Can the oilfields amendment Bill allay concerns, attract global drillers?

India imports nearly 90% of its crude oil, half of its natural gas, and over 60% of LPG

It’s hard to say where India’s Achilles heel lies in its $25 billion by sales oil & gas upstream business (an approximate calculation of the value of oil & gas produced annually). Is it in middling geology, or lack of policy consistency, or New Delhi’s humongous financial demands? Perthaps, it’s a bit of each.

 

Whatever the reason, the outcomes have hurt India’s energy security, especially when fuel is key to powering the country’s $10 trillion economy ambitions. 

The challenge before the government now is to arrest India’s declining oil and gas production, discover new deposits, and provide enough locally produced fuels for its refineries, city gas distributors, and industries. Currently, India imports nearly 90 per cent of its crude oil, half of its natural gas, and over 60 per cent of its liquefied petroleum gas, or LPG, requirements. 

India’s latest drilling round, under the Open Acreage Licensing Policy (OALP), saw interest only from British oil and gas major BP for the GS-OSHP-2022/2 block in the Saurashtra Basin, off Gujarat, in partnership with Reliance Industries and state-run explorer ONGC. OALP is the Modi government’s policy innovation to enable explorers to select their own areas rather than bid for blocks offered by the government. 

OALP’s ninth drilling round should have attracted the likes of ExxonMobil, Shell and Chevron, given that the government threw open no-go areas to explorers and offered liberal revenue-sharing policies, such as forfeiting its revenue share from discoveries in high-risk areas.  

However, the response to the 28 areas on offer was similar to the kind witnessed in previous rounds: ONGC, Oil India, and resources major Vedanta won most areas. ONGC and Oil India bagged 20 tracts in OALP-9 and Vedanta won seven (besides the one bagged by BP with Reliance Industries and ONGC). 

ONGC, too, wasn't quite successful in getting foreign majors to bid to revive production from Mumbai High, once India’s most prized oil-producing asset. BP was the only bidder, while Shell participated in a pre-bid round, a senior ONGC 

official said. 

Roadshows for OALP’s 10th round, offering 25 blocks, at Ceraweek in Houston, Texas, last month saw little interest from overseas drillers, according to two officials present at the annual energy conference. However, government officials said that the 10th round will bring in foreign drillers because of new regulations. The government has awarded 144 blocks under the first eight OALP bidding rounds, resulting in $1.4 billion in exploration spending and 10 discoveries, according to the 

oil ministry. 

But India’s oil and gas output continues to flow from old fields — most of which have been awarded to ONGC and Oil India under a nomination process — and the KG-D6 block, awarded under the New Exploration Licensing Policy (NELP) drilling rounds, a precursor to OLAP.  

Oil production declined by around 2 per cent to 576,000 barrels per day (bpd) in fiscal 2024-25 (FY25) from a year earlier, and natural gas output declined marginally to 99 million cubic metres of gas a day during 

the period. 

Deep concerns 

Foreign drillers have been concerned over how New Delhi has treated drillers like ONGC and Cairn, India’s biggest oil producers, by laying claim to seven out of every 10 dollars earned, industry officials said. Stability of leases, new tax levies and unreasonable tax demands have been other areas of concern, industry officials said. Cairn, a unit of Vedanta, declined to comment for this article. 

An amended Oil Fields (Regulation and Development) Act, 1948 hopes to right all the wrongs, a top government official told Business Standard.  

Explaining the lack of interest from foreign drillers, the official said, India’s prospectivity was “not good’’ compared to, say, Guyana, Senegal, Mozambique or Mauritania. Second, gas deposits lie in the country’s eastern offshore, making it “very expensive’’ to bring it to the mainland. Third, the old Oilfields Act was "terrible". All in all, it wasn’t the right recipe to attract investments, he said. 

