Additional Secy-Exploration says no ceiling price put under HELP

UP Singh, CMD of Oil India and additional secretary – Exploration, Ministry of Petroleum and Natural Gas says no ceiling price has been laid out under the new Hydrocarbon Exploration & Licensing Policy (HELP) announced recently.

Singh says the government appreciates the fact that the discoveries made in over 2-5 years could take 8-10 years to start actual production.  While theoretically there is progress towards market driven prices, constraints in infrastructure require certain price ceilings where near- term production commencement is likely, he adds.

As for the impact on Oil India from the new policies, Singh says it will not be directly beneficial as the company does not currently have any undeveloped discoveries.Below is the transcript of Upendra Pratap Singh’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: From Oil India’s perspective, how do the new gas pricing freedom rules impact? Are there any oil fields that you are on the verge of exploring and which will become viable and at what price?A: Perhaps, what you are referring to the government’s yesterday’s decision regarding providing marketing freedom with a ceiling, for the discoveries and future discoveries in deep, ultra deep and High Pressure, High Temperature (HPHT) areas. Right now, as far as Oil India is concerned, we do not have a gas discoveries in deep, ultra deep and HPHT area, so we will not have a direct impact immediately. But, this policy for the future discoveries also, and as far as the new hydrocarbon exploration licensing policy which also has been approved by government yesterday, which provides for marketing freedom on gas for all future discoveries, not only in the present bidded block, but also to the blocks which will be bidded in the future, it would certainly benefit Oil India in the future, but immediate benefit would not be to Oil India, because Oil India does not have any discovered block in these areas.Sonia: In future, can you give us some expectations of what could the peak production be for Oil India? How much can it go up by?A: When I was talking of future, yesterday, government took three important policy decisions actually. One which relates basically to the existing blocks which are there in deep, ultra deep and offshore areas. We do not have in deep and ultra deep, but we do have now discoveries. In fact, some time back, we had a discovery in Krishna – Godavari (KG) basin, on-land in HPHT area actually. But right now I would not be able to quantify because that discovery is yet to be tested and appraised actually. So, I am able to quantify only after a discovery is tested. But we do have a HPHT discovery now in on-land which will also qualify for the marketing freedom. But when I was talking of future, I was not talking of only existing blocks. Soon government, with this policy, under that government is likely to launch bids actually. Now, this should be on a continuous basis, so naturally, Oil India being important national upstream company, would be bidding for future blocks. And in those future blocks, there is absolute freedom as far as the gas is concerned, marketing pricing of gas is concerned.Latha: Actually we, a little while ago, spoke to Mr Sarraf of ONGC and he was saying that if one took the average prices of 2015, the fuel import, the LNG import price, then the ceiling price for him comes to about USD seven. Why did the government, now I am asking you the question as an additional secretary, why did you have to put a ceiling at all? His gas and oil may come after three years and at that time, the global prices may be very different. There are people who expect that the landed LNG price itself could be USD five. Then the ceiling becomes a little meaningless. I mean it would make them uncompetitive. Was there a ceiling necessary?A: I will basically say, three policies government have recently. One was done some time back called marginal field policy or the small discovered field policy where we did not put in a ceiling. Similarly, because that was primarily to make those smaller fields or marginal fields very attractive. Even under this hydrocarbon exploration licensing policy (HELP), no ceiling has been put because if we expected that discoveries would be made, say in future in 1-5 years time, could be by the time it is put on production, it may be 8-10 years, whereas, here as many as 28 discoveries as such, these discoveries, not only the declaration of commerciality has been reviewed in some of the cases, even field development plan has been approved. So, these can be put on production within next 2-3 years.Actually what is happening is theoretically, in fact, we are progressing towards basically, absolutely market driven price, but you understand that there is no real competitive or perfect market as far as the gas is concerned. At best it has a local market.So, basically, because of the imperfections in the market, mainly because of the constraints in infrastructure, this ceiling has been put. But for future, even HELP and marginal field policy, we do not have any such ceiling also.Latha: In the ministry’s estimate therefore, in FY17 and FY18, what additional gas and oil flow within the country are you estimating?A: From this decision, if you say, generally what happens, that here there are five discoveries where the field development plan is already approved actually. Others are at different stages actually. So, usually from the approval of credit development plan, it takes 2-3 years merely to the gas to the flow because in deep and ultra deep those facilities take time whether it is sub-sea pipelines, whether it is onshore terminal, all this takes basically two to three years to come. So, basically, the additional production from these fields are expected only from 2018-2019 onwards. And not till 2016-2017 and 2017-2018.