India drives big bang reforms in Oil and Gas Sector

NEW DELHI: The Union Cabinet chaired by Prime Minister Narendra Modi on Tuesday approved the Policy framework on reforms in exploration and licensing sector for enhancing domestic exploration and production of oil and gas.nnThe Cabinet decision was based on the recommendations of a High-powered Committee on Enhancing Domestic Oil and Gas Exploration chaired by Vice-Chairman NITI Aayog and including the Cabinet Secretary, CEO, NITI Aayog, Secretary, Ministry of Petroleum and Natural Gas, Secretary, Department of Economic Affairs and CMD, ONGC.nnThe decision signals a paradigm shift in the core goal of the Government, moving from revenue-maximisation to production-maximisation, with focus on exploration. This will incentivise increased investment and production.nnIn Category I basins where potential is established and production is taking place, to give boost to further exploration in unexplored areas of these basins, the weightage of revenue sharing has been reduced from 50% to 30%. Also, in order to ensure that revenue sharing does not disincentivise higher production, the maximum revenue sharing has been capped at 50%.nnIn the less prospective Category II and Category III basins, revenue sharing has been totally dispensed with and allotment of basins would be solely based on the exploration work programme. On successful discovery, the production and full revenue will accrue to the operator, with Government asking for no share. This is apart from marketing and pricing freedom, which has been assured in all basins. Only in case there is windfall gain, and annual revenue exceeds USD 2.5 billion, government will take a share of additional revenue.nnThe Committee recommendations had focussed on liberalising exploration and production regime, enhancing production from existing producing fields of NOCs and simplifying the approval processes, all of which has been accepted by the cabinet.nnThe cabinet decision also gives complete marketing and pricing freedom to oil and gas production. In gas, it is also extended this to those fields whose first Field Development Plan (FDP) is yet to be approved. It also gives concession in the royalties in case the oil fields are brought to production earlier.nnThe production enhancement scheme for nomination field of National Oil Companies (NOCs) is likely to augment production by leveraging new technology, capital and management practices through private sector participation. The NOCs will be held accountable for enhancing production through objective assessment of performance.nnThe cabinet also decided to give 66 fields of NOCs to private operators for increasing the production. NOCs will get share in the increased production apart from getting what what was being produced by them.nnThrough this policy, a transparent, investor friendly and competitive policy framework is envisaged to accelerate exploration activities and provide impetus to expeditious production of oil and gas.nnIntegrating the recommendations of NITI Aayog, the cabinet decision focuses on enhancing exploration & production activities, which would have massive macro-economic benefits in terms of development of support services, employment generation, transfer of advanced technology etc.nnContinuing reforms in the oil and gas sector includes further simplification of approval processes, with measures to be initiated for promoting ease of doing business through setting up coordination mechanism and simplification of approval of DGH, alternate dispute resolution mechanism etc.