Hydrocarbons Exploration and Licensing Policy (HELP)

In March 2016, the Union Cabinet had approved the Hydrocarbon Exploration and Licensing Policy (HELP) which will replace the 18-year-old New Exploration Licensing Policy. Changes in the previously followed policy became necessary as over a period of time India has become the 3rd largest consumer of crude oil in the world. Presently India is dependent on crude oil imports to fulfil its demands. The statistics stand at 81% dependency which rose from 78.5%.

The Petroleum Minister Dhramendra Pradhan expects to open up 2.8 million square kilometres of sedimentary basins for production as well as exploration activities. The minister also said that lack of data related to sedimentary basins has been a roadblock for gas and oil exploration. As per the estimates around 52% of Indian sedimentary basins have to be gauged and explored as of now. With the use of National Data Repository this issue can be tackled.

The change in policy is aimed at enhancing the domestic oil and gas production and attract substantial investment in the oil and gas sector. It also aims to generate more employment in the same field by employing both skilled and unskilled labour.

Structure of HELP

Hydrocarbon and Licensing Policy (HELP) Discovered Small Field Policy Open Acreage License National Data Repository (NDR) Revenue Sharing Model Full Marketing & Pricing Freedom Fiscal Incentives.

Features of HELP

Uniform Licensing

This will ensure the contractor to explore both conventional and unconventional resources of oil and gas. The provisions of this policy provide a uniform licensing system unlike the system followed in NELP where a separate license is issued for each kind of hydrocarbon.

Open Acreage Policy

Using the concept of Open Acreage Policy E&P companies will get to choose the block from the designated areas. This will enable the companies to select the blocks all around the year without waiting for a formal bid session organised by the government.

Easy to administer revenue sharing model.

The entire HELP is in tune with the government’s policy of ‘Ease of Doing Business’ and ‘Minimum Government –Maximum Governance’. The key parameter for the selection of the bid will be that the bidder will be required to quote revenue share in their bids the revenue share will have two points i.e. ‘lower revenue point’ and ‘higher revenue point’.

The sellers will have marketing and selling freedom:

The government will not be concerned with the cost incurred in the exploration and will receive a share of the gross revenue made through the sale of gas, oil etc.

Issues faced by NELP

• The previous system of NELP involved Investment Multiple and cost recovery/production model which along with the profit sharing method required the government to scrutinize each and every cost details of the participants. This entire process led to delays and many disputes.
• Under NELP the government did not pay much attention to the higher risks and cost involved in the entire process of exploration and production and the royalties demanded was also relatively high. Under the new policy, a graded system of royalties has been introduced which decrease from shallow water to deep and ultradeep water projects.
• At the time of framing of NELP unconventional hydrocarbons such as shale gas and shale oil were unknown and hence were not covered in its clauses.
• At times while exploring one hydrocarbon the explorer discovers a different variety and thus is supposed to get a separate license. This increases the cost of production.

NELP vs HELP

NELP was an 18-year-old policy which was formulated at a time when the technological, as well as the financial condition of the country, was very different. Since then a lot of issues related to profit sharing and jurisdiction disputes cropped up leading to mistrust and unnecessary delays in the oil and gas sector.

Also, the oil production stagnated in the past few years and gas production started to decline. To tackle this problem the government required some revisions. The profit sharing methodology adopted in NELP also led to disputes and unnecessary delays in production the profit sharing mechanism was changed significantly in the newly adopted policy i.e. HELP.

Unlike NELP where a bidder had to acquire separate license for each kind of hydrocarbon in the case of HELP it is rather easier as the bidder has to get a single license for every type of hydrocarbon.

Stated benefits of HELP

Firstly, this policy is expected to ease out and reduce the disputes, delays, corruption by removing discretion in the hands of the government. Secondly, a lot of new jobs are expected to be created by HELP. Thirdly, the entire process will get simplified with marketing and pricing freedom. Fourthly, a lot of new exploration and production based activities are expected to be stimulated by the implementation of this policy and in the long term reduce the dependency on imports.