Hydrocarbon Exploration and Licensing Policy (HELP)

•  The Union Cabinet approved a new Hydrocarbon Exploration & Licencing Policy(HELP) that aims to boost exploration & production (E&P) activity and phase out issues faced by upstream oil companies.
• The policy also targets the enhancement of transparency and reduction of administrative discretion.
• Four main facets of this policy are: a) Uniform license for exploration and production of all forms of hydrocarbon; b) An open acreage policy; c) Easy to administer revenue sharing model and d) Marketing and pricing freedom for the crude oil and natural gas produced.

Key features of the Policy:

• There will be a uniform licensing system which will cover all hydrocarbons, i.e. oil, gas, coal bed methane etc. under a single license and policy framework.
• Contracts will be based on “biddable revenue sharing”. Bidders will be required to quote revenue share in their bids and this will be a key parameter for selecting the winning bid. They will quote a different share at two levels of revenue called “lower revenue point” and “higher revenue point”. Revenue share for intermediate points will be calculated by linear interpolation. The bidder giving the highest net present value of revenue share to the Government, as per transparent methodology, will get the maximum marks under this parameter.
• An Open Acreage Licensing Policy will be implemented whereby a bidder may apply to the Government seeking exploration of any block not already covered by exploration. The Government will examine the Expression of Interest and justification. If it is suitable for award, Govt. will call for competitive bids after obtaining necessary environmental and other clearances. This will enable a faster coverage of the available geographical area.
• A concessional royalty regime will be implemented for deep water and ultra-deep water areas. These areas shall not have any royalty for the first seven years, and thereafter shall have a concessional royalty of 5% (in deep water areas) and 2% (in ultra-deep water areas). In shallow water areas, the royalty rates shall be reduced from 10% to 7.5%.
• The contractor will have freedom for pricing and marketing of gas produced in the domestic market on arms length basis. To safeguard the Government revenue, the Government’s share of profit will be calculated based on the higher of prevailing international crude price or actual price.

Previous policy on this, NELP (New Exploration Licensing Policy) was criticised by many for being of 'No Help'.
About New Exploration Licensing Policy (NELP)
Government of India formulated a policy called New Exploration Licensing Policy in 1997. The main objective was to attract significant risk capital from Indian and Foreign companies, state of part technologies, new geological concepts and best management practices to explore oil and gas resources in the country to meet rising demands of oil and gas. This policy, NELP was approved in 1997 and it became effective in February, 1999 Since then licenses for exploration are being awarded only through a competitive bidding system and National Oil Companies (NOCs) are required to compete on an equal footing with Indian and foreign companies to secure Petroleum Exploration Licences (PELs). Nine rounds of bids have so far been concluded under NELP, in which production sharing contracts for 254 exploration blocks have been signed. The salient features of NELP are as under:

• 100% FDI is allowed under NELP
• No mandatory state participation through ONGC/OIL or any carried interest of the Government.
• Blocks to be awarded through open international competitive bidding.
• ONGC and OIL to compete for obtaining the petroleum exploration licenses on a competitive basis instead of the existing system of granting them PELs on nomination basis.
• ONGC and OIL to get the same fiscal and contract terms as private companies.
• Freedom to the contractors for marketing of crude oil and gas in the domestic market.
• Royalty at the rate of 12.5% for the onland areas and 10% for offshore areas.
• Royalty to be charged at half the prevailing rate for deep water areas beyond 400 m bathymetry for the first 7 years after commencement of commercial production.
• Cess to be exempted for production from blocks offered under NELP.
• Companies to be exempted from payments of import duty on goods imported for petroleum operations.
• No signature, discovery or production bonuses.
• A Model Production Sharing Contract (MPSC) which is reviewed for every NELP round.
• Contracts to be governed in accordance with applicable Indian Laws.

Analysis:

• Companies will be able to freely price gas, carve out blocks of their choice for exploration, share revenue, not profit with the government, and won't need a Comptroller and Auditor General (CAG) audit of their oil and gas fields under this policy which is expected to boost transparency and attract global majors to the sector.
• The combination of a unified licensing policy which provides access to all hydrocarbon resources, open acreage which helps operators to choose specific blocks where they have competitive advantage and pricing freedom will definitely create lot of global interest in the relatively unexplored Indian basins
• This decision will enhance domestic oil and gas production, bring substantial investment in the sector and generate sizable employment.
• The new policy regime marks a generational shift and modernization of the oil and gas exploration policy. It is expected to stimulate new exploration activity for oil, gas and other hydrocarbons and eventually reduce import dependence.
• It is also expected to create substantial new job opportunities in the petroleum sector. The introduction of the concept of revenue sharing is a major step in the direction of “minimum government maximum governance”, as it will not be necessary for the Government to verify the costs incurred by the contractor.
• Marketing and pricing freedom will further simplify the process. These will remove the discretion in the hands of the Government, reduce disputes, avoid opportunities for corruption, reduce administrative delays and thus stimulate growth.

By: Vishal