Upstream Sector

Introduction The Ministry of Petroleum & Natural Gas (MoPNG) is concerned with exploration and production of oil and natural gas, refining, distribution and marketing, export and conservation of petroleum products. MoPNG gets its authority under item no. 53, List I, VIIth Schedule of Article 246 of the Constitution of India. Before 1970s, Oil exploration fell within the domain of the National Oil Companies (NOCs) i.e. Oil and Natural Gas Commission (ONGC) and Oil India Ltd (OIL). There was no major oil field discovery after Bombay High and level of domestic crude production was stagnating. A major departure was made between July 1994 and March 1995 when Government of India offered blocks to Joint Ventures (JVs) (NOCs/Private Companies) for exploration till IXth round of Pre-New Exploration Licensing Policy (NELP) in 1995. The Government in order to accelerate the development of the country's oil field also offered discovered fields in two rounds to JVs where NOCs had already made discovery of oil/gas. In 1997, the government deregulated the sector partially and also announced the New Exploration Licencing Policy (NELP) under which all Explorations and Production (E&P) companies including the NOCs were allowed international price parity in respect of crude oil extracted from new wells. The Government of India under Oil Fields (Regulation and Development) (ORD) Act, 1948 framed P&NG Rules 1959, for the conservation and development of mineral oils which includes collection of royalty, levy and collection of fees or taxes in respect of mineral oils mined, quarried, excavated or collected. In addition, share of profit petroleum is worked out as per the provisions of the Production Sharing Contracts. Non-Tax Receipts from offshore fields are received by the Central Government whereas in case of on-shore fields these receipts are to be collected by the respective state governments except profit petroleum, which is the receipt of the Central Government. Changes in policy from pre NELP (1992-95) to NELP (1997) Major changes made by the Government from pre NELP to NELP are as under:Pre NELP NELP

1 NOCs to take participating interest NOCs to compete with the private sector . upto 40%, then forming a Joint Venture for obtaining petroleum exploration license with parties. instead of getting them on a nomination basis. NOCs had an option of taking participating interest upto 30%, however under 1st round of bidding, NOCs had to take participating interest between 25-40% from the exploration stage.

2 Royalty and cess on the oil and gas is . to be borne by NOCs on behalf of companies.

Royalty payment for crude oil to be on advalorem basis for the on land area at 12.5% and for off shore area at 10%. The royalty payment for natural gas to be @ 10% for both on shore and off shore areas. Payment of cess on crude oil and natural gas produced from blocks under NELP has been abolished.

3 Biddable sharing of profit petroleum Sharing of profit petroleum based on pre . based on post-tax investment multiple tax investment multiple (IM) achieved and (IM) achieved by the contractor or post is biddable. tax rate of return. 4 After the close of the date of receipt, . the bids were evaluated in Exploration Contract Management (EXCOM) wing of ONGC/ DGH, on behalf of MoPNG. Bid evaluation report were then examined in MoPNG and the blocks were awarded. Evaluation of bids will be carried out on weightage assigned on a scale of 100 points, under the following four main criteria i.e. a. Technical capability b. Financial strength c. Work programme d. Fiscal package. In addition, the following points were added during NELP: NOCs were allowed given international price of crude for production from areas under NELP, giving them a level playing field. No minimum expenditure commitment during the exploration period. Option to amortize exploration and drilling expenditure over a period of 10 years from the date of commercial production. 7-year tax holiday from commencement of production.

* There was, however no significant policy change during 1st to 4th rounds of NELP. Process of entering into agreement/ contract For exploration blocks/fields, the parties are invited to bid under terms and conditions of pre NELP and NELP. where they are mainly to bid for: Work programme commitment. Profit petroleum share expected by the contractor at various levels of pre- tax level of multiple achieved. Percentage of annual production sought to be allocated towards cost recovery

After the receipt of bids, these are evaluated in Exploration Contract Management (EXCOM) wing of ONGC/ DGH, on behalf of Ministry of P&NG. Evaluation reports are then examined and based on the decision taken in the Ministry, blocks are awarded after taking the approval of the Cabinet Committee on Economic Affairs (CCEA).

Contract Signed The statement below indicate the number of blocks/fields offered, awarded for which contracts were signed during pre-NELP and NELP. Sr. No. Name of the round Year of offer No. of fields/ blocks offered No. of fields/ blocks awarded No. of blocks/ fields where PSCs signed

Pre NELP 1. 1st round to 2nd round (discovered fields) Round IV to Round IX (exploration blocks) August 1992 & October 1993 September 1991 to March 1995 84 (20 medium & 64 small) 270 30 (5 29 (5 medium medium & 25 & 24 small) small) 35 28

2.

