Foreign firms may be allowed to bid for shale gas blocks

FILE- In this Monday, June 25, 2012, file photo, a crew works on a drilling rig at a well site for shale based natural gas in Zelienople, Pa. U.S. industrial production rose in June as factories made more cars, machines and business equipment. Factory output recovered to levels reached earlier this spring but appears to be leveling off. The Federal Reserve says factory output rose 0.7 percent last month, after falling by the same amount in May. (AP Photo/Keith Srakocic, File)

Apart from going in for the open acreage system for auction of the shale gas blocks in various parts of the country, the Central Government is likely to allow 100 per cent participation of foreign companies when it puts up its first auction in early 2013.

Under the proposed new shale gas policy, the Petroleum and Natural Gas Ministry will hold consultations with the Law and Justice, Finance, Environment and some other ministries before finalising a model contract. The contractor will be exempted from payment of cess on shale oil and no cost recovery will be initiated.

Apart from allowing public and private sector companies to participate, the new policy allows 100 per cent participation by foreign companies. The operator’s technical capability will be evaluated and will be considered as one of the basis for award of contract. The operator, in case of a consortium, should have a minimum of 25 per cent participating interest.

The Directorate-General of Hydrocarbons (DGH) has identified six basins under Phase-1 — Cambay, Gondwana, Assam, KG onshore, Cauvery onshore and Indo-Gangetic basins. ONGC and the Central Mine Planning and Design Institute (CMPDI) are under the process of identifying 11 more basins.

The proposed policy is unlikely to permit cost recovery and, hence, profit sharing. To minimise government intervention, it has proposed to remove complication in accounting and incentive for gold plating which may occur while allowing profit sharing. Bidders would be asked to quote a percentage of output they are willing to share with the government at different production slabs.

Different studies have put recoverable reserves of shale gas between 6 trillion cubic feet and 63 trillion cubic feet. “There will be freedom to market shale gas within India on arm’s length basis within the framework of the government policies on marketing and pricing of the gas. Marketing of shale oil will be as per prevailing NELP (New Exploration Licensing Policy) guidelines for crude oil,’’ according to the proposed policy.

Under the policy, if the block falls within the existing oil or gas and CBM (coal bed methane) blocks, right of first refusal will be offered to existing contractor to match the bid.