The government saw upstream reforms as the only solution to arrest declining oil production because the geology of India cannot be changed. Since March, oil minister Hardeep Singh Puri has been aggressively pitching the oilfields amendment Bill — drafted in consultation with global oil majors — as the most liberal exploration and fiscal regime ever offered. 

 

The government may even consider exports at some point because it may be cheaper to ship the gas from India’s eastern offshore to Indonesia than bring it up to the north of the country, the official added. 

Areas barred for security reasons have also been thrown open.  

Some of the no-go areas have interested international drillers, the official said, but stability of leases bothered them. The amendments address the issue by allowing drilling over the economic life of the field, subject to periodic reviews. That, he said, assuages concerns of drillers who have long complained of a short lease period during contract renewals. For instance, Cairn’s Mangala area in the deserts of Rajasthan secured a 10-year drilling extension until 2030.  

An official from a local driller said that reviving production from ageing fields is akin to breathing life into a person on a deathbed. Field rejuvenation involves sophisticated technology with expenditures running into billions of dollars, and explorers need 15-20 years to recoup expenses. Countries like Malaysia and Norway boost incentives when the production starts declining, an industry official said. 

The amendments also fortify investors against taxes such as the Special Excise Duty, which the government imposed on crude oil production when oil prices surged after the Covid-19 pandemic. In case of any new levy, New Delhi must ensure that drillers are compensated, the official said. 

While the amended Act, once it comes into force, would be applicable only to contracts agreed with explorers from OALP-9, the government may, in the future, consider applying it retrospectively to the previous rounds, the official said. 

The amendments also attempt to address New Delhi’s historical failures to accept arbitration decisions and its tendency to launch decades-long litigations in local courts. 

Lengthy litigations 

The timing of OALP-10’s launch, in early February, was bad, an industry official said. Barely a month had passed after the government announced the launch of India’s largest acreage on offer after it sought compensation of $2.8 billion from Reliance and BP in a contentious dispute involving a deep-water gas development in the Krishna Godavari basin.

 

The case involved penalising Reliance-BP for extracting gas from ONGC’s contiguous area off India’s east coast. Reliance had won the international arbitration in 2018, and in May 2022, the Delhi High Court had ruled in its favour. However, the government approached court again, despite having agreed to abide by arbitration in the contract, and in February this year, a division bench of the Delhi High Court overturned the ruling, the industry official said. Reliance declined to comment. A government official declined to say if the Reliance-BP contract allowed recourse to a local court, but some contracts apparently do.  

Arbitration has also commenced on another dispute involving Reliance-BP in the KG-D6 area, the last big discovery in India over two decades ago. New Delhi is threatening billions of dollars in penalties. The official said that gold plating, or the practice of inflating production costs, was a global practice and any government was bound to protect its interests. He declined to comment on the Reliance case.  

Officials from two leading foreign explorers told this correspondent on the sidelines of an industry event that they will not turn up to bid unless the contracts clearly mention that India will not approach local courts against arbitration decisions, and neither will tax policies change during the length of the contract. 

 

There may yet be a solution to the vexed problem of how New Delhi deals with disputes. The amended Oilfields Bill not only allows arbitration, but also allows the government to negotiate individual contracts with drillers, barring recourse to local courts, satisfying the likes of Exxon or Chevron. 

 

A top official from the Directorate of General Hydrocarbons, the upstream regulator, told reporters at an industry event that India need not depend on foreign drillers, and that enough domestic bidders were available. However, India’s track record with domestic drillers for any notable discoveries is poor.  

ONGC supervised a consistent decline from India’s top areas in western offshore, and Vedanta was unable to plug a decline in the Barmer basin, India’s second-biggest oil production asset. Mumbai High production has declined by over 70 per cent to around 130,000 bpd in the last four decades, prompting ONGC to seek BP’s help to revive dying areas. Vedanta’s Barmer area has also seen a steep decline in oil output. 

It seems India’s road to energy security may still have to pass through the doors of ExxonMobil, BP, Shell, Chevron and TotalEnergies.