NELP 3. 4. 5. 6. 1st Round 2nd Round 3rd Round 4th Round Total 2000 2001 2003 2004 48 25 27 24 478 24 23 23 20 155 24 23 23 20 147

Out of total 147 PSCs signed during the last 12-13 years, the production has started in respect of 5 mid sized fields (Panna &Mukta, Ravva, MS Tapti and Kharsang) and in 10 out of 24 small sized discovered fields. In the remaining 13 small sized discovered fields, the production has yet to start. Out of the remaining PSCs for NELP and pre NELP exploration blocks, discovery has been made in 9 blocks. Production of crude oil and Natural Gas The details of production of oil and gas, on-shore/off-shore wise and NOCs/ JV wise for the period 2C00-01 to 2004-05 have been indicated below: Production Crude Oil (tmt) On shore-NOCs On shore-JVs Off shore-NOCs Off shore-JVs 11714 77 16629 4006 11818 71 16074 4069 11396 75 17560 4013 11382 74 17677 4240 11517 74 18164 4226 2000-01 2001-02 2002-03 2003-04 2004-05*

32426 Natural Gas (mcm) On shore-NOCs On shore-JVs Off shore-NOCs Off shore-JVs 7416 309 18465 3287 29477
* provisional figures

32032

33044

33373

33981

7343 624 18317 3430 29714

7615 1111 18367 4296 31389

7666 1307 17805 5184 31962

7551 1426 17444 5356 31777

From the table given above it may be seen that from the year 2000-01 to 2004-05, the production of crude oil and Natural Gas has increased only by 4.8 per cent and 7.8 percent respectively, which is not significant. Thus the policy of the Government to accelerate the development of the country's Oil field by offering discovered field to JV/private companies has not yielded desired result so far. Background The domestic demand for petroleum in India is growing at a very rapid rate. The energy consumption has over the years grown at a rate of 6-7 per cent per annum against a world average of 1.5 per cent per annum. The Oil & Gas sector plays a key role in Energy sector as it accounts for about 40 per cent of India's commercial energy consumption. The average per capita consumption of petroleum is still abysmally low against a world average of 927 kg it is only 113 kg in India. On a conservative basis, petroleum products consumption in India is expected to grow to about 180 MMT in 2006-07 to around 370 MMT by 2024-25. Similarly the demand for Natural gas was 110 Million Standard Cubic Meters Per Day (MMSCMD) in 1999-2000 and is expected to reach 230 MMSCMD by 2006-07 and further to about 390 MMSCMD by 2024-25. However, the current level of domestic production of crude oil is around 32 Million Tonnes per year and that of Natural Gas around 78 MMSCMD. Over the last three years, i.e from 1999 to 2002, 300 million tonnes of oil plus oil equivalent gas reserves have been discovered in the country India is endowed with 26 sedimentary basins along with deep-water sedimentary areas. India's prognosticated reserves are mostly distributed in 12 basins. The total sedimentary area works out to 3.14 million sq. km. India has a huge hydrocarbon resource base of around 28 billion tonnes with in-place geological reserves of 6.85 billion tonnes. The domestic crude oil production was 31.93 MMT and gas production was 28.47 Billion Cubic Meters in 1999-2000. The domestic availability of crude is mainly distributed in three regions: Mumbai Offshore accounting for about 59 per cent of the availability, Gujarat accounting for about 18 per cent and Assam accounting for about 16 per cent. The balance crude production comes from both onshore and offshore areas of Andhra Pradesh and Tamil Nadu and from the onshore area of Arunachal Pradesh.

Given the increasing demand for petroleum products, it is difficult to envisage selfsufficiency in crude oil in the near future. However to impart greater thrust to exploration and production of oil & gas in the country, the Government formulated New Exploration Licensing Policy (NELP) under which 70 exploration blocks from onland, offshore and deepwater areas have been awarded in three rounds. It has signed Production Sharing Contracts (PSCs) with various companies/consortia for 24, 23 and 23 blocks under the first, second and third round of NELP. The fourth round is under way and 24 blocks have been offered under this round. As much as $23.56 billion have been invested in the upstream sector ever since India opened its doors to foreign firms in 1994, but a lions share about $14.14 billion has been spent in development and production of discovered blocks. As regards exploration efforts in the blocks offered under the New Exploration Licensing Policy (NELP), the investment has been $4.16 billion until September 2002. Expected Investment (Phase-I+II+III) Total NELP-I NELP-II 1,158.84 775.51 NOC 272.27 670.58 Pvt./Domestic 688.37 71.45 Foreign 198.21 33.48

