Industry cheers new petroleum exploration policy draft

Says similar intervention is required for existing acreages

Industry players, including large domestic and foreign oil & gas explorers, have given a thumbs up to the government’s draft of the new petroleum exploration policy unveiled on Monday. The new regime is a big step forward and could bring in fresh investments of $50-60 billion, say companies.

“The new policy paper is a big step forward and brings the much needed revenue of $30-40 billion, investment of $50-60 billion, apart from employment for nearly 100,000 persons,” said a senior executive with a large industry player, who did not wish to be named. According to him, the initiative is a forward looking policy framework promoting “ease of doing business”.

The government has proposed switching to the more investor-friendly revenue-sharing model of development, in which companies indicate the revenue they will share with the government at different stages of production and under different price scenarios, compared to the current system of cost-recovery based production sharing contracts.

The new regime allows pricing and marketing freedom to companies involved in natural gas production for future contracts. The executive quoted above said the pricing freedom would help companies manage operations in the vibrant oil & gas market. “Also, uniform licensing will provide flexibility (in operation) while open acreage frame would encourage round-the-clock licensing.”

According to the executive, the government must look at providing similar marketing and pricing freedom for economic development of existing discoveries with 15-17 trillion cubic feet (tcf) of natural gas, which has the potential to yield 100 million standard cubic metres a day (mscmd) of output by 2022.

The new system is based on Open Acreage Licensing Policy, which will allow companies to submit bids for exploration areas of their choice. The upstream regulator will apply its own geological date to authenticate the expression of interests submitted by companies for an area and carve out the block. This will be followed by invitation of bids from all interested parties.

The proposed licensing will allow companies to explore and extract all hydrocarbon resources covered under the regulations under a single petroleum exploration licence. The uniform licence will enable the contractor to explore conventional and unconventional oil & gas resources including coal bed methane, shale gas, gas hydrates.

Another industry executive representing a large private sector firm praised the new policy, but said cost-recovery is a better model to follow in case of deep-sea blocks as the risk associated is very high. “So, companies will take their own call on long-term investments factoring in the risks even while sharing revenue with the government in the new system,” he said, asking not to be identified.

Experts say the new policy must be welcomed as a beginning towards kickstarting the stalled process of auction. “The revenue-sharing model will help address the auditor’s earlier concern over gold-plating of costs by operators. The model will allow greater transparency and lower room for government interference,” said K Ravichandran, senior vice-president at research and ratings agency ICRA. He added the new regime safeguards the government’s interests in case of any windfall gains arising out of any quantum jump in production arising out of unexpected finds and steep hike in realisations.