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New Exploration Licensing Policy Nelp

The document discusses India's policies around oil and gas exploration licensing over time. It covers: 1) The pre-NELP era of nomination licenses and poor response to competitive bidding rounds. 2) The introduction of the New Exploration Licensing Policy (NELP) in 1997 which reformed the fiscal terms and adopted a competitive international bidding process, resulting in over 200 blocks being awarded. 3) Key aspects of NELP include cost recovery limits of up to 100%, royalty rates of 5-12.5%, and the contractor sharing profit oil with the government based on pre-tax multiples bid.

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Amit Verma
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0% found this document useful (0 votes)
89 views31 pages

New Exploration Licensing Policy Nelp

The document discusses India's policies around oil and gas exploration licensing over time. It covers: 1) The pre-NELP era of nomination licenses and poor response to competitive bidding rounds. 2) The introduction of the New Exploration Licensing Policy (NELP) in 1997 which reformed the fiscal terms and adopted a competitive international bidding process, resulting in over 200 blocks being awarded. 3) Key aspects of NELP include cost recovery limits of up to 100%, royalty rates of 5-12.5%, and the contractor sharing profit oil with the government based on pre-tax multiples bid.

Uploaded by

Amit Verma
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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New Exploration

Licensing Policy -
NELP
Upstream Industry Development

OALP

NELP era
203 + 36 Blocks

Pre NELP era


28 Blocks, 29 Fields

Nomination era
PSC Regime
Pre Independence
era

1886 - 1946 1947 - 1990 1990 - 1996 1997 – till date Future
PSC Regime – Pre NELP

Pre-NELP (1990 – 1996)


• Liberalized economic policy adopted by Govt. of India

• Petroleum sector de-regulated and de-licensed

• Formation of Directorate General of Hydrocarbons in 1993

• Small size producing fields offered to Pvt. Operators / JVs

• Acreages, both offshore and onshore, offered through


competitive bidding

• Poor response - 270 blocks offered - only 35 blocks contracted


to Pvt. Companies
BLOCKS AWARDED- PRE NELP
No. of Blocks Offered No. of Blocks Bid For Blocks Awarded

80
72 Need for better Fiscal and
70
Contractual terms
60

50 45 46
45

40 34
28
30

20 18
13 12
10 10
10 6 7 7 7
5 5 5

0
IV (1991) V (1993) VI (1993) VII (1994) VIII (1994) JV (1995)
PSC Regime - NELP

NELP (1997 - till date)


• New Exploration Licensing Policy (NELP) announced in
1997

• Administrative Price Mechanism (APM) abolished

• 100% FDI in E&P sector approved

• Hydrocarbon Vision 2025 released in March 2000

• Eight rounds of international bidding completed

• 235 blocks awarded till NELP-VIII


NEW EXPLORATION LICENSING POLICY

 First bidding round in 1999

 Award of licenses through international competitive bidding

 Fast track approval mechanism

 Directorate General of Hydrocarbon (DGH) as single window

 No acreages on nomination basis

 No State participation or any carried interest

 International pricing for Crude oil & market driven prices for
Natural gas
FISCAL HIGHLIGHTS - NELP

• No Oil Industry Development cess


• No signature, discovery or production bonus
• No custom duty on imports for Petroleum Operation
• Income Tax holiday of 7 years for Mineral Oil
• No ring fencing of expenditures and incomes for income
tax purposes
• Cost recovery biddable- Up to 100%
• Sharing of Profit Petroleum with Govt. on biddable pre-
tax investment multiple
Contd..
FISCAL HIGHLIGHTS - NELP

• Fiscal stability as part of the contract

• Low to moderate royalty rates between 5% to 12.5%

• Special concessions for deepwater blocks

• Full repatriation of profits

• Liberal set off of losses and carry forward provisions


for income tax purposes

• Tax Incentives for Site Restoration Fund Scheme


(SRFS)
INVESTOR FRIENDLY POLICIES
INDIA Open & Transparent
Negotiated
Access Nigeria 2006 Indonesia 2007 Bid rounds
Brazil Round 9 USGOM
Bidding

Fiscal INDIA Technical


Weight Nigeria 2006 Indonesia 2007 Brazil Round 9 Weight
Optimizing Bid USGOM
Evaluation
INDIA Rich-
Undeveloped Brazil Round 9 Accessible Data
Indonesia 2007 Nigeria 2006
Data availability USGOM

INDIA
Weak Nigeria 2006 Brazil Round 9 Strong
Norms & Indonesia 2007 USGOM
Benchmarking
INDIA
Brazil Round 9 Market-
Administered Indonesia 2007
Nigeria 2006 USGOM based
Pricing

INDIA
Diversi
Competitive Concentrated IndonesiaNigeria
2007
2006
Brazil Round 9 USGOM
-fied
Landscape
Source :PFC Energy 9
Bid Evaluation Criteria

1. Technical Capability 1. Acreage Holding


2. Operatorship Experience
To be evaluated for Deep
3. Annual Accretion of proved reserves
Water blocks only
4. Annual Production
For Shallow water and
5. Consortium Criteria
Onland blocks it is a
6. Access to Resources
Qualifying criteria.

