Regulator asks states to treat oil production as essential service

The directorate-general of hydrocarbons (DGH) of the petroleum ministry has written to major producing states to exempt its production from the ongoing lockdown's ambit, and to instead classify this as an essential service.

Rajasthan, Assam, Andhra Pradesh and Gujarat are all major producing areas. The move will help Oil and Natural Gas Corporation (ONGC), Vedanta, Reliance Industries, Oil India and Hindustan Oil Exploration Company (HOEC).

Industry sources say the governments of Rajasthan and Assam have given clearance but those of Tamil Nadu and Maharashtra are yet to give a final nod for movement of oil company staff and material. The DGH letter had cited a February 28 notification that categorised any oilfield work as a public utility service.

“Petroleum and natural gas are essential commodities under the laws. Domestic petroleum crude and natural gas production is a priority area for the country. Hence, uninterrupted operations are essential,” went the letter.

In addition, the DGH says it has merged the sixth and seventh rounds of Open Acreage Licencing Policy (OALP) bids for oil and gas blocks. “In view of the lockdown due to Covid-19, the EOI (expression of interest) cycle for Round VI (ending March 31) and Round VII (ending July 31) shall stand merged. A bidding round would be launched based on EOIs received till July 31,” says the DGH on its website.

The final date for bidding under the fifth round of OALP is scheduled on April 16. A total of 11 oil and gas blocks are being offered under this round.

Following the lockdown, a majority of companies in the sector, including ONGC, were reportedly forced to cut production by a tenth as customers refused to take supplies. According to an Emkay report, ONGC indicated a 5-7 mscmd (million standard cubic metres a day) decline in gas sales volume due to lower demand; the company is trying to shut down some wells and reduce the flow rate to mitigate the impact. Oil India’s gas demand hit would be seven to eight per cent, with reduced offtake from smaller industries such as tea gardens.

“The private sector, too, is facing such problems. A lot of consumers and factories in Assam are not taking supplies because of business disruption. However, we are continuing production from our fields,” said P Elango, managing director of Chennai-based HOEC. The Emkay report indicates the lockdown has led to an overall demand hit of 15-20 per cent, due to the general closure of factories.