India: Open Acreage Licensing Policy

Last Updated: 31 January 2018
Article by Dibyanshu , Prateek Bhandari and Shikha Rastogi

Most Read Contributor in India, August 2018

Introduction

On 19 January 2018, the Notice Inviting Offer (NIO) for exploration and development of 55 oil & gas blocks in India under the Hydrocarbon Exploration & Licensing Policy (HELP) was issued by the Ministry of Petroleum & Natural Gas (MoPNG). Pursuant to the NIO, 46 onland blocks, 8 shallow water blocks and 1 deep water block are on offer.

The NIO was released as a part of the Open Acreage Licensing Policy (OALP) Bid Round‑I. This will be the first bid round under the new HELP regime, which has replaced the earlier New Exploration Licensing Policy (NELP) bidding rounds for the oil & gas blocks. Earlier, the MoPNG had launched National Data Repository (NDR) on 28 July 2017 and had notified the modalities for operationalisation of the OALP on 30 June 2017.

For OALP Bid Round-I, the Expressions of Interest (EOI) were submitted by investors / applicants from 1 July 2017 to 15 November 2017. Based on the EOIs, MoPNG has issued the NIO dated 19 January 2018 allowing all investors / applicants to bid for the 55 oil & gas blocks totaling to 59,000 sq km by 3 April 2018. The award of the block is scheduled for June 2018.

OALP aims at accelerating upstream activities in India and envisages a continuous window of exploration opportunities wherein the exploration & production (E&P) players would have flexibility to choose the areas to carry out exploration. Further under the OALP, the applicants may propose a potential block which is free of existing mining lease and exploration license and does not fall in an area indicated as 'no-go' in NDR. Directorate General of Hydrocarbons (DGH), subject to certain conditions, will then invite bid through NIOs from interested investors / E&P companies and would award the area post the completion of the tender process.

Operationalising OALP

HELP, notified by the Government of India in March 2016, envisages a uniform license for exploration as well as production of conventional and unconventional oil and gas resources including CBM, shale gas / oil, tight gas and gas hydrates. HELP grants freedom to E&P companies for marketing and pricing natural gas and crude oil and envisages an easy to administer revenue sharing model. The key steps of open acreage licensing, one of the main facets of HELP, are:

  • Submission of EOI: The investors after studying the data through NDR will apply for a specific block for either reconnaissance contract or petroleum operations contract by submitting a suo moto EOI:

    • Petroleum Operations Contract (POC) permits exploration, development and production operations in any of the onshore, shallow-water, frontier, deep-water and ultra-deep water blocks for all types of hydrocarbons for a period of 6 years with a provision for: (i) extension of 1 year each in initial and subsequent exploration for on-land and shallow water blocks; and (ii) upto 2 extensions of 1 year each in initial and subsequent exploration phases for frontier, deep water and ultra-deep water blocks.
    • Reconnaissance Contract (RC) permits exploration operations in any of the onshore, frontier, shallow-water, deep-water and ultra-deep water blocks for all types of hydrocarbons for a period of 2 years with a provision for an extension of 1 year.
    The EOI must be submitted online alongwith application fee and participation bond. The EOI will be accepted throughout the year in 2 windows. Deadline for submission of the EOI will be 15 November and 15 May every year, for the respective windows. The EOI will be evaluated on a first-come, first-serve basis. However, the EOI for RC will be superseded by EOI for POC, if submitted for the same area, during the submission window.
  • Invitation through NIOs: After evaluation of the application made by the applicant, DGH shall finalise the block and invite bids through a NIO for competitive bidding within 30 days of closure of each window subject to internal / governmental approvals. The NIO will contain the bidding terms, technical and financial qualification criteria and provide 60 days to bidders to submit the bid from the date of publishing of NIO.
  • Incentive to applicant: The applicant shall get an additional 5 marks (out of 100) as originator incentive during evaluation of the bids for RC and POC. Further, the applicant is also entitled to migrate from RC to POC upon completion of 80% of the work programme commitments. Such intent to migrate will be treated as an EOI to undertake POC for that block.
  • Submission of online bids by other competitors and award of final contract: DGH shall endeavour to finish the bid evaluation and award the block within 10 weeks from the bid submission deadline. The successful bidder shall enter into an agreement with government as per the model contract.

The procedure for operationalisation OALP and model revenue sharing contract to be entered into between the Government and the selected bidder have been issued for facilitating OALP.

Comment

OALP, supported by NDR, is a major policy initiative to incentivise domestic production and to cut down on the import dependence of oil & gas, given the volatility in crude prices and energy security. The lack of updated geological and geophysical data hampered E&P activities in the past. OALP and NDR intend to attract E&P players by providing operational flexibility, market access and transparency in the bidding and contract administration process.

The new HELP regime for upstream oil & gas sector is a welcome step as it attempts to address the concerns and difficulties faced by international oil & gas players during the NELP regime. The move may provide much needed impetus to the domestic production and help the Government of India in achieving its ambitious target of expanding the share of gas in the energy mix to around 25% by 2025 and reducing the dependence on imports in 2022 by 10%.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at legalalerts@khaitanco.com

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