Hydrocarbon Exploration and Licensing Policy (HELP)

Prelims & Mains

Hydrocarbon Exploration and Licensing Policy (HELP)

Hydrocarbon Exploration and Licensing Policy (HELP) is a policy adopted for exploration and production of oil and gas.

The Policy 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.

Hydrocarbon Exploration and Licensing Policy – 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 Hydrocarbon Exploration and Licensing Policy (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.

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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.

Other features of Hydrocarbon Exploration and Licensing Policy (HELP)

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.

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The profit petroleum during extension period will also be 10 percent higher than the normal percentage

Objectives of Hydrocarbon Exploration and Licensing Policy (HELP)

The major Guiding Principles behind HELP are to

  • Enhance domestic oil and gas production
  • Bring substantial investment
  • Generate sizable employment
  • Enhance transparency and
  • Reduce administrative discretion

Hydrocarbon Exploration and Licensing Policy (HELP)

 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.

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The salient features of NELP are as under:

  • 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.
  • Contracts to be governed in accordance with applicable Indian Laws.

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- 8 years
Deepwater- 10 years
Onland and Shallow Water- 7 years
Deepwater & Ultra-deepwater – 8 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

 

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Raja Raja Cholan
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Trainer & Mentor for aspirants preparing for civil service examination

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