Help is at hand
India has revamped some upstream terms, much to the industry’s relief
The country's oil and gas industry approves of the new upstream-licensing regime, which can reinvigorate exploration and development, says oil and gas minister Dharmendra Pradhan.
"There is a lot of public appreciation within the industry" for India's new Hydrocarbon Exploration Licensing Policy (Help), Pradhan tells Petroleum Economist in an exclusive interview. Help-which replaces the New Exploration Licensing Policy (Nelp) model-will shortly be put to the test in an auction of 67 discovered but as-yet-undeveloped small oil- and gasfields. "I'm confident," says Pradhan. "We are sensing good vibes in the market."
In use since 1999 as the framework for nine licensing rounds, Nelp delivered limited upstream success. Government regulation of the price at which developers could sell produced gas to local buyers was a drag for investors. The contract model's profit-sharing element led to disputes between the government and developers over the extent of upstream costs. Nelp was overcomplicated too: separate licences were needed for conventional and unconventional projects.
Help's structure is simpler, more transparent and more flexible, and appears to address these problems. It has four principal features:
• Open access. Rather than wait for roadshows and auctions, companies will now be able to submit bids on designated areas at any time. Greater flexibility, the government hopes, will imbue the licensing process with renewed dynamism. Areas on which bids are received will then be offered to other potential investors.
• Revenue sharing. Instead of a share of profits, the state will get a share of revenues. The percentage of project revenue that developers are prepared to offer the state will determine the success of competitive bids. This removes the risk of cost disputes and relieves the government of the need to scrutinise upstream spending.
• Unified licensing. Under Help, any hydrocarbons development-conventional, shale or coal-bed methane-will be possible under a single licence, simplifying the exploration and development process.
• Marketing and pricing freedom. Under Help, companies will have the commercial freedom to sell production at market prices.
Sudhir Mathur, acting chief executive of Cairn India, the country's largest private-sector oil company, says the government has taken on board many of the oil industry's concerns. "The government is trying to take the right steps. They are trying to be as progressive as possible," he tells Petroleum Economist. "The government certainly realises… that they need to bridge the production-versus-consumption gap in India. Imports are just too high."
Bidding for the 67 small fields opened in July and is scheduled to close at the end of October, with-the government hopes-exploration and development work starting as soon as January. According to Atanu Chakraborty, head of oil regulator the Directorate General of Hydrocarbons, the fields hold an estimated 0.625bn barrels of oil and gas. But even though they were discovered 20-30 years ago, they have not been exploited because-the government says-their need for niche technologies and specialised project-management skills mean they were ill-suited to development by large public-sector oil companies.
This article is part of a report series on India. Next article: Cairn India: Private oil dynamo
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