Enhanced recovery: Oil companies to be offered sops

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New Delhi | Published: May 2, 2018 3:22:51 AM

With a view to ramp up production from ageing hydrocarbon fields in the country, the ministry of petroleum and natural gas has drafted a Cabinet note for inter-ministerial consultation, outlining financial incentives and eligibility criteria for contractors opting for enhanced recovery (ER) methods.

oil, oil and gas, crude oil, oilcos, oil company, petroleum, loan waiver, oil cessThe fields will have to undergo ER pilot and screening stages monitored by the ER committee.

With a view to ramp up production from ageing hydrocarbon fields in the country, the ministry of petroleum and natural gas has drafted a Cabinet note for inter-ministerial consultation, outlining financial incentives and eligibility criteria for contractors opting for enhanced recovery (ER) methods. According to sources, the government expects the overall net impact of the programme to be financially positive. A 10-year waiver from the oil cess/royalty on gas and cut in revenue-share/profit petroleum obligations (linked to enhanced production) are among the incentives being planned.

As per Directorate General of Hydrocarbon (DGH) estimates, though there will be a loss of $3.6 million per annum to Centre due to reduction in share from profit petroleum or revenue-sharing, it stands to gain around $387 million and the states around $212 million per year even if recovery rate of remaining in-place volume goes up 5% in case of oil and 3% in case of gas.

The draft proposes to include all oil fields offered across regimes — nomination era, pre-New Exploration Licensing Policy (Pre-NELP), NELP, Discovered Small Field Policy and Hydrocarbon Exploration Licensing Policy — in the programme. Contractors going for improved recovery (IR) and unconventional hydrocarbon production methods, apart from ER, will be covered. An ER committee with officials from the petroleum ministry, DGH and external experts will be constituted, who will review and approve proposals made by contractors.

Enhanced recovery denotes techniques used to boost production of existing oil and gas fields. These techniques are crucial for India given its falling production and increased dependence on hydrocarbon imports despite Prime Minister Narendra Modi’s call to reduce them.

While conventional fields under production of at least three years will be eligible for the sops, unconventional fields are proposed to benefit from the start of production. Though fields are deploying ER techniques and having their field development plans approved will not be part of the policy, fields which have previously undertaken ER exercise and achieved desired targets will be eligible if it goes for another round of ER.

According to Sudhir Mathur, chief executive officer, Vedanta Cairn, the initiative will boost investments and attract frontier technologies to maximise India’s hydrocarbon recovery. Vedanta Cairn has been using polymer enhanced oil recovery methods in its Barmer (Rajasthan) fields.

Fields opting for IR methods, however, will be eligible on crossing increase in production above 60% for oil and 80% for gas. Current recovery is referred to the ratio of cumulative production from a field at the end of the year against its total in-place reserve.

In terms of fiscal incentives, sources added it is proposed that eligible offshore and onshore oil fields will get a waiver of 50% on the applicable oil industry development (OID) cess for a period of 10 years, though it will be applicable only if the price of the Indian crude basket remains below the enhanced oil recovery (EOR) reference rate of $80 per barrel.

In months when oil price breaches the reference mark, the incentive will not be applicable and these periods will be counted in the 10-year tenure. In case OID cess is not applicable in certain fields, a notional cess will be calculated and the contractor will be able to adjust it against the government’s share of profit petroleum or revenue share depending on the contract.

For gas fields, a waiver of 75% of applicable royalty has been proposed though it will be capped at $0.4 MMBTU for offshore fields and $0.3 MMBTU for onshore ones. However, in case of onshore fields, contractors will have to continue payment to the state government and deduct the same from the share of the Centre.

The fields will have to undergo ER pilot and screening stages monitored by the ER committee. During the pilot period, contractors will be able to avail benefit under Income Tax Act, 1961 of weighted deduction of 150%. This will be applicable till FY25.

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