PSC norms relaxed to make coming NELP more investor-friendly

Written by fe Bureau | New Delhi | Updated: Oct 23 2014, 18:38pm hrs
ONGCThe terms and conditions of the PSCs have been made more flexible and will facilitate faster monetisation of as many as 30 blocks held by ONGC, Cairn India and others. (Reuters)
With a view to making it easier for oil and gas players to explore hydrocarbons, the government has approved a clutch of changes in production-sharing contracts (PSCs) that have been already awarded. The terms and conditions of the PSCs have been made more flexible and will facilitate faster monetisation of as many as 30 blocks held by ONGC, Cairn India, GSPC, Oil India and others. These blocks have estimated reserves of more than 250 million barrels of crude oil and 25 billion cubic metres of gas.

The changes in PSC norms about 10 of them for pre-NELP and NELP blocks were given the go-ahead by the Cabinet Committee on Economic Affairs (CCEA) last Saturday. The CCEA also approved a higher price for natural gas of $5.61 per million British thermal units from November 1, up from the current $4.2/mmBtu on a net calorific value basis.

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Petroleum secretary Saurabh Chandra told media persons the government was trying to ease conditions in the present PSC.

We expect these would lead to monetisation of more discoveries, Chandra said on Wednesday.

The government is keen to ramp up output of oil and gas from domestic fields and cushion Indias vulnerability to external oil shocks given that 80% of oil required by the country is imported. The crude import bill touched $143 billion in FY14 imports estimated at 189 million tonnes up from $100 billion in FY11.

In this context, the government wants to make the terms of the New Exploration and Licensing Policy (NELP) whose past nine rounds have barely been successful, more investment-friendly, ahead of the 10th round expected next year.

The new norms empower the Directorate General of Hydrocarbons (DGH) and management committees (of respective blocks) to deliberate on timelines and approve relaxations during the development or production stage of a block within a policy framework. A number of proposals have been either rejected by the DGH or have been held up on the issue of timelines. In the case of oil discoveries, for instance, a report stating whether the discovery is of potential interest has to be submitted to the MC within 60 days. Thereafter, the appraisal programme has to be submitted to the MC within 120 days of the notification of potential commercial interest. However, contractors find these deadlines difficult to comply with but have not received any regulatory relief despite repeated pleas.

In the new regime, the DGH is empowered to grant an extension of the appraisal period by six months for onshore blocks and 12 months for offshore blocks. This means that the explorer gets additional time to submit the declaration of commerciality (DoC). For example, ONGC in its block AA-ONN-2001/1 in the Assam-Arakan Basin, bagged in the third round of the NELP auction in 2003, submitted the DoC on April 26 (to meet the deadline). However, three appraisal wells were under drilling and no additional data could be provided.

Similarly, DGH can now also grant extensions of up to three months for onshore and six months for offshore blocks for submitting the field development plan (FDP). Vedanta Group company Cairn has requested that the FDP of two discoveries made 18 months apart Nagalanka-1Z and Nagalanka SE in the Krishna-Godavari Basin block KG-ONN-2003/1 be clubbed . If DGH allows the extension, the company will not be penalised for delaying submission of the FDP for the first discovery. Explorers will henceforth be allowed to swap 2D and 3D seismic minimum work programmes and will be permitted to drill appraisal wells after submission of the DoC. They will also be allowed to probe additional reservoirs during the appraisal programme.