In a significant development, the government, on Wednesday, allowed Exploration and Production (E&P) companies the freedom to sell crude oil produced by them domestically to any company within the country, including PSU refiners, with effect from October 1.
At present, the Ministry of Petroleum & Natural Gas (MoPNG) takes the call on how much crude oil is allocated to a producer. The development will not only shore up government revenues, but also boost the realisation from crude oil produced by ONGC and Oil India.
It will also allow private firms such as Vedanta to sell their crude to a company offering the best price in the auction. Besides, private refiners such as Reliance Industries and Nayara Energy, will also be able to procure crude from E&P firms.
“Now, E&P companies are free not just to sell the crude from their fields to government firms but to any company. They will now have full freedom to leverage their own pricing and marketing reforms. This will incentivise them to produce more,” Minister of Information and Broadcasting Anurag Thakur told reporters here.
At present, around 99 per cent crude oil produced is given to PSU refineries. Now, allocation of crude oil and condensate will be stopped from October 1. The clauses in Production Sharing Contracts (PSCs) of E&P firms, which mandate supply of crude to government or PSUs or government-nominated companies, will be removed, he added.
Exports are not allowed. Government revenues such as royalty and cess will continue to be calculated on a uniform basis across all contracts.
Focus on E&P
The demand for deregulating sale of domestically produced crude oil has been made by the Petroleum Planning and Analysis Cell (CELL). Besides, the MoPNG was also in favour of this last year, but could not get it approved by the Union Cabinet. ONGC, as well as private refiners, have also supported it.
Thakur emphasised that the government’s focus is on exploration. As of today, India has given only 9 per cent, or around 3.15 lakh sq km, of sedimentary basin for exploration. The aim is to increase it to 5 lakh sq km, or 15 per cent, by 2025, to ramp up crude output.
“In FY19, the E&P producers refined 71 per cent of the quantity of crude oil allocated to them. In FY20, this refining was only 59 per cent. We have opened this so that it spurs production and leads to lesser reliance on imports,” said the Minister.
This will also spur economic activities, incentivise making investments in the upstream oil and gas sector and builds on a series of targeted transformative reforms rolled out since 2014.
In FY21, the domestic crude production was 30.49 million tonnes (MT) and this was given to CPSU refineries. About 76 per cent, or 23 MT, from nominated field contracts were given to ONGC and OIL, while 23 per cent were given to the New Exploration Licensing Policy (NELP) regime.
The policies relating to production, infrastructure and marketing of oil and gas have been made more transparent with a focus on ease of doing business and facilitating more operational flexibility to operators/ industry, said MoPNG in a statement.
In the past eight years, to shore up the revenues and output from the domestic E&P sector, the government introduced reforms such as such as pricing and marketing freedom for gas, discovery of gas price through competitive e-bidding process, introduction of Revenue Sharing Contracts under Hydrocarbon Exploration Licensing Policy (HELP), it added.