Policy Push: Major impetus to E&P segment to raise output

Major impetus to E&P segment to raise output

India’s energy consumption, which is the third highest in the world, is expected to grow at more than 4 per cent annually and will nearly triple to 607 million tonnes (mt) by the year 2040. The country is already dependent on imports for meeting more than 80 per cent of its oil requirements and 40 per cent of its natural gas requirements.

Achieving energy security is at the centre of the government’s agenda and it aims to reduce its import dependence by 10 per cent by 2022. To bridge the gap between energy supply and demand, it is imperative to accelerate exploration and production (E&P) activities. The government has brought in various policy reforms in the past few years to boost the upstream sector and incentivise output.

To provide an impetus to the sector, the government launched the Hydrocarbon Exploration Licensing Policy (HELP) in 2016, replacing the New Exploration Licensing Policy (NELP). The HELP represents a major shift from earlier policies by bringing into its fold the Open Acreage and Licensing Policy (OALP), single licensing for all hydrocarbons and a shift to the revenue sharing model. The policy was again revised in February 2019 for intensifying exploration activities in hitherto unexplored areas and liberalising the policy for producing basins.

The Discovered Small Fields [DSF] Policy was also introduced in 2016 in a bid to monetise hydrocarbon resources that had been locked in for years in a time-bound manner. Other reforms introduced in the sector include the coal bed methane (CBM) policy, the development of a National Data Repository (a database of all geoscientific data of hydrocarbon resources in the country), and the National Seismic Programme. A new biofuels policy was also launched in 2018 to reduce dependence on conventional fuels and boost the availability of biofuels.

Recent initiatives

New reforms in the exploration and licensing policy

The government introduced reforms in February 2019 to enhance domestic production of oil and gas. They focus on increasing E&P activities in Category II and Category III basins where no production exists, increasing production in Category I basins where potential has been established and production is taking place, enhancing gas production through incentives and promoting ease of doing business.

Under the new reforms, contractors bidding for blocks in Category II and III basins where presently there is no commercial production, will not have to share any revenue with the government unless there are windfall gains. For unallocated and unexplored areas in Category I basins, bidding will continue to be on a revenue sharing basis but with more weightage given to the work programme (70 per cent weightage to the work programme and 30 per cent to the revenue share). Also, to incentivise early production, concessions in royalty – 10 per cent in Category I basins, 20 per cent in Category II basins and 30 per cent in Category III basins – will be provided if production commences within 4 years for onland and shallow water blocks and five years for deepwater blocks, from the effective date of the contract.

Moreover, to enhance production from large, existing nomination fields and bringing in new technology, national oil companies (NOCs) will be allowed to induct private sector partners, who will share a part of the revenue with the NOCs. On the ease of doing business front, measures are being taken for a better coordination mechanism, simplification of the Directorate General of Hydrocarbons’ approval process and alternative dispute resolution mechanism. The changes will be applicable to the bidding rounds to be announced in the future.

Progress and experience of recent policy initiatives

DSF Policy

The DSF Policy was approved by the government in September 2015 to scale up domestic production by monetising small fields that had been locked in for years due to a number of reasons such as isolated location, small size, prohibitive development costs, technological constraints, unfavourable fiscal regime, etc. The policy represents a considerable shift from the earlier

policies and aims to simplify the administration of upstream contracts. The key features of the policy include a single licence for all types of hydrocarbons, no restrictions on exploration activity throughout the contract period, complete marketing and pricing freedom for the sale of output, etc. So far, two bidding rounds have been completed under the policy.

The government launched the first DSF bidding round on May 25, 2016, offering 46 contract areas (consisting of 67 oil and gas fields) across nine sedimentary basins. These fields were offered through an open and transparent international competitive bidding process and the bids were received until November 21, 2016. Under the 2016 DSF bid round, 134 e-bids were received for 34 contract areas from 42 companies. A total of 30 contracts for 43 DSFs were signed with 20 companies in March 2017. Most of the contracts were awarded to private players. Production of oil and natural gas from the fields auctioned under Round I is expected to begin by 2020-21. Around 40 mt of oil and 22 billion cubic metres of gas will be monetised over a period of 15 years. The blocks offered have a potential to generate a total revenue of Rs 464 billion (including the government’s share of Rs 93 billion). Besides, government royalties on the expected output are expected to be around Rs 50 billion.

As there were still a number of unexploited discoveries after the first bid round, the government extended the DSF Policy in February 2018. The second round of bidding was launched on August 9, 2018, offering 59 discoveries clubbed into 25 new contract areas. The fields are estimated to have 194.65 mt of oil and oil equivalent gas. The fields, which belong to either the Oil and Natural Gas Corporation or Oil India Limited, are relinquished fields from the NELP or fields from DSF Round I that could not be awarded due to inadequate investor response. In the second round, 145 e-bids were received from 40 companies individually or in consortium. A number of new entrants and foreign companies from countries such as the US, the UK, Australia, Singapore and the UAE participated in the bidding round. Subsequently, through a detailed evaluation process, 14 companies (individually or in consortium) were awarded 23 contract areas. Of these 14 companies, eight are new entrants in the E&P segment. Since each contract area is bigger than the areas offered under Round I, the government expects to generate a revenue of Rs 1 trillion over 20 years.


The OALP was introduced in June 2017 as a part of the HELP. It enables companies in the E&P segment select exploration blocks on their own, without having to wait for the formal bidding round conducted by the government. The company can submit an application to the government for further evaluation. If found suitable for award, the government may invite competitive bids for the block. So far, three bidding rounds have been conducted under the policy.

The first bidding round of the OALP, offering 55 blocks, was launched in January 2018. With participation from nine companies individually or in consortium, 110 e-bids were received. There will be an accretion of 59,282 square km under this round, which is about 65 per cent of the area under exploration in the country. Contracts were signed for all the 55 blocks with six companies in October 2018.

The second round under the OALP, offering 14 blocks with an area of 30,000 square km, was launched on January 7, 2019. While 10 blocks were based on expressions of interest (EoIs) submitted by bidders, four blocks have been carved out by the government based on the data received through the National Seismic Programme. Six companies (individually or in consortium) have been awarded the 14 blocks under the round.

The third round, being simultaneously conducted with the second round, was launched in February 2019. Under this bid round, 23 blocks covering over 31,000 square km were made available for exploration. The blocks are spread across 12 sedimentary basins. Of these, 18 blocks are based on the EoIs submitted by the bidders. While 19 blocks of the total offered are onland blocks (including five CBM blocks), three are shallow water blocks and one is a deep-water block. Till now, 18 blocks have been awarded under the round.


The key policy changes introduced in the oil and gas sector represent a positive step aimed at increasing domestic production. However, the initiatives are fairly recent and their impact on production is yet to be determined. Import dependence has risen from 82.9 per cent in 2017-18 to 83.7 per cent in 2018-19, while domestic production continues to remain stagnant. In order to fulfil the vision of reducing imports by 10 per cent by 2022 and further reducing import dependence by half by 2030, much more needs to be done. Technology should be leveraged to drive growth in the sector and the challenges of market flexibility and continuity in policy implementation will need to be addressed.