What is Hydrocarbon Exploration Licensing Policy?

In a major policy drive to give a boost to petroleum and hydrocarbon sector, the Union Cabinet and the Cabinet Committee on Economic Affairs decided on the new Hydrocarbon Exploration Licensing Policy (HELP) to to cover all hydrocarbons such as oil, gas, coal bed methane etc. under a single licensing framework.

The present New Exploration Licensing Policy (NELP) has are separate policies and licenses for different hydrocarbons. Unconventional hydrocarbons (shale gas and shale oil) were unknown when NELP was framed 18 years ago. This fragmented policy framework is leading to inefficiencies in exploiting natural resources.

For example, while exploring for one type of hydrocarbon, if a different one is found, it will need separate licensing, adding to cost. The Production Sharing Contracts (PSCs) under NELP are based on the principle of “profit sharing”. Since the contract requires the profit to be measured, it becomes necessary for the cost to be accounted for and checked by the Government.

To prevent loss of government revenue, these are requirements for Government approval at various stages to prevent the contractor from exaggerating the cost. Activities cannot be commenced till the approval is given. This process has become a major source of delays and disputes.

The pricing of gas in the current system has undergone many changes and witnessed considerable litigation. The current policy regime, in fixing royalties, does not distinguish between shallow water fields (where costs and risks are lower) and deep/ultra-deep water fields where risks and costs are much higher.

HELP has following key features: 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.

A bidder may apply to the government seeking exploration of any block not already covered by exploration. If it is suitable for award, the govt will call for competitive bids. 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.