Overwhelming Response: DSF Round II witnesses far greater participation than anticipated

DSF Round II witnesses far greater participation than anticipated

The recently concluded bidding round under the Discovered Small Fields [DSF] Policy witnessed an overwhelming response from industry participants. A total of 145 e-bids for 24 contract areas from 39 companies, including domestic public sector undertakings (PSUs), private companies as well as foreign players, were received. The DSF Policy, launched in 2015, is one among a slew of policies that are expected to help reduce the country’s dependence on oil and gas imports. The bidding under DSF Round I, which took place between May 2016 and November 2016, had also witnessed enthusiastic participation.

Approved by the government in September 2015, the DSF Policy envisages the auctioning of DSFs of the Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL) to private players on liberalised terms including marketing and pricing freedom and lower taxes. The small size and the capped prices had made the development of these fields unviable and uneconomical. Since the launch of the policy, two rounds of bidding have been undertaken. While under DSF Round I the contracts have already been awarded to the winning bidders, DSF Round II bid evaluation is under way.

The allocation of oil and gas blocks witnessed a paradigm shift with the introduction of the Hydrocarbon Exploration and Licensing Policy (HELP), which is broadly based on four propositions – a uniform licence for exploration and production of all forms of hydrocarbons; an Open Acreage Licensing Policy (OALP); a revenue sharing model; and marketing and pricing freedom for the oil and natural gas produced. In addition to offering blocks under the OALP, the Ministry of Petroleum and Natural Gas (MoPNG) introduced the DSF bidding rounds in May 2016 under HELP for OIL’s and ONGC’s blocks which had remained commercially undeveloped previously.

Bidding response under DSF Round II

Under DSF Round II, there were 25 contract areas on offer, covering 59 discovered oil and gas fields spread over 3,000 square km with a prospective resource base of over 190 million tonnes of oil and oil equivalent gas. Of the total 25 contract areas on offer, 15 are onland and 10 are in shallow offshore areas. In this round, larger field areas in commercially producing basins have been put on offer. These are located across Rajasthan, Gujarat, Kutch and Cambay shallow waters, Mumbai offshore, Assam, Tripura, Mahanadi shallow waters, Andhra Pradesh onland and Krishna-Godavari offshore. Of the fields that have been offered, 22 belong to ONGC, five to OIL and 12 are relinquished discovered fields from the New Exploration and Licensing Policy blocks.

The bid round was launched on August 9, 2018 and responses were received until January 30, 2019, after two deferments. The Directorate General of Hydrocarbons (DGH) received 145 e-bids for 24 (out of 25) contract areas from 39 companies (either individually or as a member of a bidding consortium). Of the total e-bids received, 103 e-bids were received for onland contract areas and 42 e-bids for offshore contract areas. All the 15 onland contract areas received e-bids while 9 out of 10 offshore contract areas have received e-bids.

Of the 39 companies that participated in the bidding process, five were PSUs (or their subsidiaries) and six were foreign private companies while the remaining 28 were domestic private companies. Vedanta Limited placed offers for the maximum number of fields – 21 fields. Meanwhile, state-owned ONGC and OIL placed bids for 10 fields each and Indian Oil Corporation Limited bid for three. This bid round saw more participation from new entrants from India and foreign countries like the US, the UK, Australia, Singapore and the United Arab Emirates than had been anticipated. Some of the other major private players in the fray were Sun Petrochemicals Private Limited, Hindustan Oil Exploration Company Limited, Nippon Power Limited, Haryana City Gas Distribution Limited, Essar Oil and Gas Exploration and Production Limited and Oilmax Energy Private Limited. The evaluation of the bids is likely to be undertaken in a timebound manner and decisions on award would be subsequently taken. The government is planning to award the contract areas by end-February 2019, so as to expedite the monetisation of hydrocarbons from these fields.

Overall, a total investment of $1.2 billion is expected under DSF Round II. On the revenue front, as per government estimates, the gross revenue from the 25 contract areas under DSF Round II is anticipated to be Rs 450 billion assuming a project life of 15 years. This figure is based on estimates of oil and gas hydrocarbons in-place reserves, assumptions in terms of the hydrocarbon recovery factor, the hydrocarbon sale price, etc. However, actual revenue realisation from these fields may vary based on the actual award of contract areas, the development strategy adopted by the contractor, actual production realised, and techno-economics of the individual field.

With regard to the terms and conditions for bidding under DSF Round II, some prominent features have been carried forward from the previous round and some new ones have been incorporated. A key change in the present round is the reduction in royalty rates. The royalty rates for shallow water contract areas for the second round have been reduced to 7.5 per cent from the earlier 10 per cent, for both crude oil and natural gas. Besides, the other key features of DSF Round II include a single licence for exploitation of both conventional and unconventional hydrocarbons, revenue sharing contracts, prior technical experience not being a pre-

qualification criterion, no requirement of an upfront signature bonus and full pricing and marketing freedom. Apart from this, in order to encourage participation under the DSF auction, the DGH has undertaken various promotional activities showcasing the opportunities in the Indian upstream sector to global investors. Besides, round-the-clock support was provided by the DGH facilitation desk and the bid platform service provider to address issues facing prospective bidders.

Progress under DSF Round I

The first bidding round for DSFs, launched in May 2016 and concluded in November 2016, had received an equally enthusiastic response from the industry. The perception of many players on DSFs changed significantly after looking at the data available in the National Data Repository. Under Round I, 67 DSFs spread over nine sedimentary basins were offered in 46 contract areas – 26 onland, 18 in shallow waters and two in deep waters. The DGH had received a total of 134 e-bids for 34 contract areas from a total of 42 companies. Of the companies that participated in the bidding, five each were PSUs (or their subsidiaries) and foreign private companies while the remaining 32 were domestic private companies. The evaluation of bids was conducted within two months and the Cabinet Committee on Economic Affairs approved the award of 30 contract areas in February 2017. The 30 awarded contract areas comprised 23 onshore contracts and seven offshore areas. Of the 20 exploration and production (E&P) companies that signed the contracts, 15 were private companies and one was a foreign company. Also, there were new entrants in the Indian E&P segment. The in-place locked hydrocarbons volume of 40 million tonnes of oil and 22 billion cubic metres of gas from these blocks is expected to be monetised over a period of 15 years.

As of August 2018, 21 petroleum mining leases have been granted. Nine field development plans have already been submitted and production is expected by 2020-21. Production from some of these fields may take place even earlier. The expected cumulative peak production from the 30 approved blocks is expected to be around 15,000 barrels per day (bpd) of oil and 2 million metric standard cubic metres per day (mmscmd) of gas, with a total revenue generation of about Rs 464 billion. The government’s revenue share is expected to be to the tune of Rs 93 billion. Overall, a total investment of $600 million is expected under DSF Round I.


The production from the DSFs is expected to play a small but significant role in augmenting domestic oil and gas production, and lowering the country’s import dependence. Although the revenue sharing mechanism, pricing freedom and a single licence for multiple hydrocarbons make participation in bidding for DSFs attractive, some challenges still remain. The contracts offer a tight timeline for starting production – within three years for onland fields and four years for offshore fields. This will require speedy environment and other statutory clearances. Besides, since a committed percentage of actual production has to be passed on to the government and the ultimate recovery volume remains uncertain, the bidders need to be judicious in deciding the percentage of the government’s revenue share while bidding.

That said, given the broad scope and substantial investment requirement under the DSF rounds, effective and timely execution of projects will be key.