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
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
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.