Oil & Gas scenario in North East India and role of Oil India

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By: Ranjan Chowdhury

The North East Region (NER) of India is strategically located as it is surrounded by Bhutan, China, Nepal, Myanmar and Bangladesh. Captivatingly scenic, endowed with abundant natural resources, vast expanses of farmland and an industrious talent pool, the region has the potential to emerge as an important player in India’s development in the 21st century.

The history of oil and gas exploration in India dates back to the 19th century in the state of Assam located in the North-Eastern region of India. The first well that struck oil was in MakumKilla area near Margherita during 1867 drilled by McKillop, Stewart & Co., barely 9 years after Drake’s well in 1859 in Titusville, Pennsylvania, USA. Subsequently, a number of wells were drilled in MakumKilla and Namdang areas of Margherita and produced crude oil in minor quantities for more than two decades. The Assam Railway & Trading Co. Ltd, which was involved in the business of timber, coal, tea & construction of railway lines, drilled the first commercial well Digboi-1 (September, 1889 – November, 1890- total depth of 662ft) with an initial production of 200 gallons per day, opened up a new chapter in exploration and production of oil in this part of the world and the oil industry of India was officially born. During the subsequent years before independence of India, Digboi oil field was extensively developed and searched for new oil fields continued.

Other significant milestones in oil and gas exploration in North-East took place mainly after independence. These include the discoveries of the Nahorkatiya and Moran fields by Assam Oil Company (AOC) and Rudrasagar oil fields by Oil & Natural Gas Corporation Limited (ONGC) in 1953, 1956 and 1960 respectively. Subsequently, more than 100 oil and gas fields, that include fields such as Jorajan, Kumchai, Hapajan, Shalmari, Dikom, Kathaloni, Tengakhat, Bhogpara, Chabua, Baghjan, Barekuri, Mechaki, Lakwa, Lakhmani, Geleki, Amguri, Kharsang, Charali, Borholla-Champang, Khoraghat, Baramura, Tichna, Gojalia, Rokhia, Khobal, Hortoki have been discovered by Oil India Limited (OIL) and ONGC in the North-Eastern states of Assam, Arunachal Pradesh, Nagaland, Tripura and Mizoram.

Since then, both the national oil companies viz., OIL and ONGC have proven substantial amount of producible hydrocarbons and have technical know how of producing and managing complex reservoirs and contributing to about 8.6 Million Metric Tonnes per Annum (MMTPA) of oil plus oil equivalent of gas (O+OEG) from their producing assets in North-East.

The prognosticated hydrocarbon resource of the country has been reassessed based on the newly acquired data. The prognosticated hydrocarbon resources (O+OEG) of Upper Assam Shelf are of the order of 1633 MMT. The North-East region is having around 18% (7634 MMT) of country’s total prognosticated hydrocarbon resources. About 2246.6 MMT of in-place hydrocarbon reserves have been established so far by E&P companies which is 29% of the estimated hydrocarbon resource in North East. This implies that about 71% of hydrocarbon resources are under “yet to fund’ category. (Source – Annual Report 2018-19 of MoPNG)

The production of crude oil has been consistently been above 4 million tonnes every year with around 5 million tonnes in a few years. In the year of 2018-19, the production of crude oil from north-east was 8.294 MMT.

Out of the production in the north eastern sector of the country, majority of the production comes from Assam which is over 98% in 2018-19. Within Assam, OIL contributes the majority share (77.5% in 2018-19). In the year of 2018-19 the crude oil production from Assam was 4.234 MMT, where total 3.281 MMT production was from OIL.

There has been a consistent growth in the production of natural gas over the years and natural gas is a vital feed for many of the other sectors of the economy such as for fertilizers, electricity, petrochemicals and tea gardens etc. In the year of 2018-19, the total production of Natural Gas from north-east was 4646.78 MMSCM.

The contribution in natural gas production by NE sector is about 15% of the total production in India. That the states of Assam & Arunachal Pradesh contribute about 67% of the total natural gas production in the North East. In the year of 2018-19 (up to Dec 19 only) the total PRODUCTION OF Natural Gas from north-east was 3658 MMSCMD, where 2491 MMSCM was from Assam.

In FY 2017-18 OIL has a share of 57% in natural gas production in North-East, followed by ONGC with a share of 41.54%. The share of Pvt/JV companies in natural gas production is about 1.5%.

