The oil ministry is considering withdrawing from management committees of oil and gas fields, crucial bodies comprising nominees of the ministry, upstream regulator and the contractor, which oversee field development plans, annual work programme and budgets.
The government hopes the proposed move would enhance ease of doing upstream business, but industry executives say that the presence of bureaucrats in these committees also has some benefits.
The oil and gas fields auctioned under the previous policy are guided by a production-sharing contract, which provides for a management committee to ensure that the spending proposed and incurred by the operator of the field did not adversely affect the government’s revenue interests.
There are about 250 production-sharing contracts operational in the country. For each contract, there’s a management committee comprising one nominee each from the oil ministry, the directorate general of hydrocarbons (DGH), and all companies with stake in the field. DGH is the technical arm of the oil ministry and also acts as the upstream regulator.
“DGH has the technical competence and its nominee can oversee the entire process and guard the government’s interest in the management committee. The absence of ministry officials from the committee will only make it easier to arrange meetings and help decide faster,” said an oil ministry official, adding that the aim is to make it easier for oil companies to do business.
An oil company executive, however, pointed out the flip side of the proposed move. This could leave scope for the government to object to the management committee’s decision later, the executive said. By staying in the management committee, the government is likely to be more committed to the panel’s decision, he said. The management committee approves field development plans, annual work programmes and budgets for development and production operations.
The operational control of the field rests with the operating committee, consisting of the representatives of the contractors.
The government has a veto in the committee’s decisions. In the absence of unanimity, a resolution is approved by the majority participating interest of 70% or more, including the government’s favourable vote.
The central role of management committee in guiding upstream contracts would wane under the new Hydrocarbon Exploration and Licensing Policy (HELP), where fields are to be auctioned under revenue-sharing contracts, and not profit-sharing, obviating the government’s need to monitor spending.