India's biggest bet on securing bids from foreign drillers in crucial move

An official said main problem for India's petroleum sector, considering its lucrative geology less than that of countries in Africa and South America, was frequent changes in tax & incentive policies

India, the biggest contributor to world oil demand, will bring into effect in two weeks the biggest overhaul of its drilling policy.

 

This comes after more than a year of preparation, and will boost the exploration and development of India’s oil and gas sector along with increased participation by foreign drillers, a top government official close to the developments told Business Standard. 

 

Foreign drillers will be insured against any fiscal policy changes, the biggest bugbear that kept reputed overseas explorers like Exxon, Shell, and Chevron others from participating in the country’s first nine drilling rounds, the official said. It is India’s make or break oil exploration policy to draw foreign investors, with the government laying out the red carpet to oil majors like ExxonMobil and Chevron, an industry official said.

 

The drilling rules, which elaborate on the recently amended Oilfields (Regulation and Development) Act, 1948, and also embrace renewable energy activities in oil areas, were first announced in April in draft form and then further changed again this month based on industry feedback, the official said. He expects the rules to be written into the government gazette by the end of the month. These rules, which replace the outdated Petroleum Concession Rules, 1949, and Petroleum and Natural Gas Rules, 1959, were timed to precede the Open Acreage Licensing Policy Round X, India’s largest ever exploration and production bidding round, but they are still in time for drillers to place bids based on new rules. 

 

The official said that the main problem for India’s petroleum sector, considering that its geology is less lucrative than that of African and Latin American countries, was the frequent changes in tax and incentive policies. Until now, India has attracted bids only from state-run explorers Oil and Natural Gas Corporation (ONGC) and Oil India excluding an odd bid or so from BP and Reliance in the country’s ninth round; Chevron, Exxon, Shell and Occidental, among others, have stayed away. Beginning next month, India’s biggest ever drilling rule changes will see bids from these companies, the official said.

 

“We have spoken to all of them and tailored the rules to their needs,” the official said. 

 

Petroleum Minister Hardeep Singh Puri said: “It has never been easier, faster and more profitable to explore oil & gas in India.”

 

“We look forward to constructive engagement to shape a modern, investor-friendly regime.”

 

The ministry did not say when the new rules would enter the gazette.

 

“These developments boost policy clarity and predictability and enhance investor confidence,” said Kapil Garg, managing director, Oilmax Energy & Asian Energy Services, an oilfield services company.

 

“The new exploration data-sharing policy, which formalises licensing and public release of seismic and well data, will boost fresh exploration interest and reduce risks, and may improve success rates in underexplored basins.”

 

 

Energy security

 

India, the world’s third biggest oil consumer, at 5.5 million barrels per day, imports 90 per cent of its crude oil needs, over half its gas consumption, and over 60 per cent of its liquefied petrol gas demand. In the last two years India was held hostage by international developments over which it has no control, a senior trader from a state oil refiner said. For instance, United States President Donald Trump’s support for a Bill that slaps a 500 per cent import tax on countries that buy Russian oil threatens over 40 per cent of its import of crude oil.

 

BP, in a consortium with ONGC and Reliance Industries, was the only foreign bidder to win acreage in India’s ninth exploration round. The government has awarded 144 blocks under the country’s first eight OALP rounds, resulting in commitments of investment worth $3.4 billion and 14 discoveries.

 

But there is hardly any of India’s oil and gas production from these new areas. India’s oil production slid over 2 per cent to 28.7 million tons in FY25 from a year earlier; gas output dipped marginally to 36.1 billion cubic metres during the period. But oil use rose by 2 per cent and gas consumption by 6 per cent during the period.

 

The 10th round will also allow explorers to use the underlying blocks to extract other minerals like critical minerals -- something Oil India is already doing in Rajasthan under the new rules.

 

Its area in Rajasthan, lined by seven formations with volcanic rocks in the bottom and oil and gas at higher levels, also contains water containing lithium, a critical mineral for electric vehicles, a company official said.

 

For the first time, the rules will permit operators to undertake integrated renewable and low-carbon projects — including solar, wind, hydrogen, and geothermal energy — within oilfield blocks if they meet safety standards and do not interfere with petroleum production. The rules will also create a dedicated adjudicating authority, an office held by a person not below the rank of joint secretary, empowered to enforce compliance, resolve disputes, and impose penalties, the government official said.

 

The Petroleum & Natural Gas Rules, 2025, when they enter the gazette by the end of July, will protect lessees from adverse impacts of legal or fiscal changes, such as increases in taxes, royalties or other levies, by allowing compensation or deductions, the official said. These reforms replace the outdated Petroleum Concession Rules, 1949, and Petroleum and Natural Gas Rules, 1959, and follow the recent amendment of the Oilfields (Regulation and Development) Act, 1948.