Starting from humble beginning in 1959 as the Assam Oil Company in 1959 with a production of 216 million tonnes, Oil Indians have assiduously increased the production to a consistent level of 3 million tonnes or more.

Similarly, for natural gas production OIL has painstakingly increased their production from a level of 971 MMSCM in 1971-72 to approximately 3000 MMSCM in 2019-20.

It is important to note that all this increase in production of crude oil and natural gas over the years has been achieved by the dedicated and committed Oil Indians over the last 5-6 decades despite natural harsh weather of the region and a history of bandhs and blockades. If the Oil Indians are able to get a normal working environment bereft of all kinds of obstructions except for those associated with Mother Nature, the people of the company are capable of delivering stellar performance year after year from old fields which in itself is a marvel. There are very few places in the world where an ultimate recovery from the oil fields reaches or surpasses 50% of the recoverable reserves. Generally, the recovery factor world over is in the range of 20-25% at the best of times.

The bandhs and blockades by so called organisation often take place due to a narrative built over the years that the resources of the North East and of the state of Assam in particular are being exploited by the Oil Companies and taken out of the state whereas the state does not get adequate revenues in return except for an approximate amount of Rs 2000 to 2300 crore annually as royalty. What is not considered is the fact that the region and state earns sales tax and other levies when products are sold in the NE sector as also a part of the central duties (collected as excise) comes back to the states as per the recommendations of the Finance Commission as per the devolution mechanism between the Centre and the States.

Let us examine this narrative with facts and with objectivity. We will examine this narrative in the light of the facts like consumption of petroleum products (made out of Crude Oil) and the total revenues earned by the region and the state from the operations of the petroleum companies. Let us also not forget the fact that a large number of people derive their livelihood directly and indirectly because of the petroleum sector which adds to the economic activity of the region. The companies operating in the region are also known for their CSR endeavours.

The total consumption of petroleum products (produced out of crude oil) in the NE region is more than the production of crude oil in the region. In the year of 2019-20, total consumption of petroleum products in the North-East region is 4.610 MMT. And out of this amount, 2866 MMT takes place in Assam.

Therefore, the narrative that the resources of the region are going outside and the region does not benefit out of its natural resources is not correct. In fact, out of the total consumption of petroleum products of NE region, 62% consumption takes place in the state of Assam

The refining capacity set up in the region is more than the production of crude oil in the region due to which crude oil has to be brought into the region from outside. The downstream companies pay excise duty to the Central Government on processing of crude oil, a part of which comes back to the States.

Crude oil is being brought into the region to provide adequate feed to the refineries because the crude oil production in the region falls short of the requirement.

A myth has been created that the petroleum resources of the state are being exploited by giving a paltry sum of approximately Rs 2000-2300 crore per year and the resources are going out of the state. The facts do not support the above myth.

The state earns revenue in three stages: (1) royalty on production of crude oil (2) part of central taxes and levies as per the recommendations of the 14th Finance Commission and (3) sales tax/VAT/SGST etc when the finished petroleum products are sold in the state.

The correct way to view the contribution of the sector would be to see the complete financial contribution to the region/state in the above three stages. The total contribution from the sector ranges from 20% to 28% of revenue budget of the state. In the year of 2019-20 total revenue contribution from OIL and ONGC is Rs 2085.87 crores from crude oil and Rs 227.00 crores from Natural Gas.

On the other hand shares of north-east in net proceeds of Central taxes and duties from petroleum sector is Rs 22945.69 crores and share of Assam is Rs 9608.35 crores.

In the year of 2019-20 shares of north-east by petroleum sector to Govt exchequer is Rs 5076.33 crores, shares by petroleum sector to Assam Exchequer is Rs 8116.26 crores and shares by OIL (Assam) to Assam Exchequer is Rs 9608.35 crores.

This one sector of economy (petroleum companies) contributes to the revenue budget of the state in the range of 19% to 27%, which is quite substantial.

  1. Total Revenue received by Govt of Assam from Petroleum sector Companies

It may be worthwhile to note that the petroleum companies, apart from contributing to the state exchequer, also contribute to the central exchequer; thus helping in nation building exercise.  In the year of 2019-20, contribution by petroleum sector companies to State Govt. revenue is Rs 16037.48 crores and contribution to Central Govt. revenue is Rs 9608.35 crores.

