Revenue-share mode for energy exploration

Ministry's consultation paper also proposes pricing & marketing freedom for gas

The government on Monday proposed to introduce a revenue-sharing model with operators for exploration and development of oil and gas blocks, replacing the current profit-sharing mechanism, earlier criticised by the Comptroller and Auditor General. The plan, which aims to set new rules for auctioning exploration blocks, includes pricing and marketing freedom for natural gas produced from blocks awarded under the new regime.

A consultation paper put out by the ministry also proposed a uniform licensing policy that will allow operators to explore all forms of oil and gas resources, including coal-bed methane, shale gas and oil, tight gas and gas hydrates.

The ministry has suggested an open acreage licensing that will allow companies to bid for exploration blocks of their choice. Under open acreage licensing, which will replace the existing New Exploration Licensing Policy, the upstream regulator will apply its own geological data to authenticate the expressions of interest submitted by companies for an area and carve out blocks. This will be followed by invitation of bids from all interested parties.

The new rules, which have been sent to oil exploration companies for their opinion by the end of this month, are aimed at “ease of doing business,” the paper said.

Under the existing cost-recovery regime, companies win blocks by quoting the highest minimum work programme and recover investments before sharing profits with the government. Under the revenue sharing model, companies will have to indicate the revenue they will share with the government at different stages of production and in various price scenarios.

The government’s initiative follows complaints from many companies that the current tariff is too low to support exploration and production costs.

Control on fuel pricing has prompted oil majors such as Exxon, Chevron and Royal Dutch Shell to stay away from India’s exploration-block auctions.

The petroleum ministry's consultation paper did not state the investment expected and Oil Minister Dharmendra Pradhan refused to comment on the issue.

Debasish Mishra, senior director, Deloitte, said, “If accepted, the new regime will be a game changer for energy exploration and production. It provides right to companies over all hydrocarbons, and pricing and marketing freedom”. Asked whether current low oil prices would act as a dampener in auctions, Mishra said oil companies took a 30-year view when bidding for acreage.

According to former ONGC Chairman R S Sharma, the proposals will aid the resumption of auctioning of energy blocks after a gap of four years. “Revenue share is a straightforward model and allows less room for regulatory hurdles. However, there have been adverse observations on this model, too. So the government must ensure clarity in terms and that its intentions are properly conveyed to investors,” he said.

The uniform licence will enable contractors to explore for unconventional oil and gas resources, including coal-bed methane, shale gas and gas hydrates.

According to former ONGC Chairman RS Sharma, the proposal will aid the resumption of auctioning of energy blocks after a gap of four years. "Revenue share is a straightforward model and allows less room for regulatory hurdles. However, there have been adverse observations on this model, too. So the government must ensure clarity in terms and that its intentions are properly conveyed to investors," he said.
THE CHANGING OIL EXPLORATION LANDSCAPE

CURRENT REGIME

• Based on New Exploration and Licensing Policy & Production Sharing Contract  where regulator puts a pre-defined acreages on block
  

 

Companies win blocks by quoting the highest Minimum Work Programme and recover investments before sharing profit with govt

PROPOSED REGIME

• Based on Open Acreage Licensing Policy. Allow companies to submit bids for exploration areas of their choice
   
• Under the new revenue-sharing model, firms will have to indicate the revenue they will share with govt at different stages of production

CURRENT BIDDING MODELS FOR NATURAL RESOURCES

• Oil & Gas: Production sharing contracts, except for marginal fields
   
• Coal bed methane: Revenue sharing model with market pricing
   
• Coal: No revenue-share involved, bidding of blocks only for captive consumption
   
• Shale gas: No bidding so far; policy allows awarding blocks on nomination basis
  

 

Iron ore: No bidding so far; blocks awarded on nomination basis
 

Telecom spectrum: No revenue share; whoever bids the highest gets it