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The two policies, PEC and EOR will help achieving PM Modi’s target to reduce oil imports by 10 percent

In a bid to arrest the country’s stagnant crude oil and natural gas production, the oil ministry with the help of the upstream regulator Directorate General of Hydrocarbons (DGH) is working on two key policies -- Performance Enhancement Contracts (PEC) and a framework to incentivize Enhanced Oil Recovery (EOR).

“Under PEC, we are contemplating on two models; one can be an equity model, where a company undertakes asset optimisation exercises in lieu of an equity share and the other is a standard service contract, where the company will improve the efficiency of the asset in lieu of monetary compensation,” a senior official said.

He added that there are various ways through which the potential of an oilfield can be optimised and better asset management and improvement of surface-related facilities also lead to a boost in production. “EOR is just one of the methods which can be used to enhance production. The ministry is trying to formulate a policy for companies which have an appetite and a track record for working on challenging fields, the government will ensure through the policy that rewards outweigh the risks,” the official added.

As per the plan, PEC contracts will first apply to nominated fields, after which the policy may be extended to other fields. “EOR and PEC are two different concepts. EOR is one method of increasing the productivity of a field while PEC involves a whole range of things. We have not finalized the policy yet. We need to ensure that the policy helps in creating a level-playing field addressing the interests of all the stakeholders,” a senior oil ministry official said.

Analysts say PEC are not unheard of in the world context and many global companies specialize and offer their services to optimize assets in challenging areas. “Leading companies in the oilfield services space include Schlumberger, Baker Hughes, Halliburton, Scomi etc who have a broad array of services. The country would be well served by PECs in view of declining production from the old fields, wherein new technological solutions can improve the recovery factor,” K Ravichandran, Senior Vice President at ratings agency ICRA said.

According to information provided on the DGH website, there are almost 398 oil fields which have been given on nomination basis to Oil and Natural Gas Corporation (
ONGC) and Oil India till date. In order to ensure increase in production capabilities of National Oil Companies (NOCs), a review committee was recently formed by DGH in May this year for management of Oil and Gas resources of nomination fields of NOCs.

The committee, which will convene every three months, has been empowered to give executive orders to NOCs related to surrender, early monetization and change of field development plans of all nominated areas under them.

Working on the feasibility of incentivizing EOR, the regulator has already called for stakeholder consultation and has appointed Deloitte to undertake a study on the best practices followed globally around EOR. “We have just had an appraisal meeting with the oil ministry on 20 June. We have received inputs from our stakeholders and after Deloitte finishes the study, we will make our submissions to the oil ministry,” the second official quoted above said.

Commenting on the DGH move to seek stakeholder comments on EOR, ONGC Chairman D K Sarraf told ETEnergyWorld a policy to incentivize EOR is much needed and a positive step for the company. “We have given our inputs to DGH. Without incentives, EOR will not be economically feasible due to low price scenario in the oil and gas sector. There is a lot of scope to enhance domestic production by deploying EOR techniques. Deploying EOR is capital and time-intensive process,” Sarraf said.

He added that while in the past the industry has taken 10 years to successfully commission EOR projects, ONGC is bringing down the timeframe to five years. Sarraf said EOR techniques have been deployed in most of ONGC's blocks and the company is now focusing on cost-effective operations in offshore blocks.

In order to attract investment and bring new oil fields into production, the government is all set to offer over 85 percent of the country’s 3.14 million square kilometres of hydrocarbon sedimentary area under a new bidding mechanism and a revamped exploration licensing policy in the first major exploration licensing round in seven years in July 2017.

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