Reforms in the Oil & Gas space

The government announced sweeping market-friendly reforms that usher in a new oil exploration regime unshackling the sector from intricate controls, allow a higher price of gas for new deep-sea fields and tweak the mining law to speed up takeover of companies with captive mines.
The decisions, taken by the Cabinet Committee on Economic Affairs on Thursday , will make idle reserves worth Rs.1.8 lakh crore in challenging terrain, such as the deep sea, commercially viable and boost India's gas output by nearly 40% as companies like Reliance Industries and ONGC will be able to make heavy-duty investments once they are allowed to charge a higher price for gas. Natural gas from fields in other areas will continue to be priced on the basis of existing formula. Those in difficult areas will be priced on the basis of the cost of alternative fuels.
Reliance's partner BP welcomed the decisions saying that, apart from spurring investment, they would also help develop a competitive gas market.
The Cabinet completely overhauled the oil & gas exploration policy.The new policy gives companies complete pricing freedom and allows them to extract any hydrocarbon they discover instead of having separate licences for shale, coal-bed methane and conventional oil & gas.
The new Hydrocarbon Exploration & Licensing Policy (Help) will also provide for revenue sharing instead of profit sharing. In the current system, the government is obliged to closely monitor oilfield development expenditure to ensure its profit s not crimped by exaggerated costs.
The Comptroller and Auditor General of India's audit of oil & gas fields had generated a political storm, followed by controversial legal tussles in recent years.
The reforms, which follow liberalisation of multi-brand retail in the food sector and a series of measures for farmers and rural development, will be welcomed by industry. Companies and banks have been seeking changes in the Mines & Minerals (Development & Regulation) Act, 1957, which obstructed liquidation of stressed assets as well as acquisitions because of restrictions on transfer of captive mining leases.Oil & gas companies had complained that they had discovered gas but could not develop the fields because the gas price did not justify the costly investment.
The government also helped ONGC by returning to the company the Ratna and R Series fields that were discovered by the state-run firm but tentatively awarded to Essar Oil in 1996. The final contract for the field had not been signed for 20 years due to “administrative and legal uncertainties“, the government said. It also said companies can renew oil & gas contracts if they agree to pay higher royalty and bigger share of profit to the State.
Under Help, companies can bid for any area for exploration instead of being constrained by blocks carved out by the government under the New Exploration Licensing Policy (Nelp), which generated more controversies and disputes and less of oil and gas in its 18 years of existence.
The existing system also required companies to take official approvals at various stages to prevent the contractor from overstating costs.

No comments: