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New Exploration and Licensing Policy (NELP)

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New Exploration Licensing Policy (NELP) is a policy adopted by Government of India in 1997 indicating the new contractual and fiscal model for award of hydrocarbon acreages towards exploration and production (E&P). NELP was applicable for all contracts entered into by the Government between 1997 and 2016.

In March 2016, Hydrocarbon Exploration and Licensing Policy (HELP) replaced the extant policy regime for exploration and production of oil and gas -New Exploration Licensing Policy (NELP), which has been in existence for 18 years.

 

Objective
The main objective of NELP was to attract significant risk capital from Indian and Foreign companies, state of part technologies, new geological concepts and best management practices to explore oil and gas resources in the country to meet rising demands of oil and gas.

 

Background
Till the adoption of Liberalisation policy in 1991-92, petroleum exploration and production (E&P) activities were carried out in India only by public sector oil companies viz, Oil and Natural Gas Corporation Limited (ONGC) and Oil India Limited (OIL). NELP was formulated during 1997 by the Government of India, with Directorate General of Hydrocarbons (DGH) as the nodal agency, to provide a level playing field for both the public and private sector companies in exploration and production (E&P) of hydrocarbons. Since then, licenses for exploration are being awarded only through a competitive bidding system and National Oil Companies (NOCs) are required to compete on an equal footing with Indian and foreign companies to secure Petroleum Exploration Licences (PELs). The activities in E&P sector have been significantly boosted by this policy and it has opened up E&P sector to private and foreign investment with 100% Foreign Direct Investment (FDI).
NELP was approved in 1997 and it became effective in February, 1999 (with the first production sharing contract (PSC) getting signed in 2000). The first round of offer of blocks was launched in 1999 and most of the ninth round awards were concluded in 2012. Nine rounds of bids have so far been concluded under NELP, in which production sharing contracts for 254 exploration blocks have been signed.

 

Features of NELP
The salient features of NELP are as under:

 

Performance of NELP
As at the end of nine rounds, 360 exploration blocks have been offered under NELP, and for 254 blocks, PSCs have been signed.  Presently, 166 blocks are active and 88 have been relinquished[1].

New Exploration Licensing Policy: Performance Indicators
NELP Round & Launch year No. of Blocks Offered No of blocks bid for No. of bids received No. of Blocks Awarded No of PSC Signed Signing Year Area awarded in Sq Km
I- 1999 48 28 45 25 24 2000 228472
II-2000 25 23 44 23 23 2001 263050
III-2002 27 24 52 23 23 2003 204588
IV-2003 24 21 44 21 20 2004 192810
V-2005 20 20 69 20 20 2005 113687
VI-2006 55 52 165 52 52 2007 306331
VII-2007 57 45 181 44 41 2008 112988
VIII-2009 70 36 76 34 32 2010 52603
IX-2010 34 33 74 19 19 2012 26428
X-2014 46 166053
TOTAL (excluding Xth round) 360 282 750 261 254   1500957
Source: DGH

 

The NELP bidding rounds have attracted many private and foreign companies, in addition to public sector oil companies. Before NELP, a total of 35 E&P Companies (5 PSUs, 15 Private sector Indian companies and 15 foreign companies) were working in India in Nomination blocks, Producing Fields and Pre-NELP blocks, either as Operator or Non-Operator[2].  After conclusion of nine rounds of NELP, the number of companies increased to 117. This includes 11 PSUs, 58 private Indian companies and 48 foreign companies[3]. A performance analysis of NELP may be seen from the Annual Reports of Director General of Hydrocarbons and from the website of Ministry of Petroleum.

However, NELP had many problems. Presently, there are separate policies and licenses for different hydrocarbons.  There are separate policy regimes for conventional oil and gas, coal-bed methane, shale oil and gas and gas hydrates.  Different fiscal terms are also in force for allocation of acreages for exploration for different hydrocarbons.  In practice, there is overlapping of resources between different contracts. Unconventional hydrocarbons (shale gas and shale oil)[4] were unknown when NELP was framed. 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.

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.  Since the contract requires the profit to be measured, it becomes necessary for the cost to be accounted for and checked by the Government.  To prevent loss of Government revenue, there are requirements for Government approval at various stages to prevent the contractor from exaggerating the cost.  Activities cannot be commenced till the approval is given.  This process of approval of activities and cost gives the Government a lot of discretion and has become a major source of delays and disputes.  Many projects have been delayed for months and years due to disagreement between the Government and the contractor regarding the necessity or lack of necessity for particular items of cost, and the correctness of the cost.

Another feature of the current system is that exploration is confined to blocks which have been put on tender by the Government.  There are situations where exploration companies may themselves have information or interest regarding other areas where they may like to pursue for exploration.  Currently these opportunities remain untapped, until and unless Government brings them to bidding at some stage.

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.

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.

The country faces a situation where oil and gas constitutes a major and increasing share of total imports.  Oil production has stagnated while gas production has declined.  There is a need for concerted policy measures to stimulate domestic production.  Keeping in view this objective, the Government enunciated a new policy regime for exploration licensing in 2016, the Hydrocarbon Exploration and Licensing Policy, HELP. 


