Companies such as Cairn and Reliance Industries may soon be able to hunt for hydrocarbons without any hassles and even after expiry of the exploration period if a proposal of the Petroleum and Natural Gas Ministry is approved.
At present, a contractor faces restrictions while carrying out exploration in the block where it has made commercial discovery and started production. This is because the production-sharing contract — entered between the contractor and the Government — does not recognise such exploration activities for the purpose of cost recovery.
In a draft Cabinet note (for inter-ministerial consultations) that seeks to revise the policy guidelines for exploration in the mining lease area after the expiry of the exploration period, the Ministry proposes to recognise such activity for the purpose of cost recovery as well.
This move is aimed at accelerating exploration and production of oil and gas in the country for enhancing energy security. The Government hopes the revised policy will lower the country’s import dependence, thus mitigating its adverse impact on its revenue-share. The proposal was circulated after the industry complained about some clauses in the existing policy which, it felt, restricted investments.
However, with the Lok Sabha poll process under way, it is not clear whether the matter will be discussed by the present Government or the new one. The present Government has a little over 30 days left for its term to end.
While the Ministry is not sure about the financial benefits of the revised policy, there is some evidence of possible gains. For example, the proposed extension for exploration in Cairn India’s Barmer fields, according to the contractor, will result in a significant increase in production.
Similarly, RIL-BP-Niko, the contractors of the KG-D6 block, claim that the new discovery through the MJ1 well has a potential of about 0.5-3 trillion cubic feet of gas.
The conditions The Ministry’s proposal prescribes certain conditions that include cost recovery after a resultant discovery is proved commercially and techno-economically viable. It will be the responsibility of the contractor to prove commercial and techno-economic viability of new discoveries, with requisite computation of cash flows and profit.
Another condition mandates provisions of existing PSCs to continue to apply for development and production relating to such discoveries. At the same time, it has also been proposed that approval for further exploration, development and production will not confer any right on the contractors for further extension in the tenure of the contract, except as provided.
The conditions will also permit the contractor to develop and monetise existing discoveries, if any, in the mining lease area that could not be developed or monetised earlier because some activities may have deviated from the PSC. The contractors will also be asked to get the Management Committee’s approval for quarterly allocation of cost petroleum and profit petroleum.
Till, date, the Government has signed 254 PSCs under nine rounds of the New Exploration Licensing Policy (NELP). There are also PSCs for 14 blocks which were awarded before NELP came into existence.