2. Work Program 1. 2D seismic surveys


2. 3D seismic surveys
3. Exploratory wells

3. Fiscal Package
1. Profit share to Government
2. Cost recovery
PSC GROWTH

60
52

50 41

40

30 25
23 23 20 20
20

10 5 6 7 7 5
5
0
IV V VI VII VIII JV NELP- NELP- NELP- NELP- NELP- NELP- NELP-
(1991) (1993) (1993) (1994) (1994) (1995) 1 2 3 4 5 6 7
(1999) (2000) (2002) (2003) (2005) (2006) (2008)
REVENUE MANAGEMENT
Cost Sharing Mechanism

• Production Sharing Contracts signed with


Government based on Pre Tax Investment Multiple
(PTIM) Tranches

• Liberal provisions for assignment of Interest and


securitization of participating interest for raising
project finance allowed

• 100% of all exploration and drilling expenditure is


allowed each year (both capital and revenue)
13
Cash Flows Under PSC Regime

Production value
Royalty

Production
Cost Petroleum

Exploration

Profit Petroleum Development

Contractor’s share Government’s share

Government’s take
Income tax

Contractor’s take
14
14
Petroleum Expenditure & Revenue Profile

Costs
Revenues

Exploration Development
& Appraisal
Abandonment &
Production Reclamation
$

5 10 20 30 40

15
Sharing of Profit Petroleum

• Profit share bidding (example) :

PTIM Tranches Profit Share to Government


Upto 1.5 30%

3.5 and above 80%

Upto 1.5
Profit Share

3.5 & above

PTIM 16
Income Tax Regime in Oil Industry

33.66%

17
Royalties

(10%-12.5%)
Cost Oil Limits

100%
Profit Petroleum to GOI
6000 5734

5000 in Rs Crores
4047
4152
4000
3462
3000
2453
2000
1463
1000 624
451
951

0
Upto 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-
2000 02 03 04 05 06 07 08 09
Policy Relevance in Present Setup

21
Effective Regulatory Mechanism
• Hydrocarbon sector
Ministry of vision
Prime
Petroleum &
Minister’s
Natural Gas • Role for different sectors
Office
in energy fuel mix
• Managing resource base Planning Com

• Bringing accountability
1950s-93
• Managing licensing
• Mandate for data •Investing capital and
repository NATIONAL OIL
COMPANIES technology

1993+

REGULATOR OPERATOR
Public Private: Foreign:
Upstream: (Central): Public Reliance BG
Downstream: ONGC (State): Jubilant
DGH ENI
Gas Regulator OIL GSPC Videocon Cairn
22
GAIL Essar Niko
Evolutionary Glitches?

• Declining number of new players NELP VII


onwards
– Diminished sanctity of PSC terms
– Conflict between corporates vitiated investment
climate
– Degeneration of DGH delegated powers
– Focus on increasing E&P activities diluted
– Diminished clarity in roles of policy making, technical
monitoring & revenue management
23
NELP – Increasing Response
Blocks Offered Blocks Awarded Bids received

200
181
180 165
160
140
120
100
76
80 69 70
55 52 57
60 48 45 52
44 44 41
32 34
40 24 25 23 27 23 24 20 20 20
20
0
NELP-I (1999) NELP-II (2000) NELP-III NELP-IV NELP-V NELP-VI NELP-VII NELP-VIII NELP-IX
(2002) (2003) (2005) (2006) (2008) (2009) (2010)
Evolutionary Glitches?

• Transparent & expeditious award of PSCs, but


greater outstanding issues
– Eg: RJ-ON-90/1 royalty issue
– Successful exploration efforts, inconsistent fiscal
terms
• Inconsistency in policy
– Gas Mineral Oil definition in 2007
– Mineral Oil definition changed in 2008
– Gas pricing re-interpreted after major gas find
25
Diminished sanctity of PSC terms

• Additional rules for evaluation of FDPs, DoCs


– Increased monitoring of estimates leading to
infructuous delay in development activities
• Ambiguity on taxation as per PSC terms versus
Income Tax rules
• Re-interpretation of existing PSC terms: gas
pricing
• Increasing layers of controls by Government
– Management Committee constitution altered
Devolution of DGH delegated
powers
• Set up on lines of Norwegian Petroleum
Directorate, in practice
– Diminished autonomy
– Inconsistent dual role of advisory in policy making &
regulation of implementation
– Notified powers withdrawn
– Technical monitoring decisions subject to
Government approval
Way forward

• Requisites in E&P policy


– Consistent long term fiscal policy for E&P to facilitate
growth of sector
– Clarity in ‘Mineral oil’ definition
– Clarity in ‘royalty’ policy
– Upholding of PSC terms commitments by
Government
– Restructuring of monitoring agencies for greater
clarity in role definition, objectivity & transparency
Way forward

• Restructuring of sector regulator(s)


• DGH autonomous body as independent regulator
– Independent cadre for objective decision making
– Focus on evaluation of exploration potential of India
– Technical monitoring
• Enhanced role of MoP&NG inclusive of
– E&P sector revenue management
– Audit of PSCs
– Arbitration
Potential devolution of powers

E&P sector policy


making &
monitoring

MoP&NG: Policy, DGH: Optimal OISD: Safety issues


PSC monitoring, utilization of
Revenue mgmt, Hydrocarbon
PNGRB: Downstream
Audit, potential of India, sector issues
Arbitration Technical monitoring, Etc …
Technical advisory
धन्यवाद

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