Cabinet approves policy for reforms in exploration and licensing policy in oil and gas

Aims to attract new investment in Exploration and Production (E&P) Sector

The Union Cabinet chaired by Prime Minister Narendra Modi has approved the Policy framework on reforms in exploration and licensing sector for enhancing domestic exploration and production of oil and gas. The objective of the Policy is to attract new investment in Exploration and Production (E&P) Sector, intensification of exploration activities in hitherto unexplored areas and liberalizing the policy in producing basins. Considering stagnant/declining domestic production of oil and gas, rise in import dependence and decline in investment in E&P activities, the need to bring further policy reforms was felt.

The policy reforms focus on four major areas. Firstly, increasing exploration activities in unexpected areas. In basins where no commercial production is there, exploration blocks would be bid out exclusively on the basis of exploration work programme without any revenue or production share to Government. Royalty and statutory levies, however, will be paid by Contractor. For unallocated/unexplored areas of producing basins, the bidding will continue to be based on revenue sharing basis but more weightage to work programme. An upper ceiling on biddable revenue share has also been prescribed to prevent unviable bids. The policy also provides for shorter exploration period and fiscal incentive for commencement of early production. Contractor will have full marketing and pricing freedom for crude oil and natural gas to be sold at arm's length basis through transparent and competitive bidding process.

Secondly, to incentivize enhanced gas production, marketing and pricing freedom has been granted for those new gas discoveries whose Field Development Plan (FDP) is yet to be approved Fiscal incentive is also provided on additional gas production from domestic fields over and above normal production Thirdly, to enhance production from existing nomination fields of ONGC and OIL, enhanced production profile will be prepared by both PSUs. For production enhancement, bringing new technology, and capital, NOCs will be allowed to induct private sector partners Fourthly measures will be initiated for promoting ease of doing business through setting up coordination mechanism and simplification of approval of DGH, alternate dispute resolution mechanism etc.

Through this policy, a transparent, investor friendly and competitive policy framework is envisaged to accelerate exploration activities and provide impetus to expeditious production of oil and gas. The production enhancement scheme for nomination field of NOCs is likely to augment production by leveraging new technology, capital and management practices through private sector participation. With enhanced E&P activities, there would be macro-economic spin off benefits in terms of development of support services, employment generation, transfer of advanced technology etc. The enhanced production would help in reducing import dependence, improve energy security of country and save the precious foreign exchange on import bill.

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