Sops to oil, gas producers under new E&P policy

The government is planning a series of incentives, including lower tax liability, cess waiver and higher share of profit petroleum for exploration and production (E&P) companies.

The move is aimed at facing the Herculean challenges of reducing country’s oil and gas dependence by 10 per cent by 2022. It plans to do so by propping up domestic production and enhanced output from local ageing fields.

The Directorate General of Hydrocarbons (DGH), the technical arm of the oil ministry, has drafted a new policy to promote and incentivise enhanced oil and gas recovery methods.

The policy is expected to get oil ministry clearance soon, before a note on it is moved for cabinet approval. Sources said that the entire process would be completed before the end of current fiscal year.

“The policy is being studied and would soon be notified so that E&P activities using enhanced recovery (ER) techniques and unconventional hydrocarbon production methods is given a boost.  It will mainly benefit existing producing operations of companies (Reliance, Cairn) including old and ageing fields ONGC and OIL that need big investments to remain under commercial operation,” said a government official; privy to the development.

The proposed policy is a direct reaction to falling fortunes of E&P activities in the country.

India’s domestic oil and gas production touched a five-year low in 2016-2017, dropping more than 20 per cent to just 68 million tonnes – and way lesser than the 86 million tonnes output back in 2012.

The country’s import dependence for crude has also shot up simultaneously to a five-year high of 83.4 per cent, according to data from the oil ministry’s arm Petroleum Planning and Analysis Cell (PPAC).

“The new policy will hope to bring back investor sentiment on oil and gas activities in the country, especially for the development and expansion of work on existing fields. A new regime Hydrocarbon Exploration and Licencing Policy (HELP) has already been announced for new investments,” said the government official quoted earlier.  

As per the draft policy, ER incentives would be available to companies undertaking pilot projects. This would be in the form of weighted deduction from the business income to the extent of 150 per cent of any sum paid towards the ER pilot expenses. The weighted deduction will be applicable till March 31, 2025.

Besides, operators will get a waiver, to the tune of 50 per cent of the applicable cess on gross production of crude oil from designated wells of an approved enhanced oil recovery (EOR) and unconventional oil production projects, for a period of 10 years.

In cases where cess is not applicable, a notional cess shall be calculated and the equivalent amount shall be reduced from the government's share of profit petroleum or revenue share, the draft policy says.

The waiver on cess would apply only if the average crude oil price of Indian basket during a calendar quarter is below $80 a barrel or as decided by the official committee.

For gas producers, the incentive would be equal to 10 per cent of gas wellhead price on the gross production from designated well of an approved project for a period of 10 years. This incentive shall be capped at $ 0.6 per mmbtu for offshore fields and $ 0.3 per mmbtu for onshore fields.

For offshore fields, the incentive shall be in the form of waiver of applicable royalty. In cases where the royalty on gas produced is less than the total incentive amount, the difference can be obtained by the company from the government's share of profit or revenue share, as applicable, according to the draft.

For onshore fields, the incentive shall be in the form of discount on the government's share of profit petroleum or revenue share. But, in cases where no profit share or revenue share is applicable, the government will make a budgetary allocation for equivalent incentive.

The incentive will be applicable from the date that ER production commences or an alternative start date as indicated by the contractor (incentive start date) from the production wells, duly certified by a third party auditor.

ER incentives will be applicable across all regime types (nomination, pre-NELP, NELP, DSF and HELP) as well as to the fields which were/will be awarded extension under the pre-NELP, NELP and nomination regimes. A government screening committee with officials from DGH and oil ministry will decide the eligibility of projects under the policy.

But fields which are currently producing oil or gas using ER techniques and fields for which field development programme (FDP) has been approved for ER projects before the notification date of the proposed policy, will not be considered eligible for incentives under this policy.

Apart from the new proposed regime, the government is also thinking of offering some old and ageing fields of ONGC to private sector through an auction for using EOR to enhance production.

A few small and marginal fields have already been auctioned, while a second list of projects under it are expected to be offered soon.

Subhash Narayan