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Free Pricing of Marginal Field ; Boon or Bane for O&G Value Chain ?

Producers of gas from marginal fields will be able to freely price their output and choose buyers under a proposed policy awaiting Cabinet approval aimed at making such areas attractive for exploration companies. They can have a market-determined price and will need no government approval. The policy will help auction 69 smaller fields to public and private explorers, which will compete on the basis of the revenue-share they offer to the government to win the bid. 

Source:  Economic Times

 

SNP Insights

Auctioning marginal field through revenue sharing model & allowing free pricing will ensure more cash inflow for the explorer. Hence private investment in O&G exploration sector may witness a high. However, the repercussion in terms of attaining Break Even Point (BEP) would be marred with substantial delays, courtesy revenue sharing with Government resulting in dwindled profit margins.

Following this development the worst hit would be the Fertilizer and City Gas Distribution (CGD) sectors as they would be directly facing the heat of the raised prices, however the impact on the entire O&G value chain remains to be witnessed.