Hydrocarbon Exploration and Licensing Policy (HELP)
Hydrocarbon Exploration and Licensing Policy (HELP) is a policy adopted by Government of India on 10.03.2016 indicating the new contractual and fiscal model for award of hydrocarbon acreages towards exploration and production (E&P). HELP is applicable for all future contracts to be awarded.
HELP replaces the present policy regime for exploration and production of oil and gas, known as New Exploration Licensing Policy (NELP), which has been in existence for 18 years.
Features of HELP
Four main aspects of HELP are:
- Uniform License: It provides for a uniform licensing system to cover all hydrocarbons such as oil, gas, coal bed methane etc. under a single licensing framework, instead of the present system of issuing separate licenses for each kind of hydrocarbons.
- Open Acreages: It gives the option to a hydrocarbon company to select the exploration blocks throughout the year without waiting for the formal bid round from the Government.
- Revenue Sharing Model: Present fiscal system of production sharing contract (PSC) is replaced by an easy to administer “revenue sharing model”. The earlier contracts were based on the concept of profit sharing where profits are shared between Government and the contractor after recovery of cost. Under the profit sharing methodology, it became necessary for the Government to scrutinize cost details of private participants and this led to many delays and disputes. Under the new regime, the Government will not be concerned with the cost incurred and will receive a share of the gross revenue from the sale of oil, gas etc. Bidders will be required to quote revenue share in 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.
- Marketing and Pricing Freedom has been granted, subject to a ceiling price limit, for new gas production from Deepwater, Ultra Deepwater and High Pressure-High Temperature Areas. The policy provides marketing and pricing freedom to the gas production from existing discoveries which are yet to commence commercial production as on 1.1.2016 as well as for future discoveries. Considering the imperfections in gas markets in India, and to protect the interests of the consuming sector, a ceiling based on the landed cost of the alternate fuels has been imposed. The ceiling price shall be the, lowest of the
- Fuel oil import landed price
- Weighted average import landed price of substitute fuels (0.3 x price of imported coal + 0.4 x price of imported fuel oil + 0.3 x price of imported naphtha) and
- LNG import landed price.
- Exploration is allowed through-out the contract period.
- Exploration Phase for onshore areas have been increased from 7 years to 8 years and for offshore increased from 8 years to 10 years.
- A concessional royalty regime will be implemented for deep water and ultra-deep water areas. These areas would not have any royalty for the first seven years (instead of the 5% at present), and thereafter would have a concessional royalty of 5% (in deep water areas) and 2% (in ultra-deep water areas), instead of the 10% at present. In shallow water areas, the royalty rates are reduced from 10% to 7.5%. For onshore areas royalty has been kept same i.e. 12.5% for oil and 10% for gas so that there is no impact on revenue to the State Governments.
- This policy provides for a uniform, non-discretionary framework for extension of contract in respect of 28 Pre-NELP discovered fields. The extension will be granted for a period of 10 years both for oil and gas. During the extension period, it is proposed to increase the Government take by way of
- charging normal royalty and cess in place of concessional royalty and cess charged during the original contract period.
- The profit petroleum during extension period will also be 10 percent higher than the normal percentage
- enhance domestic oil and gas production
- bring substantial investment
- generate sizable employment
- enhance transparency and
- reduce administrative discretion
- 100% FDI is allowed under NELP
- No mandatory state participation through ONGC/OIL or any carried interest of the Government.
- Blocks to be awarded through open international competitive bidding
- ONGC and OIL to compete for obtaining the petroleum exploration licenses (PEL) on a competitive basis instead of the existing system of granting them PELs on nomination basis.
- ONGC and OIL to get the same fiscal and contract terms as private companies.
- Freedom to the contractors for marketing of crude oil and gas in the domestic market.
- Royalty at the rate of 12.5% for the onland areas and 10% for offshore areas.
- Royalty to be charged at half the prevailing rate for deep water areas beyond 400 m bathymetry for the first 7 years after commencement of commercial production.
- Cess to be exempted for production from blocks offered under NELP.
- Companies to be exempted from payments of import duty on goods imported for petroleum operations.
- No signature, discovery or production bonuses.
- Agreement between government and contractor is governed by a Production Sharing Contract. A Model Production Sharing Contract is created which is reviewed for every NELP round.
- Contracts to be governed in accordance with applicable Indian Laws.
- Ministry of Petroleum brief on Hydrocarbon exploration and Licensing Policy issued on 10 March 2016
- Press release of Ministry of Petroleum dated 10.03.2016
- NELP brief by Ministry of Petroleum
- Revenue Sharing Contract (RSC)
- Open Acreage License Policy (OALP)
- Production Sharing Contract (PSC)
- New Exploration Licensing Policy (NELP)
The ceiling will be calculated once in six months. The price data used shall be the trailing four quarters data with one quarter lag. 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. All gas fields currently under production will continue to be governed by the pricing regime which is currently applicable to them.
Other features of HELP are:
Objectives of HELP
The major Guiding Principles behind HELP are to:
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). The New Exploration Licensing Policy (NELP) for exploration & production of oil & natural gas (but excluding Coal Bed Methane), and the Coal Bed Methane (CBM) Policy were formulated during 1997-98 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. 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), bringing in a healthy competition between public sector oil companies and private sector or foreign companies.
Under NELP, which became effective in February 1999 (with the first production sharing contract (PSC) getting signed in 2000), acreages are offered to the participating companies through a process of open international competitive bidding, in a transparent manner with attractive terms & conditions. The first round of offer of blocks was launched in 1999 and most of the ninth round awards were concluded in 2012.
The salient features of NELP are as under:
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. Separately, under the CBM Policy-1997, thirty- four blocks have been offered and 33 were awarded as on date.
|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|
|TOTAL (excluding Xth round)||360||282||750||261||254||1500957|
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. 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. 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) 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, these 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 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, the Hydrocarbon Exploration and Licensing Policy, HELP
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:
|Fiscal Model||Revenue sharing||Profit sharing|
|Cost recovery||Not applicable||Yes|
|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;
|Technical & financials
|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|