Penalty clause in gas exploration

Move to weed out non-serious bidders.

With domestic companies all set to corner the 20 oil and gas exploration blocks with aggressive offers, the government has decided to introduce a penalty clause for those who bag a block but do not comply with the committed work programme for exploration.

The move was being initiated to weed out non-serious pre-emptive bidding and ensure that bids translated into actual investment.

Big international names like British Gas, Petronas of Malaysia, Petronas of Brazil and British Petroleum are likely to draw a blank in the wake of aggressive bidding by the two biggest domestic player in the exploration business like Oil and Natural Gas Corporation (ONGC) and Reliance in the fifth round under the new exploration and licensing policy (NELP).

Exploration regulator directorate-general of hydrocarbons has completed the evaluation of 69 bids received for the 20 blocks. It has submitted its report to the ministry of petroleum based on which the Cabinet Committee on Economic Affairs will take a decision on the award of contracts.

The proposed work programmes submitted by the companies get a 60 point weighting for onland and shallow water blocks and a 55 point weighting for deepwater ones under the bidding parameters for NELP V.

The next important parameter for the winning bid is the fiscal package which has a weighting of 30 in either case. Technical and financial capabilities of the bidding company or the consortium are six and four points, respectively.

Senior officials told Business Standard, the penalty clause would be made part of the production-sharing contracts (PSCs) which the companies would be signing with the government once the award of contracts was announced formally.

"There is an existing clause under which the government grants extension of development programme. The penalty might be included in this clause," said an official.

The government would also put in place a standardised method of calculating oil and gas reserves and the various categories of them through PSCs, said officials.

On the imposition of the penalty, an official said, "We will discuss the issue with the companies which are in the race for the blocks and take a decision."

Officials said quantum and methodology of calculating penalty would be fixed on the basis of discussions with the companies.

ONGC is likely to win at least half of 20 oil and gas blocks bids for which closed on May 31. The company is set to win the blocks with Britain's Cairn Energy and one block with Cairn and ENI of Italy.

The company is also likely to bag a block each in the Cambay offshore and onshore. It is likely to get one deepwater block in the Andamans along with Gail and ENI.

After bidding for 12 blocks, RIL was likely to get two blocks in Kerala-Konkan deep sea where it was the only bidder. Officials said it might get another in the Mahanadi basin and possibly one more block.

Power sector public undertaking National Thermal Power Corporation (NTPC) is also likely to enter the oil and gas exploration business after getting a block in the Assam Arakkan basin.

Another Indian company Videocon is likely to get a block in the same basin while shoe major Phoneix Overseas might get the Rajasthan block after being asked by the directorate general of hydrocarbons to validate its development plan.

Sorting bids for NELP V
69 bids have been received for the 20 exploration blocks

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THE CRITERIA

60 point weighting will be given to the work programme for onland and shallow water blocks and 55 points for the bidder's work proposal for deepwater blocks

30 point weighting for the proposed fiscal package

Technical and financial capabilities of the bidding company or consortium will have six and four points respectively