As is the case with any sector of the economy, the petroleum sector also provides employment opportunities / means of livelihood for people around its catchment area. The employment could be direct as well as indirect. In the petroleum sector, as a thumb rule, for every one direct employment, three persons are employed on contract and six persons are employed in associated service-related jobs like security, canteens, dhabas, petrol pump delivery boys, LPG delivery boys etc. Whereas, the numbers of direct employment is available from the companies.

Considering the above thumb rule, number of people employed by the petroleum sector would be approximately 168850, some of which in the executive category would be from the rest of the country whereas the remaining numbers would be from the region/ state. Considering an average family size of five, it may not be out of context to state that approximately 8, 50,000 (844250 rounded off) people depend on the activities in the petroleum sector.

Each petroleum company operating in the NE region/Assam is quite conscious of the fact that it is their moral responsibility to take care of the people in surrounding areas from where the companies earn their sustenance. Depending upon their business imperatives and the strategy, each company decides on a range of activities to be undertaken and the amount of expenditure to be incurred. OIL, for example, has been a very conscious citizen and has been spending quite a substantial amount every year towards this objective in view. In the year of 2018-19, OIL has spent 133.39 crores on this.

Apart from the contribution made to the Govt exchequer, employment/ livelihood generated and expenditure undertaken for CSR, fortunes of various other organizations are linked with smooth and efficient functioning of OIL. The major ones amongst them are:

OIL supplies Crude oil to the following refineries:

  • Numaligarh Refinery Ltd, 2) IOC – Digboi Refinery, 3) IOC – Bongaigaon Refinery, 4) IOC – Guwahati Refinery

OIL supplies natural gas to the following organisations:

  • BVFCL, 2) NEEPCO, 3) Indian Oil Corporation (AOD), 4) BCPL , 5) NRL, 6) DNPL, 7) Balmer Lawrie, 8) APGCL – Namrup & Lakwa, 9) APL, 10) AGCL and AGCL-CNG pilot, 11) Tea Gardens (about 400 in number), 12) Domestic and Commercial use
  • The total consumption of petroleum products 4.610 MMT in FY 2019-20is more than the production of crude oil at 4.294 MMT in the same year.
  • The total crude oil processed by the refineries in North East 6.952 MMT in FY 2018-19 is much more than the production of crude oil at 4.392 MMT.
  • As the total consumption and the amount of crude oil processed by the refineries of North Eastern states in more than the hydrocarbon produced in the region, it indicates that the indigenous productions are consumed within the region. It may be noted that 2.56 MMT of crude oil was brought from outside to feed the refineries of Assam in FY 2018-19.
  • The total contribution from the petroleum sector ranges from 19% to 27% of revenue budget of the state of Assam. It indicates the importance of the petroleum sector in generation of revenue for the state.
  • The petroleum sector companies generate over 1.5 lakhs direct and indirect employment/livelihood opportunities and thus significantly contribute towards the GDP of the NE region.
  • The oil sector companies have contributed enormously towards the socio-economic development of people through the CSR schemes. OIL has been spending more than 100 Crores for last 3 years in CSR activities which is above the statutory requirement of 2% of the average PBT of previous 3 years.

Keeping all the above in view, the petroleum companies may be provided a peaceful environment for accelerated development of the industry, region and the people.

This is very sad that taking advantage of the Baghjan blowout that occurred on 27th May, 2020, the local people of Baghjan under the leadership of Baghjan Gaon Milanjyoti Yuba Sangha have time and again obstructed the blowout control operations. Such bandhs and blockades have severely impacted the operations to control the blowout. The blockade of OIL’s operations in Baghjan has also led to disruption of production from around 30 Oil wells and 5 Gas wells, which has led to a production loss of 46,434 MT of Crude Oil and 119.14 MMSCM of Natural Gas till 16-10-2020. If this kind of disruption continues then it will also adversely affect the CSR projects being implemented by the company, since CSR budget depends on the profitability of the organisation. So, keeping all these aspects in view the petroleum companies, especially our pride Oil India should be provided a peaceful and conducive environment for accelerated development of the industry, region and the people. This will be possible, if all the public organisations of the state and the government take care of it. (The writer can be reached at [email protected])

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