment proposal is yet to be approved. This would apply for both state producers like ONGC and private ones like RIL.

ONGC is sitting on two dozen discoveries which it had not been able to produce because of current government mandated price being less than cost of production. Reliance too has discoveries in east coast block NEC-25 where it can produce after the new freedom.

Officials said an incentive to produce additional gas from APM or nomination fields of state-owned firms like ONGC and Oil India (OIL) will be given in form of royalty reduction at the rate of 10 per cent on additional production over and above business as usual (BAU) scenario.

BAU scenario will be approved by upstream regulator DGH.

Alongside these, the government reverted back to a two-decade old system of awarding areas based on exploration work commitment, which will replace a two-year-old method of awarding them to companies offering the highest revenue share to the government.

The Cabinet approved awarding of exploration blocks in Category-I basins, where commercial production of hydrocarbon has already been established, on the basis of a mix of work commitment and revenue share in the ratio of 70:30, they said.

Exploration blocks in Category II and III basins will be awarded purely based on the exploration work programme.

This, they said, was based on the recommendation of a six-member panel, headed by NITI Aayog Vice Chairman Rajiv Kumar, which was formed on directions of Prime Minister Narendra Modi last year to give a boost to domestic exploration.

There will be no revenue or production sharing in these contracts but the government will get a share in case of windfall gains.

The trigger for such a sharing has been fixed at $2.5 billion in a financial year from the block.