Cabinet Approves New Hydrocarbon Exploration And Licensing Policy

The Union Cabinet on Thursday (March 10) gave its approval to a new hydrocarbon exploration and licensing policy that aims to expand oil and gas activity.

The new policy is also expected to iron out issues faced by upstream oil companies.

It contains several norms that will smoothen the process of exploration licences by offering a uniform licence for all fuels such as natural gas, crude oil or shale. As per the new policy, oil explorers will also get freedom to price petroleum products procured from hard-to-explore deepwater fields as per market rates.

The Cabinet also approved extending licences of 28 small and medium-sized oil and gas fields, but there was no decision on Cairn India's prolific Rajasthan oil block. It should be noted that the production sharing contracts (PSCs) for as many as 28 fields, including western offshore Panna/Mukta and Tapti oil and gas fields operated by BG Group of UK, were due for extension. As per the Cabinet decision, the PSCs have been extended till economic life of the asset.

Oil Minister Dharmendra Pradhan told the Press Trust of India that the price will be the lowest of weighted average of fuel oil and imported LNG or weighted average of fuel oil, naphtha and imported coal. With the current rates, the price of gas will come to $7 per million British thermal unit (mmBtu). Gas price in India is currently at $3.82 per mmBtu, which will fall to $3.15 in April, a rate not enough to make up for the cost of deep-sea development.

Since this rate is not enough to incentivise exploration, the government approved the new price formula for undeveloped gas discoveries in deep-sea, ultra-deep sea and high-temperature, high-pressure areas using average of landed price of naphtha, fuel oil and liquefied natural gas (LNG), he said.

Also, it wanted the government's share of oil and gas to be increased by 5 percentage points to 55 per cent in fields like Panna/Mukta where it is currently at 50 per cent and to 60 per cent in fields where it's at 55 per cent.

After the Cabinet's decision, the share prices of oil exploration majors saw upward movement. At 12:52 pm, Cairn India was up over 3 per cent at Rs 141 on BSE. Oil India was trading marginally higher at Rs 310.

In his Budget speech, Finance Minister Arun Jaitley had pointed to stagnating production and rising demand for petroleum products in the country and had said the government would unveil steps to incentivise gas production.

"A proposal is under consideration for new discoveries and areas which are yet to commence production, first, to provide calibrated marketing freedom; and second, to do so at a pre-determined ceiling price to be discovered on the principle of landed price of alternative fuels," the finance minister had said.