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The government will formulate a bold new policy this year to bring private capital and technology to substantially increase crude oil production in major oilfields such as Mumbai High that were given to state-run firms ONGC and Oil India Ltd without an auction or a production sharing contract.
The new policy, in which private companies will be able to bid for Enhanced Oil Recovery (EOR) contracts in line with best global practices, will be announced in the current fiscal year. It is based on oil minister Dharmendra Pradhan’s decision to regularly monitor each nominated field. That's a major departure from the past practice of government scrutinising the activity of only those fields that were auctioned after the sector was opened up for private investment in the 1990s.
"We are going to bring a new model for the nomination fields, which have remained neglected by successive governments in the past… The new model, we hope, can even help double crude oil production from nomination fields. This will help bring investment as well as technology," Pradhan told ET.
Fields that were nominated to ONGC and Oil India account for 70% of domestic oil output, which has stagnated for years. Experts say there is scope for better management of reservoirs and higher production with the help of modern technology and much more accountability.
The oil ministry feels these nominated fields had earlier escaped official scrutiny. In auctioned fields such as Cairn India's Rajasthan assets and Reliance Industries Ltd's KG-D6 block, government officials participate in the managing committee while the directorate general of hydrocarbons (DGH) scrutinises almost every activity, including the tests conducted to assess hydrocarbon potential.
"Fields awarded in bidding rounds are accountable to the exploration division in the ministry, but nominated fields are not. We have made nominated fields accountable," said oil minister Pradhan. The recent auction of small, discovered fields was also a fallout of the oil ministry’s monthly monitoring of each field.
All nomination fields will be covered by the policy but 'a case-by-case evaluation' would be made to decide which field can gain from private capital and technology, Pradhan said. If state-run firms can raise output to a certain level using EOR in some fields, those may not be auctioned, he said.
"There are such models in the world. This can be done in India too," Pradhan said, describing how the use of EOR methods had kept alive a tiny oilfield in Austria he recently visited. The field had provided fuel during the Second World War.
"That field is producing profitably for the last 70-80 years. That has 98% water cut. And here if we have 60% water, we shut fields," he said, referring to the proportion of water present.
EOR techniques, which require heavy investment, are used to extract more crude from depleting fields by using gas, heat or chemical injections to push up oil from difficult traps. Most of India’s producing fields are ageing and can use EOR methods to boost output.
Applying EOR techniques is capital-intensive, time-consuming and requires technological knowhow. A state oil firm executive said different fields require different EOR techniques and methods need to be tested in laboratories before being applied to wells. It can take about three years to take a laboratory solution to wells, he said.
Another executive said a company must have a decade-long investment horizon before planning to use these techniques. EOR methods are special techniques used to extract crude from a field, over and above conventional primary depletion or basic water flooding.
In recent times, Cairn India has undertaken these techniques with good results. The government has been pushing state firms to use EOR techniques to raise output.
Boost Investment In Exploration
The move makes perfect sense. We do need to rev up competition in the upstream oil sector. But in parallel, there's the pressing need to shore up investment in oil exploration. About half our sedimentary basins remain quite unexplored. There's also the need to revamp institutional capacity for sound regulation and oversight. Abroad, in the mature licensing regimes, manuals, guidelines and norms for field operations are regularly issued and updated. In contrast, we continue with the dated 'management committee' approach that provide operational go-ahead on an opaque, case-by-case basis.
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