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Cabinet Approved MFP for Development of Hydrocarbon Discoveries

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In a decision to expand the role of the Private Sector in Oil and Gas Exploration, the Union Cabinet, chaired by the Prime Minister Narendra Modi, today gave its approval to the Marginal Fields Policy (MFP), for development of hydrocarbon discoveries made by National Oil Companies – Oil & Natural Gas Corporation Limited (ONGC) and Oil India Limited (OIL).

Highlights of the decision:

  • It should be noted that this is first time revenue sharing model introduced in oil sector.
  • There are 69 unexploited oil fields owned by ONGC and OIL which will be opened for competitive bidding based on revenue sharing model.
  • Private exploration companies will be able to submit bids for exploiting these oil fields.
  • The policy allows the successful bidder to sell these oil fields at the prevailing market price of gas, rather than at an administered price.
  • Furthermore, significant changes have been made in the design of the proposed contracts, keeping with the principle of ‘Minimum Government Maximum Governance’.

Background:

These 69 discoveries for many years were not able to monetize due to isolated locations, small size of reserves, technological constraints, high development costs and fiscal regime. These discovered oil fields were considered as marginal fields as they were not developed and thus were of lower priority. But now this decision is expected to stimulate investment in oil exploration sector as well as increase domestic oil and gas production.

Significance:

The earlier contracts were based on the concept of profit sharing and under this methodology it became necessary for the government to scrutinize cost details of private participants which led to delays and disputes. However, under the new regime, the government will not be concerned with the cost incurred and will receive a share of the gross revenue from the sale of oil, gas and other petroleum products.

Also now the licence granted to the successful bidder will cover all hydrocarbons found in the field. Earlier, the licence was restricted to one item only and separate licence was required if any other hydrocarbon was discovered and exploited.

Finally, it will help in monetizing approximately 70,000 crore rupees worth of resources form these unexploited oil fields.