Cabinet approves Hydrocarbon Exploration and Licensing Policy

The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved the Hydrocarbon Exploration and Licensing Policy (HELP).

The four main facets of this policy are: uniform license for exploration and production of all forms of hydrocarbon, an open acreage policy, easy to administer revenue sharing model and marketing and pricing freedom for the crude oil and natural gas produced.

The decision will enhance domestic oil and gas production, bring substantial investment in the sector and generate sizable employment. The policy is also aimed at enhancing transparency and reducing administrative discretion.

The uniform licence will enable the contractor 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. The concept of Open Acreage Policy will enable E&P companies choose the blocks from the designated area.

Present fiscal system of production sharing based on Investment Multiple and cost recovery /production linked payment will be replaced by a 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. This is in tune with government's policy of "Ease of Doing Business".

Recognising the higher risks and costs involved in exploration and production from offshore areas, lower royalty rates for such areas have been provided as compared to NELP royalty rates to encourage exploration and production.

A graded system of royalty rates have been introduced, in which royalty rates decreases from shallow water to deepwater and ultra-deep water.

At the same time, royalty rate for on land areas have been kept intact so that revenues to the state governments are not affected. On the lines of NELP, cess and import duty will not be applicable on blocks awarded under the new policy.

This policy also provides for marketing freedom for crude oil and natural gas produced from these blocks. This is in tune with Government's policy of "Minimum Government -Maximum Governance".