Canada: India Launches Largest Auction Of Oil And Gas Interests To Date

Copyright 2009, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on India Practice / Oil & Gas, August 2009

On August 8, 2009, the Government of India announced the launch of its largest ever auction of oil and gas exploration blocks, aiming to attract $3-4 billion dollars in new investments to its energy industry. Calgary has been chosen as one of the host cities for the eighth round of India's Ministry of Petroleum and Natural Gas New Exploration Licensing Policy (NELP-VIII) offering, with a road show taking place in the city on August 24 and 25. The NELP-VIII round offers 70 exploration blocks comprising of 24 deepwater blocks, 28 shallow water blocks, and 18 onshore blocks to qualified bidders. These 70 blocks cover a sedimentary area of approximately 164,000 square kilometres and represent 5.2% of India's sedimentary basin area.

NELP was established by the Government of India in 1997 in order to increase investment in India's energy industry. Prior to the establishment of NELP, 11% of India's sedimentary basin was under exploration. After the conclusion of NELP-VII, the area of exploration had increased to approximately 50% of the sedimentary basin, and total accretion of in-place hydrocarbon reserves discovered under NELP are estimated at more than 600 million tonnes of oil equivalent.

The NELP form of Model Contract can be characterized as a "production sharing contract" wherein the Government of India (the "Government") delegates exploration and development rights to a qualified international oil company who acts as the contractor (the "NELP-VIII") for the exploration and development of the contract area. If the project is successful, both the Government and the Contractor receive a share of the profit oil produced from the contract area in the production phase of the contract. Some of the key provisions of NELP-VIII are summarized below.

Contract Phases

  • Consists of an exploration period that is divided into two phases: the "Initial Exploration Period" and the "Subsequent Exploration Period"
  • Provided that Contractor has completed the Minimum Work Program by the end of the Initial Exploration Period, Contractor has the option to relinquish the Contract Area or proceed to the Subsequent Exploration Period
  • During the Subsequent Exploration Period, the Contractor retains the blocks by committing to drill one well each year in the contract area (or one well in three years in the case of deepwater blocks)
  • At the end of the Subsequent Exploration Period, the Contractor only retains those portions of the contract area where commercial discoveries have been made


  • The Agreement automatically terminates if no commercial discovery has been made in the Contract Areas by the end of the Exploration Period
  • The Government is entitled to terminate with notice upon occurrence of a material default by the Contractor
  • The Contractor is entitled to terminate upon prior written notice to the Government

Minimum Work Obligations and Work Program

  • The Contractor is obligated to commence petroleum operations not later than six months from the effective date
  • The Work Program to be completed during the Initial Exploration Period includes conducting seismic work and drilling exploration wells
  • The Work Program for the Subsequent Exploration Period provides for the Contractor to drill at least one exploration well per year (or one exploration well for the period in the case of deepwater blocks)
  • Work Programmes must be approved by a Management Committee composed of two Government nominees and one nominee of each company making up the Contractor (or two nominees if the Contractor constitutes only one company)
  • The Contractor is obligated to pay the Government liquidated damages proportionate to the Work Programme not completed as required


  • The Contractor has the option to relinquish those parts of the contract area where no commercial discoveries have been made at the end of the Initial Exploration Period
  • At the end of the Subsequent Exploration Period, any areas where a commercial discovery has not been made will automatically be relinquished


  • The Contractor is designated as Operator under the Model Agreement. No change of Operator can occur without prior Government consent

Assignment/Change of Control

  • The Contractor is entitled to assign its interest to an affiliate with the approval of the management committee, and otherwise with the prior written consent of the Government
  • In the event of a change of control, the Contractor is obligated to seek Government consent

Declaration of a Commercial Discovery

  • When a discovery of recoverable petroleum (a Discovery) is made, the Contractor is required to conduct testing to determine if the Discovery is of potential commercial interest and warrants appraisal
  • If the Discovery is of potential commercial interest, an appraisal program must be prepared and conducted by the Contractor, following which the Contractor must notify the Management Committee whether or not the Discovery should be declared a Commercial Discovery
  • Once a Commercial Discovery has been declared, the Contractor must prepare a development plan for the recovery of petroleum substances (a Development Plan)

Petroleum Exploration License

  • When a Development Plan has been approved, the Contractor may obtain a lease (the Lease) of an initial period of 20 years from the applicable State Government

Cost Recovery

  • The Contractor is entitled to recover exploration, development and production costs out of a percentage of the petroleum produced and saved from the Contract Area each year (the Cost Petroleum)
  • If not 100% of the production, exploration or development costs are recovered in a particular year, the unrecovered portion of such costs may be carried forward in each subsequent year until the full amount of the costs have been recovered by the Contractor

Expenses and Production Shares

  • Both the Contractor and the Government are entitled to a share of the petroleum substances produced under the Agreement (the Profit Petroleum) calculated on the basis of the "investment multiple" (which requires a calculation of a ratio of accumulated net cash income to accumulated investment)


  • The Contractor is required to pay a royalty to the Government in the amount of: (a) 10% for offshore areas for crude oil and natural gas; and (b) 12.5% for crude oil and 10% for natural gas for onshore areas

Taxes and Duties

  • The Contractor is obligated to pay income taxes, but is entitled to deductions at a rate of 100% per year for all capital and revenue expenditures per year for all exploration and drilling operations

Supply of Domestic Market

  • Contractor is obligated to sell all of the Contractor's entitlement to crude oil and condensate to the domestic market based on generally accepted international terms
  • The price for crude oil and condensate are to be determined each month on an import-parity basis

Option to Take in Kind

  • The Government has the option to take its share of the Profit Petroleum, with such option exercisable for five year intervals

Training Host Government Personnel

  • The Contractor is obligated to maximize employment of citizens of India having appropriate qualifications and experience and to give preference to the purchase and use of equipment, materials and supplies manufactured, produced, or supplied in India

Comparison to Alberta's Oil and Gas Regime

The production sharing regime utilized by the Indian Government and many other governments of developing nations can be contrasted to the License or Concession regime utilized by the Alberta government and other jurisdictions such as the United Kingdom and the United States as set out below:

License or Concession

Production Sharing Contract

Province grants exclusive exploration and development rights to a contract area

State delegates exploration and development rights to NOC or Ministry (a Competent Authority) and Competent Authority enters into PSC with Contractor

Contractor provides financing, pays taxes and royalties, but receives all production

Contractor finances exploration and develop-ment and, if successful, earns a profit from a share of production

Contractor sets work program subject to regulations

Work programme must be approved by management committee which includes members of Government

Province does not contribute any capital; Contractor recovers costs from profits on production

Costs are recovered by Contractor from a limited percentage of production deemed to be "Cost Oil"

Province does not receive oil production, but rather obtains its cash flow from royalties and taxes

Oil that is produced and is not "Cost Oil" is deemed to be "Profit Oil" and is shared between the State and Contractor on a fixed ratio or variable share basis

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
27 Oct 2016, Seminar, Toronto, Canada

Please join members of the Blakes Commercial Real Estate group as they discuss five key provisions of a commercial real estate purchase agreement that are often the subject of much negotiation but are sometimes misunderstood.

1 Nov 2016, Seminar, Toronto, Canada

What is the emotional culture of your organization?

Every organization and workplace has an emotional culture that can have an impact on everything from employee performance to customer or client satisfaction.

3 Nov 2016, Seminar, Toronto, Canada

Join leading lawyers from the Blakes Pensions, Benefits & Executive Compensation group as they discuss recent updates and legal developments in pension and employee benefits law as well as strategies to identify and minimize common risks.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.