Mon. Jan 17th, 2022

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#82 Hydrocarbon Exploration and Licensing Policy (HELP)

6 min read

Hydrocarbon Exploration and Licensing Policy (HELP) is a policy adopted by Government of India on 10.03.2016 indicating the new contractual and fiscal model for award of hydrocarbon acreages towards exploration and production (E&P). HELP is applicable for all future contracts to be awarded.

HELP replaces the present policy regime for exploration and production of oil and gas, known as New Exploration Licensing Policy (NELP), which has been in existence for 18 years.

Objective: The major Guiding Principles behind HELP are to;

  • enhance domestic oil and gas production
  • bring substantial investment
  • generate sizable employment
  • enhance transparency and
  • reduce administrative discretion

Feature of HELP: Four main aspects of HELP are;

  1. Uniform License: It provides for a uniform licensing system to cover all hydrocarbons such as oil, gas, coal bed methane etc. under a single licensing framework, instead of the present system of issuing separate licenses for each kind of hydrocarbons.
  2. Open Acreage:  It gives the option to a hydrocarbon company to select the exploration blocks throughout the year without waiting for the formal bid round from the Government.
  3. Revenue Sharing Model: Present fiscal system of production sharing contract (PSC) is replaced by an easy to administer “revenue sharing model”. The earlier contracts were based on the concept of profit sharing where profits are shared between Government and the contractor after recovery of cost. Under the profit sharing methodology, it became necessary for the Government to scrutinize cost details of private participants and this led to many delays and disputes. Under the new regime, the Government will not be concerned with the cost incurred and will receive a share of the gross revenue from the sale of oil, gas etc. Bidders will be required to quote revenue share in their bids and this will be a key parameter for selecting the winning bid.  They will quote a different share at two levels of revenue called “lower revenue point” and “higher revenue point”.  Revenue share for intermediate points will be calculated by linear interpolation.  The bidder giving the highest net present value of revenue share to the Government, as per transparent methodology, will get the maximum marks under this parameter.
  1. Marketing and Pricing Freedom has been granted, subject to a ceiling price limit, for new gas production from Deepwater, Ultra Deepwater and High Pressure-High Temperature Areas. The policy provides marketing and pricing freedom to the gas production from existing discoveries which are yet to commence commercial production as on 1.1.2016 as well as for future discoveries. Considering the imperfections in gas markets in India, and to protect the interests of the consuming sector, a ceiling based on the landed cost of the alternate fuels has been imposed. The ceiling price shall be the, lowest of the 
    • Fuel oil import landed price 
    • Weighted average import landed price of substitute fuels (0.3 x price of imported coal + 0.4 x price of imported fuel oil + 0.3 x price of imported naphtha) and 
    • LNG import landed price.

The ceiling will be calculated once in six months. The price data used shall be the trailing four quarters data with one quarter lag. To safeguard the Government revenue, the Government’s   share of profit will be calculated based on the higher of prevailing international crude price or actual price. All gas fields currently under production will continue to be governed by the pricing regime which is currently applicable to them.

Other features of HELP are:

  • Exploration is allowed through-out the contract period.
  • Exploration Phase for onshore areas have been increased from 7 years to 8 years and for offshore increased from 8 years to 10 years.
  • A concessional royalty regime will be implemented for deep water and ultra-deep water areas.  These areas would not have any royalty for the first seven years (instead of the 5% at present), and thereafter would have a concessional royalty of 5% (in deep water areas) and 2% (in ultra-deep water areas), instead of the 10% at present. In shallow water areas, the royalty rates are reduced from 10% to 7.5%. For onshore areas royalty has been kept same i.e. 12.5% for oil and 10% for gas so that there is no impact on revenue to the State Governments.
  • This policy provides for a uniform, non-discretionary framework for extension of contract in respect of 28 Pre-NELP discovered fields. The extension will be granted for a period of 10 years both for oil and gas. During the extension period, it is proposed to increase the Government take by way of 
    • charging normal royalty and cess in place of concessional royalty and cess charged during the original contract period. 
    • The profit petroleum during extension period will also be 10 percent higher than the normal percentage 

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