Govt mulls shift to uniform licensing, revenue-sharing model
The coming tenth round of auction under the new exploration and licensing (Nelp) will probably be the last in the series, that have met with only a moderate success, as the government intends to shift to the open acreage licensing policy (OALP) thereafter, official sources told FE. Nelp-X will, however, be sugar-coated with a uniform licensing model — which means under a single contract, drilling of all forms of hydrocarbons, from oil and gas to shale could be done — and also usher in the revenue-share model.
The OALP will enable upstream companies to bid for any oil and gas block throughout the year without government having to hold an auction. Till now, nearly 42 blocks have been shortlisted to be offered under Nelp-X.
“We are currently looking at three things — uniform licensing policy, open acreage and revenue-sharing model. The plan is to unveil an attractive bidding round combining all these,” a senior petroleum ministry official told FE. The ministry is set to put up a note suggesting these changes before the Cabinet Committee on Economic Affairs (CCEA).
In order to offer blocks under OALP, however, a national data repository (NDR) is a prerequisite. Upstream regulator Directorate General of Hydrocarbons (DGH) has appointed HLS Asia (HLSA), which has a foreign collaboration with US-based Halliburton Energy Services, to set up the NDR by 2016-17.
Under the Nelp series, production sharing contracts (PSCs) for 254 exploration blocks have been signed for blocks awarded in on-land, shallow- and deep-water areas.
Petroleum minister Dharmendra Pradhan has recently announced that the Nelp-X round would be held in 2015.
Under the nine rounds of Nelp bidding held so far, the committed exploration investment is about $11.73 billion. Against this, $12.51 billion has been expended by the contractors for exploration activities, mainly 2D/3D seismic survey and exploratory drilling in the awarded blocks. In addition, about $ 8.81 billion has been incurred by the contractors for carrying out development activities, mainly drilling and setting up of production facilities.
The official, quoted above, said the data of the 42 short-listed blocks for Nelp-X could be provided at one centre for explorers to examine.
Open acreage will enable bidders to bid for blocks on offer at any time of the year. The data for these blocks would be made available to the bidders through the NDR. Pakistan has such a system in place. The NDR is expected to play a much larger and significant role in the exploration and production scenario in the years to come.
The Nelp-X round will be held with a revenue-sharing model, wherein a bidder will be asked to quote the amount of oil or gas output it is willing to offer to the government from the first day of production; whereas in the existing PSC, the contractors are allowed to recover the entire cost of exploration and production before sharing the profit with the government.
However, many explorers have opposed the revenue-sharing model, citing higher risk, particularly for deep and ultra-deep water blocks. “Explorers will have the freedom to take decisions on their own, which would be offered by the revenue-sharing contract,” the official added.
“Uniform licensing policy would reduce monitoring and approval delays but it will increase risk for companies in absence of assured cost recovery,” Icra, an associate of Moody’s Investors Service, said in a recent report.