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Source: Ministry of Petroleum and Natural Gas, accessed on 11 March 2016
Notes: Here, CBM stands for Coal Bed Methane and PEL and ML stands for Petroleum Exploration Licence (PEL) and Petroleum Mining Lease (PML): PEL is granted for a period of 7 years in onland /shallow water areas and for 8 years in deepwater and frontier areas for exploration activities as per PSC provisions under NELP. (This has been increased to 8 and 10 years respectively in the new fiscal regime adopted on 10.03.2016 – HELP or Hydrocarbon exploration and Licensing Policy) Petroleum Mining Lease (PML) is normally awarded for 20 years for producing Hydrocarbons as per The Oilfields Regulation & Development Act, 1948 and Petroleum &Natural Gas Rules, 1959. PEL/PML for offshore exploration & production operations is granted by the Union Government. In case of onland blocks, PEL/PML is granted by the concerned State Government on the basis of recommendation made by the Union Government for the awarded blocks.

 

A comparison of both the policies – HELP and NELP is given below:

Parameter HELP NELP
Fiscal Model Revenue sharing Profit sharing
Cost recovery Not applicable Yes
Cost efficiency Encouraged Neutral
Royalty Low rates for offshore Standard rates
Exploration Period Onland and Shallow Water- 8 years
Deepwater- 10 years 		Onland and Shallow Water- 7 years
Deepwater & Ultra-deepwater - 8 years
Management Committee More focus on  reservoir monitoring; 
no micro-management 		Technical & financials
examination
Revenue to Government On production After cost recovery i.e. from profit petroleum
Exploration in Mining Lease areas  Allowed  Not allowed
E&P activity for all hydrocarbons  Allowed Not allowed 



1. Source: DGH; http://www.dghindia.org/admin/Document/Topstory/13.pdf

2. Petroleum Exploration Licenses (PEL) for domestic exploration & production of crude oil and natural gas were granted under four different regimes over a period of time:
1) Nomination Basis: Petroleum Exploration License (PEL) was granted to National Oil Companies viz. Oil and Natural Gas Corporation Ltd (ONGC) and Oil India Ltd. (OIL) on Nomination basis prior to implementation of NELP.
2) Pre-NELP Discovered Field: Petroleum Mining Lease (PML) was granted under small / medium size discovered field Production Sharing Contract (PSCs) during 1991 to 1993 where operators of blocks were private companies and ONGC/OIL has the participating interest.
3) Pre-NELP Exploration Blocks: 28 Exploration Blocks were awarded to private companies between 1990 and prior to implementation of NELP where ONGC and OIL have the rights for participation in the block after hydrocarbon discoveries.
4) New Exploration Licensing Policy (NELP) -1999 onwards: Under NELP, exploration blocks were awarded to Indian Private and foreign companies through international competitive bidding process where National Oil Companies viz, ONGC and OIL are also competing on equal footing.
Government of India has signed production sharing contracts for 28 discovered blocks, 28 exploration blocks under pre-NELP regime and 254 blocks under NELP regime with National Oil Companies and private (both Indian and foreign)/ Joint Venture companies as licensee for blocks. At present out of, 310 exploration blocks awarded so far under various bidding rounds (Discovered Field, Pre-NELP & NELP), 135 blocks/fields are operational. 17 blocks under nomination are being operated by ONGC and OIL.

3. Source: DGH; http://www.dghindia.org/admin/Document/Topstory/13.pdf

4. Unconventional Hydrocarbons are Coal bed methane, Gas Hydrates, Oil sands, shale oil etc. Coal bed Methane (CBM), is an eco-friendly natural gas, stored in coal seams, generated during the process of the coalification (the degree of change undergone by coal as it matures from peat to anthracite). CBM exploration and exploitation has an important bearing on reducing the green house effect and earning carbon credit by preventing the direct emission of methane gas from operating mines to the atmosphere. Further, extraction of the CBM through degassing of the coal seams prior to mining of coal is a cost effective means of boosting coal production and maintaining safe methane level in working mines.
Gas hydrates are naturally occurring, crystalline, ice-like substances composed of gas molecules (methane, ethane, propane, etc.) held in a cage-like ice structure. (clathrate). Hydrates are a concentrated form of natural gas compared with compressed gas, but less concentrated than liquefied natural gas. It is estimated that a significant part of the Earth's fossil fuel is stored as gas hydrates, but as yet there is no agreement as to how large these reserves are. They are found abundantly worldwide in the top few hundred meters of sediment beneath continental margins at water depths between a few hundred and a few thousand feet and mainly in permafrost areas.
Oil sands or Tar Sands refers to crude trapped in sands in a semi solid form, mixed with sand and water. Tar Sands contain bitumen - a kind of heavy crude oil. They are found in Canada and Venezuela.
shale Oil is found in shale source rock that has not been exposed to heat or pressure long enough to convert trapped hydrocarbons into crude oil.
Oil Shales are usually fine-grained sedimentary rocks containing relatively large amounts of organic matter from which significant quantities of shale oil and combustible gas can be extracted by destructive distillation. The product thus generated is known as synthetic crude or more simply, syncrude. Oil shales are not technically shales and do not really contain oil. They are relatively hard rocks called marls - composed primarily of clay and calcium carbonate- containing a waxy substance called kerogen. The trapped kerogen can be converted into crude oil using heat and pressure to simulate natural processes.  Included in most definitions of oil shale, either stated or implied, is the potential for the profitable extraction of shale oil and combustible gas or for burning as a fuel.
Tight Oil: Although the terms shale oil and tight oil are often used interchangeably in public discourse, shale formations are only a subset of all low permeability tight formations, which include sandstones and carbonates, as well as shales, as sources of tight oil production. Within the United States, the oil and natural gas industry typically refers to tight oil production rather than shale oil production, because it is a more encompassing and accurate term with respect to the geologic formations producing oil at any particular well.


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