INDEPENDENCE DAY FEATURE

 

NEW EXPLORATION LICENSING POLICY

Vijayendra N Kaul*

    The search for oil in India began way back in 1866 in Upper Assam. While oil was struck at Digboi in 1889 marking the beginning of oil production in India, discoveries were made in Nahorkatiya and Moran oilfields in the late 1950s and early 60s in the northeastern region. In view of the growing demand of crude oil, the Government formed Oil & Natural Gas Commission (ONGC) in 1956 to boost the exploration of oil and gas in the country. ONGC made the first discovery in 1958 in the Cambay onshore basin in Gujarat. During the 1960s, oil production in the country was confined to only Assam and Gujarat.

    The discovery of oil and gas in the offshore region was made by ONGC in 1974 in Mumbai High which opened up a new vista for oil and gas exploration and production in India. Subsequently, more discoveries were made in the Krishna-Godavari, Cauvery and Rajasthan sedimentary basins. While the responsibility of carrying out exploration and production activities in the country was entrusted to the national oil companies (NOCs) almost till the beginning of 1990’s, wherein they used to be granted the Petroleum Exploration License (PEL) on nomination basis, the Centre’s liberalised economic measures opened up a few acreages to private and joint venture companies through various exploration bidding rounds for development of discovered fields.

Resource Base

    India has 26 sedimentary basins with an area of 3.14 million sq. km. Considering the entire 3.14 million sq km of sedimentary area, onland as also shallow and deep offshore in the country, the resource base of hydrocarbons is estimated to be about 29 billion tonnes of oil and oil equivalent gas (O+OEG). Out of this, only 6.8 billion tonnes of in-place hydrocarbon has so far been established through exploration.

    The sedimentary area covering Assam, Gujarat and Rajasthan (onshore), Mumbai High (offshore) and Krishana – Godavari and Cauvery (onshore and offshore) wherefrom oil and gas are commercially produced, fall in Category I basin. The total area in these basins is about 0.52 million sq kms, i.e., about 17 per cent of the entire sedimentary area. There is no commercial production from the other sedimentary basins that constitute about 83 per cent of the total sedimentary area. Based on their hydrocarbon potential, these basins are classified as category-II (i.e. basins having hydrocarbon indications without any commercial production), category-III (i.e. basins, which on geological considerations are assumed to be prospective) and category-IV (basins, which on anology with similar producing basins in the world are deemed to be prospective) basins. Owing to its risk-reward perspections, different basins or parts of the same basin, are in different stages of exploration. The areas that were to be brought under active exploration, inter alia, include logistically difficult and geologically complex regions. The perceived geological risk involved in carrying out the exploration for hydrocarbons in these areas is rather high. Thus, in order to expose these areas to active exploration requires huge financial investment and induction of high technologies. The order of investment required in the upstream sector in the next 15 years is estimated to be about US$ 60 billion.

Future

    While a considerable area is available in the country for carrying out exploration activities for hydrocarbons, so far as the demand versus domestic availability of crude oil is concerned, India’s position of 63 per cent self-reliance in 1989-90 became 31 per cent in 2000-01. One of the main reasons for a comparatively lower growth in the country’s oil production is the absence of major discoveries of hydrocarbon resources in recent years. Thus, there is an urgent need to increase the availability of indigenous crude oil through increased exploration in the country. Over the last 15 years, the demand for petroleum products has risen at an annual compound rate of about 6 per cent. During the last few years, the crude oil production in the country has been at a rate of around 32 million tonnes per annum while the current requirement is of the order of 122 million tonnes. Similarly, the country’s natural gas production last year was about 81 million standard cubic meters per day (MMSCMD) as against the projected demand of around 151 MMSCMD in 2001-02. The demand for petroleum products in the country during the current year is about 138 MMT and is expected to be about 179 MMT by the year 2006-07.

    Considering the availability of vast unexplored or poorly-explored area with substantial yet-to-be-established hydrocarbon resource base and widening gap of demand and supply, the Government of India has felt the need to accelerate the pace of exploration for hydrocarbons in the country. To this effect, the Government has recently come up with ‘India Hydrocarbon Vision – 2025’ wherein the strategic directions were provided towards exploration of the Indian sedimentary basins in a phased manner in keeping with technological advancement and environmental concerns. To achieve the set objectives, the implementation schedule envisages continuance of exploration in producing basins, pursuit of extensive exploration in non-producing and frontier basins, a programme for appraisal of the Indian sedimentary basins to the extent of 25 per cent by 2005, 50 per cent by 2010, 75 per cent by 2015 and 100 per cent by 2025.

New Policy

    In view of the inherent risk of hydrocarbon exploration and the huge financial investment associated with such risky exploration ventures, it has been felt that the efforts of the two upstream NOCs may not be adequate to achieve the set mandate. Hence opening up of the acreages for active exploration by private or joint venture companies, in addition to the efforts of the NOCs, was considered necessary. The acreages offered by the Government under various exploration rounds earlier met with only partial success. The main thrust for acceleration of exploration activities has, however, begun with the introduction of New Exploration Licensing Policy (NELP) by the Government in 1997.

    NELP has introduced a level playing field for public as well as private sector players. NOCs are also required to compete with the private and joint venture companies in acquiring exploration acreages in Indian sedimentary basins. Under this policy, all companies would be required to bid for a committed work programme to profit petroleum share expected by the contractor at various levels of pre-tax multiple of investments and percentage of annual production sought to be allocated towards cost recovery. The other main features of the terms offered by the Government inter alia include - no signature, discovery or production bonus by the bidder; income tax holiday for seven years from the start of commercial production, no customs duty on imports required to be payable for petroleum operations, biddable cost recovery limit up to 100 per cent, royalty to be payable by the contractor on ad voleram basis, freedom to the contractor for marketing of oil and gas in the domestic market, fiscal stability provision in the contract and incentive for deepwater exploration with only half of the royalty payable in the initial seven years from the beginning of commercial production. There are certain differences between the earlier rounds of bidding for exploration blocks and NELP. While NOCs were to bear royalty, cess and PEL fees on behalf of private companies in the earlier rounds, companies are now required to bear royalty. Cess and fees have now been exempted under NELP. Under the policy, NOCs are no longer needed to participate as Government nominees. The policy exempts them from payment of customs duty and cess for the blocks offered.

    The New Exploration Licensing Policy , a vehicle designed by the Government of India, has so far been successful in accelerating the pace of hydrocarbon exploration in the country.

    The hydrocarbon sector in India is one of the most crucial industries for determining energy security as nearly 45 per cent of the country’s total energy needs are met by the oil and gas sector. Production of indigenous oil and gas is therefore a major plank of oil security for the nation. Through the New Exploration Licensing Policy, the Government of India is making a concerted effort to expeditiously explore the inadequately explored and unexplored areas of the country’s sedimentary basins.

*Secretary (P&NG)