Centre eases oil exploration norms, allows access outside contract areas

In a move that may ease the oil exploration regime in India, the government has allowed producers in the country to go beyond their assigned areas in case the same reservoir continues outside the contracted areas. This would help an operator undertake seismic studies, understand the data, and develop a discovery more efficiently. 
 
Overlapping of reservoir is a contentious issue between Reliance Industries (RIL) and Oil and Natural Gas Corporation (ONGC) in the Krishna Godavari basin. The June 25 decision of the Ministry of Petroleum and Natural Gas (MoPNG) easing the permission norms for extended exploration will not affect this case since the new policy has riders. The area beyond the original contract area should not be licensed to any other company and should not have been identified by the government for offer to other companies.
 
According to industry sources, the major beneficiary of the decision will be Anil Agarwal-led Vedanta Cairn Oil & Gas, as the company’s Barmer block has similar adjacent areas with huge potential. The move is likely to be beneficial to all the major producers of oil and gas, including ONGC, Oil India (OIL), and RIL, too. “It has now been decided to allow the contractor to carry out the appraisal activities and grant petroleum exploration licence in the adjacent area outside the contract area,” said a ministry directive to the Directorate General of Hydrocarbons (DGH).

 
“This is yet another bold step by the MoPNG to encourage exploration & development (E&P). Relaxations in production sharing contract (PSC) execution will expeditiously increase domestic production,” said Sudhir Mathur, chief executive officer, Vedanta Cairn Oil & Gas, on the development.
 
A source close to the development confirmed this will be applicable to all the blocks under pre-New Exploration Licensing Policy (NELP) and NELP. The country has moved away from a set of E&P policies that were based on profit petroleum regime. These policies have given way to Hydrocarbon Exploration Licensing Policy regime that is not included in the new directive to the DGH.
 
The government also empowered the DGH by allowing it to approve the cases of excess cost recovery up to 20 per cent. Earlier, this used to be cleared by the government, on recommendations by the management committees, if proven that the increase in cost is due to change in circumstances after the contract came into effect.

 
For getting rights to appraise in the extended area, the concerned company will have to prove that there is a reservoir extension. “Based on technological evidence, the DGH will first forward the proposal and it will be the management committee that will be giving nod to appraisal outside the contract area,” said a person close to the development.
 
According to the existing PSCs, companies had the provision for enlargement of their development areas but were not allowed for appraisal of the area, based on which a field development programme can be submitted. “This is a major boost to the exploration sector as it may bring in more investment. This will also increase foreign participation in oil and gas bidding,” said R S Sharma, former ONGC chairman.
 
A total of 28 exploration blocks were awarded to private companies between 1980 and prior to implementation of NELP, where ONGC and OIL have the rights for participation in the blocks after hydrocarbon discoveries.
 
The hydrocarbon regulator will also constitute a multi-disciplinary panel to review “excusable” delays on account of getting various permits and clearances in the exploration phase. The notification also added the contractor has to compute and pay the amount of unfinished minimum work programme within 60 days of the expiry of exploration phase.
 
According to the new norms, in case of a dispute regarding the cost of unfinished minimum, the contractor can enter into the next phase by submitting a bank guarantee for the differential unpaid amount.
 
Based on the data available with the DGH, of the total 311 exploration blocks awarded so far under-discovered field, pre-NELP, and NELP rounds, only 178 blocks are operational.