Govt may tweak oil & gas production contracts

Pacts to be made more investor-friendly

To make the country's hydrocarbon sector more investor-friendly, the petroleum & natural gas ministry is working on a proposal to remove bottlenecks in the way of existing production-sharing contracts. The ministry will also look at sharing of revenue for future oil & gas contracts and seek certain changes in the pacts for faster resolution of legal disputes.

The exact nature of changes is being discussed, but petroleum ministry officials say Minister Dharmendra Pradhan's primary emphasis is on removing the hurdles to starting of commercial production from existing blocks. At present, of the 165 discoveries under the New Exploration Licensing Policy (Nelp) regime, only Reliance Industries' KG-D6 field and a small field of Niko Resources are under production. Nelp has been in existence since 1997-98.

Even the KG-D6 field is facing several legal disputes, including one on production shortfall of 154 million standard cubic metres a day (mscmd) in the past four years. This also figures as a priority in the presentation the ministry's officials prepared for Prime Minister Narendra Modi. "Production-sharing contracts, beset by legal disputes, should have been revised on the basis of experiences from working of the existing blocks," the presentation said.

"Our focus is on a complete clean-up of hurdles in the functioning of the existing production-sharing contracts, to make those more industry-friendly," confirmed an official close to the development.

The ministry's effort is also to attract foreign investors, upset with certain stringent regulations. "The move may give more powers to the directorate general of hydrocarbons for extension of work flows. For example, we will check whether the time period for extension of submission of declaration of commerciality, besides field development plans, can now be extended by the hydrocarbon regulator."

The move is significant against the backdrop of some foreign hydrocarbon majors like BHP Billiton, Santos, BP and Eni facing difficulties in going ahead with their exploration activities for want of defence clearances. All these companies, though they were awarded blocks through auctioning under Nelp, were unable to meet their work commitments due to lack of clearance from the defence ministry.

Asked about the ministry's move to clean up the existing production-sharing contracts, an industry official said: "A slow decision-making process is a major hurdles for us. The delay is because of multiple approval layers, as review provisions are treated as approval functions."

Companies are also of the view that the management committees' role has changed from facilitating exploration & prodcution activity to "primarily policing and protecting the notional profit share".

"Most issues are referred to the minister or secretary as the government's managing committee members take extremely conservative views of production-sharing contract provisions," the official added.

Besides, there also were issues where even the government altered fiscal terms, normal petroleum practices, freedom to market and prices of oil & gas production according to production-sharing pacts.
REMOVING BOTTLENECKS

• 1.26%: India's share in the 9,216 mscmd of global natural gas production
• 22%: The proportion of India's 3.14 mn sq km of recognised sedimentary basins on which the country has managed to conduct moderate exploration
• 302: Number of exploration blocks offered under the nine Nelp auctions since 1998 (48 in the first round, 14 in the 9th in 2012)
• $20 bn: Investments in the sector in India over the past 5 years (only $1.86 bn in 2011-12, the least)