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Reforms in the Exploration and Licensing Sector

Reforms in the Exploration and Licensing Sector

Context:

The Union Cabinet has approved the Policy framework on reforms in the exploration and licensing sector for enhancing domestic exploration and production of oil and gas.

  • Objective: To attract new investment in the Exploration and Production (E&P) Sector, intensification of exploration activities in hitherto unexplored areas, and liberalizing the policy in producing basins. 

Background:

  • In 2016 the Hydrocarbon Exploration and Licensing Policy was approved. It replaced the New Exploration Licensing Policy (NELP), 1997.
  • The policy aimed at increasing transparency and decreasing the administrative discretion in granting hydrocarbon licenses. 
  • Domestic production of oil and gas was declining, import dependence was rising and investment in E&P activities was reducing. Thus, policy reform in this sector was needed.

The New policy reforms focus on four major areas:

Increasing exploration activities in unexpected areas:

  • In basins where no commercial production is there, exploration blocks would be bid out exclusively on the basis of exploration work program without any revenue or production share to Government. Royalty and statutory levies, however, will be paid by the Contractor.
    • For unallocated/unexplored areas of producing basins, the bidding will continue to be based on a revenue-sharing basis but more weightage to work program. 
    • An upper ceiling on biddable revenue share has also been prescribed to prevent unviable bids. 
    • The policy also provides for a shorter exploration period and financial incentive for the commencement of early production. 
  • The contractor will have a full marketing and pricing freedom for crude oil and natural gas to be sold at arm's length basis through a transparent and competitive bidding process.

Incentivize enhanced gas production, marketing, and pricing freedom:

  • These have been granted for those new gas discoveries whose Field Development Plan (FDP) is yet to be approved.
  • The fiscal incentive is also provided on additional gas production from domestic fields over and above normal production 

Enhanced production profile:

  • To enhance production from existing nomination fields of ONGC and OIL, an enhanced production profile will be prepared by both PSUs. 
  • For production enhancement, bringing new technology, and capital, NOCs will be allowed to induct private sector partners.

Promoting ease of doing business:

  • Measures will be initiated for promoting ease of doing business through setting up coordination mechanisms and simplification of approval of DGH, alternate dispute resolution mechanism, etc.

Significance of policy:

  • Through this policy, a transparent, investor-friendly, and competitive policy framework is envisaged to accelerate exploration activities and provide impetus to expeditious production of oil and gas. 
  • The production enhancement scheme for the nomination field of NOCs is likely to augment production by leveraging new technology, capital, and management practices through private sector participation. 
  • With enhanced E&P activities, there would be a macro-economic benefit in terms of the development of support services, employment generation, transfer of advanced technology, etc.
  • The enhanced production would help in reducing import dependence, improve the energy security of the country, and save precious foreign exchange on import bills.

Natural Gas:

  • It is found with petroleum deposits and is released when crude oil is brought to the surface.
  • Russia, Norway, the UK, and the Netherlands are the major producers of natural gas.
  • In India, Jaisalmer, Krishna Godavari delta, Tripura and some areas offshore in Mumbai have natural gas resources.
  • In 1984 the Gas Authority of India Limited was set up as a public sector undertaking to transport and market natural gas.

Source: PIB