More reforms are needed to attract serious investment in oil & gas

investment in oil & gas

Despite offering an attractive policy environment under the New Exploration and Licensing Policy (NELP) and the Hydrocarbon Exploration and Licensing Policy (HELP), also known as the Open Acreage Licensing Policy (OALP), exploration and production (E&P) of oil and gas hasn’t picked up on the required scale. A major bottleneck has been regulatory hurdles which the government is now trying to address.

Three important measures have been implemented by the Union government in recent times to remove regulatory and procedural hurdles faced by E&P companies. One, 0.67 million sq km sedimentary basin lying offshore, which was declared ‘no go’ due to security reasons has been released. This will give a boost to E&P activity. Two, contractors are to be granted E&P rights over the entire economic life of the allotted fields instead of the current system of allowing extensions. This will enthuse global firms to undertake long-term investment commitments. Three, pre-approved clearance of blocks and self-certification of documents will be permitted, which will substantially cut the time lost in taking approvals.

Hydrocarbon exploration is a highly capital-intensive and technology-intensive business and is risk-prone especially when it comes to drilling in deep/ultra-deep and high-pressure/high-temperature (D/UD/HP/HT) fields in offshore areas such as the Krishna-Godavari (KG) basin, off the coast of Andhra Pradesh. However, these areas offer maximum promise in terms of reserves.

Two decades of efforts by the government to woo investors have yielded little results. For instance, the production sharing contracts under NELP allow operators to fully recover the cost incurred in exploration and development of the field before they start sharing profits with the Union government. Yet, global giants such as ExxonMobil, Chevron and Total did not come.

Cumbersome procedures, multiple approvals and bureaucratic red tape discourage investors. Approvals were needed at every stage starting from the preparation of field development plans, drilling wells, conducting tests to determine the commercial viability of the field, laying the pipeline and reviewing production. Besides, operators were not allowed to pick a block of their choice. They also have to contend with government control over price as well as the marketing of the produce.     

As a result, domestic gas production declined from a high of about 52 billion cubic metres (bcm) in 2010-11 to 28.6 bcm in 2020-21 before improving to 34 bcm in 2021-22. Crude oil production has declined steadily from 35.9 million tonnes (MT) in 2014-15 to 29.7 MT in 2021-22.

Impediments Removed

The HELP/OALP, launched in 2017, attempted to address some of these impediments faced by E&P companies. Since the operator shares an agreed percentage of the revenue with the government under this policy, a lot of bureaucratic intervention and resulting delays are avoided. Besides, operators were allowed to pick up a block of their choice, as also the freedom of pricing and marketing. The efficacy of HELP/OALP is yet to be tested, given the long gestation period inherent in E&P projects. Meanwhile, the recent steps taken by the government will expedite things.

Of India’s 3.4 million sq km sedimentary basin area that could be searched for hydrocarbon resources, 1.73 million sq km lies offshore. Out of this, 40 percent or 0.69 sq km lies in the prohibited zone. With the ‘no go’ area reduced to a mere one percent, 0.67 million sq km will be available for exploration. The government has also moved the Forest (Conservation) Amendment Bill, which says that seismic surveys won’t be treated as a non-forest activity. This implies that explorers would be granted prompt access to forest areas, thereby saving the time spent on seeking permits. A seismic survey is done in the initial stage to determine evidence of economically viable hydrocarbon resources below the ground.     

The short tenure of lease rights, though extendable by 10 years for gas/oil & gas fields and by five years of oil fields, deterred operators from undertaking long-term investment commitment. Granting rights over the entire economic life of the field will give a big push. For cutting bureaucratic red tape, the government identified 22 processes for which self-certification of documents by contractors is accepted. They have also got the freedom to carve out operational areas from within the blocks. The government is also keen to opt for globally recognised and accepted dispute resolution mechanisms and play-based exploration.

While many hurdles have been removed, more than a dozen processes and approvals are still needed. Unshackling marketing and pricing will enable operators from the pre-HELP era to optimise supplies.

Uttam Gupta is a policy analyst. Views are personal, and do not represent the stand of this publication.