Tremendous’ response to OALP: DGH

Tremendous’ response to OALP: DGH

Context

Interest in the Open Acreage Licensing Programme (OALP) and Discovered Small Fields (DSF), two key components of the Hydrocarbon Exploration and Licensing Policy, has been considerable as India works to reduce oil imports by at least 10%, by 2022, according to a senior government official

What has happened?

• OALP: The OALP Bid Round-1 — under which almost 60,000 square kilometre of exploration area is to be added — has seen a “tremendous response.  It should be noted that 55 onshore and offshore blocks in 10 sedimentary basins across 11 States would be awarded through a bidding process
• DSF: 30 contracts had been signed with 23 companies in the first round

Present situation

Existing area under oil and gas exploration in the country was a little over 1 lakh sq. km.

OALP

Open Acreage Licensing Policy (OALP) gives an option to a company looking for exploring hydrocarbons to select the exploration blocks on its own, without waiting for the formal bid round from the Government

• Under Open Acreage Licensing Policy (OALP), a bidder intending to explore hydrocarbons like oil and gas, coal bed methane, gas hydrate etc., may apply to the Government seeking exploration of any new 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
• OALP was introduced vide a Cabinet decision of the Government dated 10.03.2016, as part of the new fiscal regime in exploration sector called HELP or Hydrocarbon Exploration and Licensing Policy, so as to enable a faster survey and coverage of the available geographical area which has potential for oil and gas discovery

DSF policy

• The Government had approved the Discovered Small Field policy in 2015 with its main objective to bring Discovered Small Fields to production at the earliest so as to enhance the domestic production
• There areas has been discovered long back but these reserve could not be put into production due to various reasons such as Isolated locations of  oil field; Small size of hydrocarbon reserve; high development costs and constraint in technology etc
• These small fields have been discovered by National Oil Companies i.e. Oil & Natural Gas Corporation Ltd (ONGC) and Oil India Ltd (OIL)
• In the bidding of discovered small field both oil and non-oil companies participated. The biggest pulling factor was the prospect of owning an oilfield without having to invest in discovery. This has provided many companies an opportunity to invest in the lucrative business of hydrocarbons.

Hydrocarbon Exploration and Licensing Policy (HELP)

Four main facets of this policy are:

• uniform license for exploration and production of all forms of hydrocarbon,
• an open acreage policy,
• easy to administer revenue sharing model and
• Marketing and pricing freedom for the crude oil and natural gas produced

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. This will enable a faster coverage of the available geographical area.

What’s the problem with NELP?

• The New Exploration Licensing Policy (NELP) has been in existence for 18 years. Over the years, various issues have arisen in NELP.
• Presently, there are separate policies and licenses for different hydrocarbons.
• There is overlapping of resources between different contracts.
• Unconventional hydrocarbons (shale gas and shale oil) were unknown when NELP was framed.
• While exploring for one type of hydrocarbon, if a different one is found, it will need separate licensing, thus, adding further to the cost.
• The Production Sharing Contracts (PSCs) under NELP are based on the principle of “profit sharing”.
• When a contractor discovers oil or gas, he is expected to share with the Government the profit from his venture, as per the percentage given in his bid. Until a profit is made, no share is given to Government, other than royalties and cesses
• The process of approval of activities and cost gives the govt a lot of discretion and has become a major source of delays and disputes.
• Another feature of the current system is that exploration is confined to blocks which have been put on tender by the govt.
• Currently, the producer price of gas is fixed administratively by the Government. This has led to loss of revenue and a large number of disputes.
• The current policy regime, in fixing royalties, does not distinguish between shallow water fields and deep/ultra-deep water fields where risks and costs are much higher.