The Hydrocarbon Exploration and Licensing Policy (HELP).

  • In line with the government initiative of ease of doing business, the Union Cabinet has given its approval for delegating the powers to Minister of Petroleum and Natural Gas -and Finance Minister to award the blocks/contract areas to successful bidders under Hydrocarbon Exploration and Licensing Policy (HELP).
  • Under HELP, blocks are to be `. Delegating powers would expedite the decision-making process in awarding the blocks.
  • In a separate decision, the Cabinet Committee on Economic Affairs approved the issuance of a notification that would allow Coal India Limited (CIL) and its subsidiaries to extract coal bed methane (CBM) in their coal bearing areas without applying for a licence or lease under the Petroleum & Natural Gas Rules, 1959.
HELP POLICY – IN DEPTH ANALYSIS.  
  • HELP is a policy adopted by Government of India in 2016.
  • It was a new model to award of hydrocarbon rich areas for exploration and production (E&P).
  • HELP replaced, New Exploration Licensing Policy (NELP), which has been in existence for 18 years.
Let’s Understand The NELP First.
  • In the area of hydrocarbon exploration, there is always a risk attached. Sometimes a potential oil field doesn’t produce the same amount of crude as expected in the initial the calculation. Moreover the cost of installation of the machinery for the exploration is very high. It’s a total risk which a company has to bear on its part while starting exploration in a potential oil field.
  • Moreover a company has to pay to the government as Crude oil is a national resource.
  • You should know – Under Article 297 of The Constitution of India, – Things of value within territorial waters or continental shelf and resources of the exclusive economic zone to vest in the Union.
  • Not many companies show their willingness to participate in exploration process due to high cost and high risk factor.
  • Thus government had to develop a policy to attract more private capital in the field.
  • Accordingly In 1997, Government of India formulated a policy called New Exploration Licensing Policy (NELP).
  • The main objective was to attract risk capital from Indian and Foreign companies.
  • 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 oil blocks under NELP regime with National Oil Companies and private (both Indian and foreign) companies.
  • Following were some of the important points of NELP :
  1. The Production Sharing model – The exploration company are allowed to recover all investments made from sale of oil and gas before profits are shared with the government. The model is good on the side of a company.
  2. 100% FDI is allowed under NELP.
  3. Freedom was given to the companies for marketing of crude oil and gas in the domestic market.
  4. Royalty to be charged at half of the prevailing rate for deep water areas for the first 7 years after commencement of commercial production.
  5. Companies to be exempted from payments of import duty on goods imported for petroleum operations.
  • Performance of NELP – After the Introduction of NELP, the total number of companies willing to take risk in oil Exploration and production, increased from 35 to 117.
  • Under NELP a total 9 successful bidding round were conducted.
Why We Shifted to The HELP Policy?
  • Basically in Production Sharing Model the exploration company is allowed to first recover its cost of investment and operations then the rest of the part of the profit will be shared with the government. Example, company XYZ is an exploration firm. It explores the Crude and produces it at a cost say: 100 Rs. It sells the Crude at a price say 150 Rs. So the profit is of 50 Rs. {Revenue (150)- Cost (100)= Profit (50)}.
  • Now the company has to pay the share of its profit to the Government as per initial Contract.
  • But what if a company bloats its cost side to reduce its profit to be shared with the Government.
  • Well all that was discovered by Comptroller and auditor General of India in 2012. This time the alleged company was Reliance.
  • In fact CAG further added that the then government didn’t monitor the cost calculation by Reliance in a proper way, leading to substantial loss to the Exchequer.
  • On the matter of Production sharing model (PSM) a committee under the chairmanship of Mr. Rangarajan also submitted a report, where he concluded following main observation:
  1. PSM provides no incentives for the operator to keep the cost low.
  2. It requires constant & micro monitoring by the government. This increases cost as well as trouble for both the exploration company as well as for Government.
  3. PSM has led to disputes between the government and contractor.
HELP – Hydrocarbon Exploration and Licensing Policy (HELP)
  • HELP replaced the New Exploration Licensing Policy (NELP), which has been in existence for 18 years.
  • The HELP is based on following 4 pillars.
  1. Uniform license for exploration and production of all forms of hydrocarbon – for example Crude oil, Natural Gas, Shale Gas, Coal bed methane(CBM) etc.
  2. An open acreage policy.
  3. Revenue sharing model.
  4. Marketing and pricing freedom.
  1. The uniform license :will enable the company to explore conventional as well as unconventional oil and gas resources including CBM, shale gas/oil, tight gas and gas hydrates under a single license.Under the NELP, if while exploring oil, Company finds deposits of say Coal Bed methane, then the company needed a separate license to produce it.
  • The separate license for separate energy source caused additional costs and delays.
  • That is why the uniform licensing was adopted.
  1. Open Acreage Licensing Policy (OALP): OALP, allows a company to explore an oil rich region even before the official bidding for it.
  • For example, company “A”, finds oil reserves in barmer in Rajasthan and finds that government for that time has no open bidding for that area. Now the Company A will contact the Ministry of Petroleum. After ministries own assessment of the area and all of regulatory clearances like forest or environment regulations, the ministry will fix a date for the competitive bidding of exploration and production of hydrocarbons from barmer rajasthan.
  • So under the Open Acreage Licensing policy Government need not to spend its own money to identify potential areas for Oil and other hydrocarbons.
  • Moreover interested companies will keep on searching for new oil fields in India under the OALP.
  • In Earlier NELP policy, the Companies had to wait for the Government announcement for bidding for any potential oil field.
  1. Revenue Sharing Contract (RSC):
  • Under the RSC, an agreement between an exploration company and Government is signed, Whereby Company has to bear all exploration risks, production and development costs. So far it is similar to Production/ profit Sharing model.
  • But instead of sharing Profit, it is promised by the company to share Revenue with the Government. I assume that you know what the difference between Profit and Revenue is.
  • The bidder giving the highest revenue share to the Government, will get the maximum marks under this parameter.
  • 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. This is in tune with Government’s policy of “Ease of Doing Business”.
  Benefits of RSCs
  • Government need to audit only the production and revenue by the exploring company.
  • There is no need for micro-management or control over budget and expenditure of the exploration company.
  • Hence, there is minimum regulatory burden and ease of doing business.
  • There is significant reduction in administrative discretion while granting greater freedom to the operator.
  1. Marketing and Pricing Freedom:
  • The E&P Company can decide the Prices of its production.
  • But for the Gas produced from Deepwater, Ultra Deepwater and High Pressure-High. Temperature Areas, A ceiling price has been placed by government beyond which the E&P Company cannot sell it.
  Why Ceiling on Gas Prices:
  • To protect the interests of the consumer.
  • Moreover the Gas sector in India is still not very efficient and mature like Oil.
Summary Comparison of HELP and NELP:
                          PARAMETER HELP NELP
Model. Revenue Sharing. Profit Sharing.
Cost Recovery Not applicable. Yes.
Revenue to Government On production. After cost Recovery.

About the author: Aman Kumar

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