Cabinet nod for new hydrocarbon exploration licensing policy and other reforms to grant more pricing and marketing freedom to companies
Faced with an investment challenge in the upstream oil and gas production sector, the Union Cabinet on Thursday announced major reforms to woo foreign investors and boost the performance of the sector.
The Cabinet Committee on Economic Affairs approved a much-awaited policy, granting pricing and marketing freedom to companies exploiting hydrocarbon reserves in difficult geological areas.
The aim is to ramp up domestic output to cut energy imports.
It approved a new Hydrocarbon Exploration Licensing Policy that will replace the existing New Exploration Licensing Policy regime with more investor-friendly provisions of revenue sharing and open acreage licensing.
Pricing freedom will benefit exploitation of 28 discoveries with 2.6 trillion cubic feet of hydrocarbon reserves located in deep water, ultra deep water and high pressure-high temperature areas, benefiting two of the country’s largest upstream companies — Oil and Natural Gas Corporation and Reliance Industries Ltd.
The policy allowing premium pricing for such areas would cover all the fields where production was yet to start as on January 1, 2016. Besides, it will also benefit an additional 10 discoveries which have been notified and whose potential is yet to be established, said Dharmendra Pradhan, petroleum minister.
The pricing and marketing freedom for exploitation would be capped by a ceiling price that will be determined on the basis of landed price of alternative fuels.
The ceiling price (in $ per mmBtu) will be the lowest of three prices -- landed price of fuel oil; weighted average of the landed price of substitute fuels including coal, fuel oil and naphtha; and landed price of imported liquefied natural gas.
“The new HELP approval will allow exploration and production of conventional and unconventional oil and gas including CBM (coalbed methane), shale gas, etc. under a single license. The concept of Open Acreage Policy will also enable exploration & production companies choose the blocks from designated areas,” Pradhan said.
The Union Cabinet also approved a policy for grant of extension to the production sharing contracts for 28 small and medium-sized fields where the recoverable reserves are unlikely to be produced within the remaining duration of the contract periods.
During the extended period of contracts for these blocks, the government’s share of profit petroleum will be 10 per cent higher but royalty and cess will be applicable at prevailing rates of nomination regime.
The Cabinet also approved cancellation of the award of medium-sized discovered field of Ratna and R-Series to a consortium of Essar Oil and Oil Pacific UK, and decided to revert the allocation of the fields to state-owned ONGC, the original licensee.
These fields were planned to be awarded under the Discovered Field Policy of 1992-93 but their PSC could not be signed.
In a major initiative aimed at universal coverage of cooking fuel in the country, the Cabinet approved Pradhan Mantri Ujjwala Yojana under which investment of Rs 8,000 crore (Rs 80 billion) has been earmarked to provide 50 million LPG connections to women from Below Poverty Line households.
The scheme provides financial support of Rs 1,600 for each LPG connection.
RE-ENERGISING ENERGY SECTOR
POLICY: New Hydrocarbon Exploration Licensing Policy
IMPACT:
- Increased production, investment in future blocks
- High transparency in revenue sharing model
- Single licence for all hydrocarbon types — conventional, shale and CBM -- available in an area
- Marketing freedom for oil and gas output from HELP blocks in future
- Lower royalty rates than NELP
POLICY: Marketing, pricing freedom for output from difficult areas
IMPACT:
- Improve viability of already discovered fields
- Monetisation of future discoveries
- Monetisation of 6.7 trillion cubic feet reserves valued at Rs 1.8 lakh cr
- Production potential of 35 mmscmd from 28 discoveries for 15 years
- Improved viability for 10 more discoveries whose potential is yet to be established
- No govt interference in price fixation of individual discoveries
POLICY: Extension of production sharing contracts for small and mid-sized fields
IMPACT:
- Increase production in 28 identified fields
- Increased profit petroleum, royalty and cess collection for govt
- Monetisation of reserves worth Rs 53,000 crore with potential of 15.7 mt of oil and 20 mt of oil-equivalent gas
- Investment potential of $3-4 bn
Image: An oil rig. Photograph: Amit Dave/Reuters
