Cabinet clears reform to enhance domestic oil & gas exploration

New Delhi, Feb 19 (IANS) The Union Cabinet on Tuesday approved a new policy framework on reforms in exploration and licensing (E&L) sector that aims to enhance domestic exploration and production of oil and gas by providing more attractive terms to investors.

Under the new policy framework, bidders of oil and gas blocks in the country will be encouraged to invest more on exploration activities and start sharing revenue with the government only at the production stage.

Accordingly, auctions of oil and gas blocks will give 70 per cent weightage to the work programme proposed by the prospective bidders and only 30 per cent weightage will be accorded to proposed revenue share.

This scheme will be applied for auction of unallocated or unexplored areas of producing basins. The scheme currently accords equal weightage to both work programme and revenue share.

For partially explored blocks and those where no exploration has been done, bidders will not be required to bid on the basis of revenue share or production share with the government but will be awarded the blocks only on the basis of work programme i.e the level of investment and technology to be incorporated by them.

Royalty and statutory levies, however, will be paid by contractor.

The policy also provides for shorter exploration period and fiscal incentive for commencement of early production. The contractor will have full marketing and pricing freedom for crude oil and natural gas to be sold at arm's length basis through transparent and competitive bidding process.

Secondly, to incentivize enhanced gas production, marketing and pricing freedom has been granted for those new gas discoveries whose Field Development Plan (FDP) is yet to be approved. Fiscal incentive is also provided on additional gas production from domestic fields over and above normal production.

Thirdly, to enhance production from existing nomination fields of the ONGC and OIL, enhanced production profile will be prepared by both PSUs. For production enhancement, bringing new technology, and capital, NOCs will be allowed to induct private sector partners.

Fourthly, measures will be initiated for promoting ease of doing business through setting up coordination mechanism and simplification of approval of the Directorate General of Hydrocarbons, alternate dispute resolution mechanism etc.

"Through 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," a government statement said.

Finance Minister Arun Jaitley said that the new policy is based on the recommendations of an expert committee set up under Niti Aayog. This policy was later ratified a group of ministers (GoM) headed by Jaitley.

The government hopes that enhanced production would help in reducing import dependence, improve energy security of country and save the precious foreign exchange on import bill.