Hydrocarbon Exploration Licensing Policy (HELP) Explained

The Government has approved a new regime for oil & gas exploration in India. It has replaced the existing NELP (New Exploration Licensing Policy), the framework which has been in place for the last 18 years, with HELP (Hydrocarbon Exploration Licensing Policy. The new policy is expected to reduce Indis’s import dependence by increasing the domestic production of oil and gas and thereby generating employment.

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What is NELP?

NELP was put into place in 1997-98. It was conceptualised with the objective to boost the production of oil and natural gas in India. Nine rounds of auctions have been carried out by the Government of India under NELP.

What are the flaws in NELP?

There were major loopholes in NELP. Of the 254 blocks auctioned in the nine NELP rounds, commercial production started in only three blocks with the total output of 0.4 million tonnes of crude oil and 26.11 million standard cubic metres of gas per day. The reasons could be one of the following:

• Under NELP, there was a profit-sharing contract (PSR) between the Government and the oil explorers.  In this, explorers first recovered their costs first & then shared profits with the Government. It was done to incentivise the explorers to drill in complex geological areas. But, it became counterproductive. Explorers began to inflate their costs to avoid sharing profits with the Government. It led to a loss of revenue for the Government and it had to scrutinise and monitor the costs of the explorer. The Government also got into disputes with the contractors/ explorers.  As an example, the KG-D6 block managed by Reliance got embroiled in a dispute with the Government
• Prices of oil and natural gas were regulated by the Government.
• There was a different policy framework for different forms of hydrocarbons. Eg: NELP for oil & gas and CBM policy for coal-bed methane. It led to complications if say a NELP license holder discovers coal bed methane.

How does HELP address the above flaws?

• The Profit Sharing contract will be replaced with Revenue Sharing Contract. It will encourage cost efficiency. The Government will also not be concerned about the cost incurred by the explorer and will not have to put every cost item under the lens for scrutiny. The explorers will be incentivised to start production as soon as possible.
• There will be a single uniform licence for all forms of hydrocarbons. Unconventional hydrocarbons like shale oil which were not known earlier when NELP was introduced will also be included in the unified framework.
• Prices have been freed of Government regulation. They will be able to charge a competitive market price subject to a ceiling. This ceiling is the landed price of alternative fuels.
• An open acreage policy: In NELP, bids could be placed only for the blocks which were put on auction. Under open acreage, the explorer can study and bid for any block as per its competitive advantage.
• Lower royalty for explorers drilling in offshore areas to compensate the companies for the risks involved as costs incurred in these areas is high.

In conclusion, whether or not the HELP policy will address the ills affecting the previous oil & gas exploration regime and will really help the oil sector is yet to be seen. But, the new framework has the potential to reduce the impact of price volatility in the international oil market on the Indian economy.

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