Old, new players divided over enhanced oil recovery policy

The proposed Enhanced Recovery policy for Oil and Gas has set the cat among the pigeons in the upstream hydrocarbon sector.

The smaller players, who were expecting a level-playing field from such a policy, are largely disappointed that they may be left out, several industry experts told BusinessLine .

Enhanced recovery is a set of techniques through which oil companies can boost production from otherwise lesser producing fields. The techniques comprise polymer injection and use of Alkaline Surfactant among others for improved recoveries.

“This policy caters to existing and large upstream companies like Oil and Natural Gas Corporation (ONGC) and Oil India Ltd that have ageing fields which will benefit vastly from this policy,” a top official at a private oil and gas exploration company told BusinessLine .

Fields should have a minimum three years of commercial production to be considered eligible for incentives, according to the draft Policy Framework to Promote and Incentivise Enhanced Recovery Methods, floated by the Directorate-General of Hydrocarbons.

This provision has irked bidders who had won blocks in the Discovered Small Field auctions. Managing Director at South Asia Consultancy FZE, D Rajput, said, “The qualifying criteria should be reduced by one year instead of three years of commercial production for DSF operator as they have recently won the blocks and they are small block owners and need to be encouraged.”

This is the view echoed by players who had won blocks last year when the government had auctioned blocks that ONGC and Oil India had acquired but were not considered economical enough to exploit. “Even one year is too much. We should be allowed to gain the promised benefits in around six months from the date of production. That is more than enough time to figure out if the enhanced recovery methods will bear fruit,” said the head of Exploration and Production operations at another new entrant in the upstream business. But existing players are enthused by the proposed policy. Managing Director at Hindustan oil Exploration Company, P Elango said, “The proposed Enhanced Oil Recovery policy is aimed at extending the economic life of the field. This is going to benefit the industry.”

However, all is not well for the existing players too. Under the eligibility criteria, the proposed policy notes, “Fields which are currently producing oil or gas using ER (Enhanced Recovery) techniques and/or fields for which FDP (Field Development Plan) has been approved for ER projects before the notification date will not be considered eligible for incentives under this policy.”

An industry watcher said, “Currently Cairn India (now Vedanta) conducts Polymer EOR to boost production and will not be getting the proposed benefits of a tax rebate because of this condition.”

“However, the company will stand to benefit when it implements the planned Surfactant EOR technology in its future projects,” he added. Other demands of the industry include an import duty waiver on any items used for ER. Carrying forward tax benefits to the commercial phase along with the pilot phase is also on the wishlist.

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