Oil firms have lost way, must focus on exploration: Ministry to new govt

As the subsidy bill balloons to $26 billion and oil and natural gas production stagnates, the Petroleum Ministry feels national oil companies such as ONGC are losing focus on their core competence.

In a presentation to the incoming Narendra Modi Government, the Ministry listed national oil companies losing focus on domestic exploration as well as legal disputes around signed contracts with private explorers among the five factors that went wrong during the UPA regime.

It also said increasing the cap on supply of subsidised domestic LPG cylinders from six to nine and then to 12 per household in a year should not have happened, according to sources privy to the development.

Also, the landmark scheme of Direct Benefit Transfer on LPG (DBTL), where customers got subsidy in cash to buy cooking gas at market rates, was a mistake, it felt.

Other shortcomings listed included production sharing contracts (PSCs) beset by legal disputes and no clarity on engagement with Iran in view of US sanctions, which not only delayed participation in a mega gas field but also put paid to the Iran-Pakistan-India gas pipeline.

The Oil Ministry has been at loggerheads with explorers such as Reliance Industries on various issues, from output not matching targets to assessing commercial viability of a discovery.

The time it should have spent on encouraging more investment into the sector to raise oil and gas production was spent in courts fighting legal disputes.

The Ministry is of the opinion that production sharing contracts should have been revised based on the experience with existing contracts, sources said.

The Ministry and RIL are engaged in a legal fight over the fall in natural gas output from the eastern offshore KG-D6 block. Output there has dipped to a tenth of the planned production of 80 million standard cubic metres per day, a development that cast a shadow on the investment climate.

Sources said the Ministry felt Oil and Natural Gas Corp moving into the downstream business of petrochemicals and oil refining and midstream activities of LNG terminals diverted its focus from its core job of finding and producing more oil and natural gas.

It also listed state refiner Hindustan Petroleum Corp Ltd setting up sugar mills as an example of diversion from core activities.