Proposed Investment in NELP-III NELP-III Phase-I (Committed) Phase-II (Expected) Phase-III (Expected) Total Total 414.54 NOC 251.62 Pvt./Domestic 147.22 Foreign 15.70

335.09

120.69

193.60

20.80

288.89 1,039

89.06 461.37

180.03 520.85

19.80 56.3

Investment (Expenditure incurred up to September 2002) Under 1st Phase of NELP-I & II Total NELP-I NELP-II 338.93 77.08 NOC 113.73 62.19 Pvt./Domestic 111.88 0.36 Foreign 113.32 14.53

Investment made by companies in discovered fields and in exploration blocks (As on 30th September 2002)

Discovered fields Small sized Medium sized Pre-NELP Blocks NELP-I NELP-II Grand Total

(US $ Million) 96.35 1,317.46 526.15 338.93 77.08 2,355.97

The blocks from the following less explored or unexplored basins can also be considered for inclusion in the future rounds of NELP based on minimum geoscientific criteria, i. ii. iii. iv. v. vi. vii. viii. ix. x. xi. xii. xiii. Deepwater West Coast Deepwater Southern Tip of India North East Coast West Bengal Onshore and Offshore Kutch-Saurashtra Onshore and Offshore Mahanadi Basins Onshore and. Offshore Ganga Valley Himalayan Foothills Vindhyan Basin Pranhita-Godavari basin Gondvana Purnia basin Palar

Exploration blocks from the basins are carved out based on the pre-exploratory surveys made by Oil and Natural Gas Corporation Ltd. (ONGC), Oil India Ltd. (OIL) and Directorate General of Hydrocarbons (DGH), for which sufficient funds are available annually. Moreover, investment in the exploration blocks awarded under NELP depends upon the work programme bid by the awardees. List of Foreign, Private & NOCs working in Indian E & P activities

1. Private Companies:
a. Indian Companies: 1. Videocon Petroleum Ltd. 2. Reliance Industries ltd. 3. Hindustan Oil Exploration Company 4. Selan Exploration Technologies 5. Assam Company Ltd.

6. Tata Petrodyne Ltd. 7. Essar Oil Ltd. 8. Interlink Petroleum. 9. Jubilant Enpro Pvt. Ltd. 10. Phoenix Overseas Ltd. 11. Enpro Finance Ltd. 12. Prize Petroleum Company Ltd. 13. Hydrocarbon Resource Development Company b. Foreign Companies 1. British Gas Exploration & Production India Ltd. (subsidiary of BG Energy Holdings Ltd. U.K.) 2. Cairn Energy Cambay B.V. Netherlands (subsidiary of Cairn Energy Plc, UK) 3. Cairn Energy Gujarat B.V. Netherlands (subsidiary of Cairn Energy Plc. UK) 4. Cairn Energy India West B.V. Netherlands (subsidiary of Cairn Energy Plc. UK) 5. Cairn Energy India Pty. Ltd. (subsidiary of Cairn Energy Plc. UK) 6. Canoro Resources Ltd. Canada 7. Geo Global Resources Inc. Canada 8. Geo-Petrol International Inc. France 9. Hardy Exploration & Production India Inc. (subsidiary of Hardy Oil & Gas Limited, U.K.) 10. Heramec Ltd. (Subsidiary of Heritage Oil Corporation, U.K.) 11. Joshi Technologies Inc. USA 12. Mosbacher India LLC, ( subsidiary of Mosbacher Energy, USA) 13. Niko Resources Limited, Canada 14. OAO, Gazprom , Russia 15. Okland International LDC, USA 16. Polish Oil & Gas Company, Poland 17. Ravva Oil (Singapore) Pte. Ltd. (subsidiary of Marubeni Corporation, Japan). 18. Tullow India Operations Ltd. (subsidiary of Tullow Oil Plc. Ireland) 19. Premier Oil North East India (subsidiary of Premier Oil, UK) 2. Public Sector Undertakings : 1. Oil India Limited 2. ONGC 3. GAIL (India) Ltd. 4. IOC 5. Gujarat State Petroleum Corporation Ltd. (Gujarat State Undertaking) 6. Hindustan Petroleum Corporation Ltd. 7. Bharat Petroleum Corporation Ltd.