In a significant move, which would affect the oil and gas exploration sector, the government will not charge any share of profit on hydrocarbons produced from less explored areas as it looks to attract the elusive private and foreign investment to raise domestic output.
According to experts, this move is strategic move, since it breaks away from the two-and-a-half decade-old practice of having a uniform contractual regime for all sedimentary basins in the country, the new policy provides for different rules for areas that already have producing fields and ones where commercial production of oil and gas is yet to be established. Irrespective of the basins, producers will get complete marketing and pricing freedom for oil and gas in future bid rounds, said an official notification detailing rule changes approved by the Union Cabinet on February 28.
Oil and gas acreage or blocks in all future bid rounds will be awarded primarily on the basis of exploration work commitment. While companies will have to pay a share of revenue from oil and gas produced in Category-I sedimentary basins such as Krishna Godavari, Mumbai Offshore, Rajasthan or Assam where commercial production has already been established, they will be charged only prevalent royalty rates on oil and natural gas in the less explored Category-II and III basins. To expedite production, concessional royalty rates will be applicable if production is commenced within four years for onland and shallow water blocks, and five years for deep water and Ultra-deepwater blocks from the effective date of the contract.
India began bidding out oil and gas exploration acreage in 1999 under New Exploration Licensing Policy (NELP) that awarded blocks to companies offering maximum work commitment. But companies were obliged to share with the government profits made after recovery of cost. Two years back, the present government brought in Hydrocarbon Exploration and Licensing Policy (HELP) that provided for blocks being awarded to companies offering maximum revenue at different levels of prices and production. But the HELP failed to either raise output or attract new players.