India unveils “generational shift” oil and gas exploration policy to kickstart domestic production

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In a major drive to boost investments in its petroleum and hydrocarbon sector, India unveiled a new oil and gas exploration policy, which it said marked a generation shift in the way of doing business that would kick off new exploration activity and eventually reduce import dependence.

The government said in a statement that the new Hydrocarbon Exploration Licensing Policy (HELP) provides for a uniform licensing system to cover all hydrocarbons such as oil, gas, coal bed methane etc. under a single licensing framework and gives marketing and pricing freedom for new gas production from deep water, ultra-deep water and high pressure-high temperature areas.

The policy also granted extension to the production sharing contracts for small, medium sized and discovered fields, and cancelled Essar Oil Limited’s license for the Ratna offshore filed and returned it to ONGC, the original licensee.

India has long battled with rising imports of oil and gas as domestic demand has grown but domestic production has stagnated or declined.

“There is a need for concerted policy measures to stimulate domestic production,” the statement said.

According to the statement, under HELP:

  • Contracts will be based on “biddable revenue sharing”.  Bidders will be required to quote revenue share in their bids and this will be a key parameter for selecting the winning bid.  They will quote a different share at two levels of revenue called “lower revenue point” and “higher revenue point”.  Revenue share for intermediate points will be calculated by linear interpolation.  The bidder giving the highest net present value of revenue share to the Government, as per transparent methodology, will get the maximum marks under this parameter.
  • An Open Acreage Licensing Policy will be implemented whereby a bidder may apply to the government seeking exploration of any block not already covered by exploration.  The government will examine the Expression of Interest and justification. If it is suitable for award, Govt. will call for competitive bids after obtaining necessary environmental and other clearances.  This will enable a faster coverage of the available geographical area.
  • A concessional royalty regime will be implemented for deep water and ultra-deep water areas.  These areas shall not have any royalty for the first seven years, and thereafter shall have a concessional royalty of 5 percent (in deep water areas) and 2 percent (in ultra-deep water areas).
  • In shallow water areas, the royalty rates shall be reduced from 10 percent to 7.5 percent.
  • The contractor will have freedom for pricing and marketing of gas produced in the domestic market on arms length basis.  To safeguard the Government revenue, the Government’s   share of profit will be calculated based on the higher of prevailing international crude price or actual price.

The new policy regime marks a generational shift and modernization of the oil and gas exploration policy, the statement said, adding that it is also expected to create substantial new job opportunities in the petroleum sector.

Marketing and pricing freedom will further simplify the process, as these will remove the discretion in the hands of the government, reduce disputes, avoid opportunities for corruption, reduce administrative delays and, therefore, stimulate growth.

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