Exclusive: Finance Ministry asks ONGC, OIL to fund India’s hydrocarbon hunt; promises to reimburse losses

Bereft of funds, the Finance Ministry wants Oil & Natural Gas Corp (ONGC) and Oil India Ltd (OIL) to initially spend the Rs 3,200 crore required for drilling wells to find oil and natural gas in the high seas.

“ONGC and OIL will take up this work on behalf of the Ministry of Petroleum & Natural Gas and the cost for drilling of these wells would be initially borne by ONGC and OIL,” says the Expenditure Finance Committee (EFC) order.

The Petroleum Ministry had sought budgetary support to drill four stratigraphic wells in Category II and Category III basins in India’s offshore region to obtain critical data for a robust modelling of petroleum reserves. Usually, the Directorate General of Hydrocarbons conducts such searches through budgetary support.

Though the Expenditure Department had approved the ministry’s hydrocarbon hunt, the EFC -- headed by Finance Secretary -- decided that ONGC and OIL bear the expedition cost and their losses, if any, in this venture be reimbursed through gross budgetary support.

The onus of initial spending was shifted onto ONGC and OIL as the EFC said that fiscal constraint was a major issue and that the “fiscal situation had changed post presentation in the Budget”.

Officials said that subsequent to the Budget announcement, there has been a substantial increase in the expenditure on the revenue side which was not envisioned in the Budget. As a result, there was not much fiscal space available.

The EFC has therefore ordained that “ONGC and OIL will take up this work on behalf of (the) government. They will engage international expertise for the determination of well location. The cost incurred for drilling these wells would be borne by ONGC and OIL”.

“In case a discovery is made, the drilling cost would be recovered from successful bidders. However, when no discovery is made (in case of dry well), 90 per cent of the estimated cost of Rs 3,200 crore or the actuals, whichever is lower, will be borne by the government through gross budgetary support,” it said.

What that means is that if a discovery is made, 150 per cent of the drilling cost of the discovered well shall be recovered from the successful bidder whenever the block is awarded through the Open Acreage Licensing Policy regime.

In case no discovery is made, or the well is found dry, data from the well would be differentially priced so that at least 10 per cent of the cost is recovered from the purchasers of the well data from the National Data Repository.

For calculating the unrecovered expenditure on the drilling, the total cost of all four wells and the total recovery from all four wells shall be considered and the shortfall will be treated as “unrecovered actual expenditure”.

This expenditure will be reviewed by a committee under the chairmanship of Petroleum Secretary along with officials of NITI Aayog and Office of Chief Advisor Cost, and it will work out the amount to be reimbursed to the two national oil companies.

The committee will submit its recommendation to the Petroleum Minister who would approach the Budget Division in the Department of Economic Affairs for budgetary support.

India’s primary objective of drilling these wells is to gather stratigraphic information of the basin and to understand the depth of play systems so that private operators are encouraged to take up exploration and production in them.

Stratigraphy is a branch of geology concerned with the study of rock layers (strata) and layering (stratification). It is primarily used in the study of sedimentary and layered volcanic rocks. It is used for preparing property maps to get a possible regional trend which can give the components of depositional environment.