Hydrocarbon Exploration Licensing Policy

The government has decided to launch new Hydrocarbon Exploration Licensing Policy (HELP) to cover all hydrocarbons such as oil, gas, coal bed methane etc. under a single licensing framework.

What are the flaws in NELP?

The present policy regime for exploration and production of oil and gas, known as New Exploration Licensing Policy (NELP), been in existence for 18 years but various issues are present under this.

1. There are separate policy regimes for conventional oil and gas, coal-bed methane, shale oil and gas and gas hydrates. 

2. Different fiscal terms are also in force for allocation of acreages for exploration for 

different hydrocarbons.  

3. Unconventional hydrocarbons (shale gas and shale oil) were unknown when NELP was framed.

4. This fragmented policy framework leads to inefficiencies in exploiting natural resources. For example, while exploring for one type of hydrocarbon, if a different one is found, it will need separate licensing, adding to cost.

5. The pricing of gas in the current system has undergone many changes and witnessed considerable litigation.  Currently, the producer price of gas is fixed administratively by the Government.  This has led to loss of revenue, a large number of disputes, arbitrations and court cases.

6. The current policy regime, in fixing royalties, does not distinguish between shallow water fields (where costs and risks are lower) and deep/ultra-deep water fields where risks and costs are much higher.

Thus the Hydrocarbon Exploration and Licensing Policy have the following key features:

1. There will be a uniform licensing system which will cover all hydrocarbons, i.e. oil, gas, coal bed methane etc. under a single license and policy framework.

2. Contracts will be based on “biddable revenue sharing”.  Bidders will be required to quote revenue sharein 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.

3. 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.

4. 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% (in deep water areas) and 2% (in ultra-deep water areas).

5. In shallow water areas, the royalty rates shall be reduced from 10% to 7.5%.

6. 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.

Proposed benefits

1. It is expected to stimulate new exploration activity for oil, gas and other hydrocarbons  and eventually reduce import dependence.  

2. It is also expected to create substantial new job opportunities in the petroleum sector. 

3. Marketing and pricing freedom will further simplify the process.  

4. These will remove the discretion in the hands of the Government, reduce disputes, 

avoid opportunities for corruption, reduce administrative delays and thus stimulate growth.