New Delhi
India’s leading oil and gas producer, ONGC (Oil and Natural Gas Corporation), has entered into term contracts with Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) to sell approximately 4.5 million tonnes of crude oil each from its Mumbai offshore fields. The contracted oil is priced at the prevailing Brent crude oil price plus 1 per cent. As per the terms of the contract, ONGC will receive the Brent crude oil price plus USD 0.8 for the oil sold to HPCL and BPCL. The current Brent crude oil price is USD 80 per barrel. ONGC, which produces 13-14 million tonnes per annum of crude oil from its fields in the Arabian Sea off the Mumbai coast, has adopted this approach after the government abolished the rule mandating that oil from blocks awarded prior to 1999 must be sold to government-nominated customers. The new pricing strategy aims to ensure that ONGC receives competitive rates for its crude oil. The company had previously faced challenges in maximizing revenue due to restrictions associated with the earlier rule. ONGC has also implemented quarterly auctions of crude oil produced from Mumbai High and Panna/Mukta fields in the western offshore. The move to term contracts comes after discussions around discounts arose. While refiners like Indian Oil Corporation (IOC) sought discounts equivalent to those on Russian oil, ONGC resisted, citing the government’s imposition of a windfall profit tax. The term contracts, with a fixed quantity of oil sold at a pre-agreed benchmark, provide a more stable and predictable pricing mechanism for both ONGC and the refineries. In addition to the contracts with BPCL and HPCL, ONGC has also signed a pact to sell smaller volumes to its subsidiary Mangalore Refinery and Petrochemicals Ltd (MRPL). This new approach reflects ONGC’s efforts to optimize revenue and navigate the complexities of the evolving oil market.
