An oft-asked question after successive oil and gas exploration rounds put on offer by the government has been: Why some of the big global giants, particularly American, have been missing from the scene? The response has been that the players want a policy system that is not tough on the explorer as it is a high-risk business.

On August 5, ‘The Oilfields Regulation and Development (Amendment) Bill, 2024’ was introduced in the Rajya Sabha amending the Oilfields (Regulation and Development) Act, 1948, which regulates the exploration and extraction of natural gas and oil. The Act is aimed at strengthening petroleum operations through rules framed for monitoring aspects like grants of leases or licences, extension and renewal, sharing of facility and infrastructure, dispute resolution, and so on.

The Bill proposes to address many long-pending areas requiring improvement and is expected to encourage FDI as well as boost the confidence of upstream players. It has introduced proposals in new and critical areas, such as greening upstream value chain, combined development of subsurface and surface energy sources, etc.

But the question is why now? Why wasn’t it done when the exploration policy had transitioned from New Exploration Licensing Policy (NELP) to Hydrocarbon Exploration and Licensing Policy (HELP)? Besides, the Bill proposes that the changes will be effective prospectively, so what happens to the existing producing assets?

Let us look at some key changes. To begin with, the definition of mineral oils has been expanded. While the Act defines mineral oils to include petroleum and natural gas, the Bill proposes to expand the definition to include: any naturally occurring hydrocarbon, coal bed methane, and shale gas/oil. It clarifies that mineral oils will not include coal, lignite or helium. This puts to rest the past debates and is in sync with Uniform Licensing Policy.

The Bill has also introduced the concept of petroleum lease. The Act provides for a mining lease — for various activities such as exploration, prospecting, production, making merchantable, and disposal of mineral oils. The Bill replaces the mining lease with a petroleum lease, though it covers similar set of activities. However, existing mining leases granted under the Act will continue to be valid.

Expanding the scope of the rule-making powers of the Central Government, the Bill proposes that rules can also be made on: merger and combination of petroleum leases, sharing of production and processing facilities, obligations of lessees towards protecting environment and reducing emissions, and alternative mechanisms for resolving disputes in relation to the grant of petroleum leases. Thus, bringing in further clarity and proposing to avoid future litigation arising out of the said situations.

It also talks about decriminalisation of offences. The Act provides that violation of rules will be punishable with imprisonment up to six months, a fine of ₹1,000 or both. The Bill envisages that the above offence will be punishable with a penalty of ₹25 lakh. It has also added the following offences — undertaking activities related to mineral oils such as exploring, prospecting, and production without a valid lease, and non-payment of royalty — punishable with a penalty of ₹25 lakh. Getting tougher, it stipulates that continued violation for all offences will attract a penalty of up to ₹10 lakh daily.

For adjudication of penalties, it provides that the Central Government will appoint an officer of the rank of Joint Secretary or above. Appeals against the decisions of the Adjudicating Authority will lie before the Appellate Tribunal specified in the Petroleum and Natural Gas Board Regulatory Board Act, 2006. The 2006 Act designates the Appellate Tribunal for Electricity, constituted under the Electricity Act, 2003, as the Appellate Tribunal.

All these moves guarantees policy stability and also indicate easier clearances of projects as well as of any dispute resolution.

Framing of rules

While these sound good, the players and industry observers would like to see how the rules are made to implement these changes.

Critics say that while the move appears positive, it will also depend on the awards under consideration. The shift from mining lease to petroleum lease is significant as the former was for a particular mining activity and concerns were more with regard to safety. The proposed definition is more elaborate and clearly defines that activities which will come under petroleum lease.

But it remains to be seen whether it will subsequently talk about extension of lease or licence on the same terms and conditions under which the contract would have been signed for the purpose. The extension provision as demanded by the industry during the stakeholders consultations had two issues — extension till the period of commercial production; and terms and conditions including fiscal regime should be the same as of original period.

Since the Bill once passed and adopted will be implemented prospectively, this would mean the exploration business in India will operate again in different regimes.

Overall, most industry watchers see this as a way to lure the larger global players into India’s exploration space and that it would bring in certain kind of stability. But since it is silent on extension of the contract terms, it does leave room for uncertainty.

In exploration activity extensions are granted depending on the prevailing situation and reason due to which the explorer has not been able to complete the task. However, if the extension is not granted on the same terms then it will create uncertainty and the explorers may not like to take these risks.

While one would say better late than never, the devil is in detail and how exactly the rules are worded and implemented will decide the success or failure of these proposed moves.

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