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Hydrocarbon Exploration and Licensing Policy (HELP)

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(Created page with " <p>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 h...")
 
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   <li><strong>Uniform License:</strong> It  provides for a uniform licensing system to cover&nbsp;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.</li>
 
   <li><strong>Uniform License:</strong> It  provides for a uniform licensing system to cover&nbsp;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.</li>
 
   <li><strong>[http://www.arthapedia.in/index.php?title=Open_Acreage_License_Policy_(OALP) Open Acreages]</strong><strong>:</strong> 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. </li>
 
   <li><strong>[http://www.arthapedia.in/index.php?title=Open_Acreage_License_Policy_(OALP) Open Acreages]</strong><strong>:</strong> 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. </li>
   <li><strong>[http://www.arthapedia.in/index.php?title=Revenue_Sharing_Contract_(RSC) Revenue Sharing ]</strong><strong>Model:</strong>  Present fiscal system of [http://www.arthapedia.in/index.php?title=Production_Sharing_Contract_(PSC) production sharing contract (PSC)] is replaced&nbsp;by an easy to  administer&nbsp;&ldquo;revenue sharing model&rdquo;.&nbsp;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.&nbsp; They will  quote a different share at two levels of revenue called &ldquo;lower revenue point&rdquo;  and &ldquo;higher revenue point&rdquo;.&nbsp; Revenue share for intermediate points will be  calculated by linear interpolation.&nbsp; 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.</li>
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   <li><strong>[http://www.arthapedia.in/index.php?title=Revenue_Sharing_Contract_(RSC) Revenue Sharing]</strong> <strong>Model:</strong>  Present fiscal system of [http://www.arthapedia.in/index.php?title=Production_Sharing_Contract_(PSC) production sharing contract (PSC)] is replaced&nbsp;by an easy to  administer&nbsp;&ldquo;revenue sharing model&rdquo;.&nbsp;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.&nbsp; They will  quote a different share at two levels of revenue called &ldquo;lower revenue point&rdquo;  and &ldquo;higher revenue point&rdquo;.&nbsp; Revenue share for intermediate points will be  calculated by linear interpolation.&nbsp; 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.</li>
 
   <li><strong>Marketing and Pricing  Freedom</strong> 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<sup class="reference">[[#ref1|[1]]]</sup>. 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  </li>
 
   <li><strong>Marketing and Pricing  Freedom</strong> 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<sup class="reference">[[#ref1|[1]]]</sup>. 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  </li>
 
   <li>Fuel oil import landed price  </li>
 
   <li>Fuel oil import landed price  </li>
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<p><strong>&nbsp;</strong></p>
 
<p><strong>&nbsp;</strong></p>
 
<p><strong>Background</strong><br>
 
<p><strong>Background</strong><br>
  Till the adoption of Liberalisation policy  in 1991-92, petroleum exploration and production (E&amp;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 &amp; production of oil  &amp; 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 [http://www.dghindia.org/ 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&amp;P) of hydrocarbons. The activities in E&amp;P  sector have been significantly boosted by this policy and it has opened up  E&amp;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. </p>
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Till the adoption of Liberalisation policy  in 1991-92, petroleum exploration and production (E&amp;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 &amp; production of oil  &amp; 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 [http://www.dghindia.org/ 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&amp;P) of hydrocarbons. The activities in E&amp;P  sector have been significantly boosted by this policy and it has opened up  E&amp;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. </p>
 
<p>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 &amp; conditions. The first round of offer of blocks was  launched in 1999 and most of the ninth round awards were concluded in 2012. </p>
 
<p>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 &amp; conditions. The first round of offer of blocks was  launched in 1999 and most of the ninth round awards were concluded in 2012. </p>
 
<p>The salient features of NELP are as under:</p>
 
<p>The salient features of NELP are as under:</p>
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<p><strong>Source: </strong>[http://petroleum.nic.in/docs/imppolicy.pdf <strong>Ministry  of Petroleum and Natural Gas</strong>]<strong>, </strong>accessed on 11 March 2016<strong></strong><br>
 
<p><strong>Source: </strong>[http://petroleum.nic.in/docs/imppolicy.pdf <strong>Ministry  of Petroleum and Natural Gas</strong>]<strong>, </strong>accessed on 11 March 2016<strong></strong><br>
 
   <em>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 – </em>[http://pib.nic.in/newsite/PrintRelease.aspx?relid=137638 <em>HELP or Hydrocarbon exploration and  Licensing Policy</em>]<em>)  Petroleum Mining Lease (PML) is normally awarded for 20 years for producing  Hydrocarbons as per The Oilfields Regulation &amp; Development Act, 1948 and  Petroleum &amp;Natural Gas Rules, 1959. PEL/PML for offshore exploration &amp;  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. <strong></strong></em></p>
 
   <em>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 – </em>[http://pib.nic.in/newsite/PrintRelease.aspx?relid=137638 <em>HELP or Hydrocarbon exploration and  Licensing Policy</em>]<em>)  Petroleum Mining Lease (PML) is normally awarded for 20 years for producing  Hydrocarbons as per The Oilfields Regulation &amp; Development Act, 1948 and  Petroleum &amp;Natural Gas Rules, 1959. PEL/PML for offshore exploration &amp;  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. <strong></strong></em></p>
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<p>&nbsp;</p>
 
<p><strong>A comparison of both the policies – HELP and NELP is  given below: </strong></p>
 
<p><strong>A comparison of both the policies – HELP and NELP is  given below: </strong></p>
 
<table border="1" cellspacing="0" cellpadding="0" width="80%">
 
<table border="1" cellspacing="0" cellpadding="0" width="80%">

Revision as of 12:06, 15 March 2016

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:

 

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:

 

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). 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[2]. 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
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[3].  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[4]. 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)[5] 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


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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- 7 years
Deepwater- 8 years
Onland and Shallow Water- 8 years
Deepwater & Ultra-deepwater - 10 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. In the case of existing discoveries which are yet to commence commercial production as on 1.1.2016, if there is pending arbitration or litigation filed by the contractors directly pertaining to gas pricing covering such fields, this policy guideline shall apply only on the conclusion/withdrawal of such litigation/arbitration and the attendant legal proceedings.

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

3. 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:
a) 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.
b) 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.
c) 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.
D) 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.

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

5. 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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