• DGH proposal to allow private oil firms explore producing fields rejected

    The oil ministry has rejected the Directorate General of Hydrocarbon’s (DGH) recommendation that companies be permitted to carry out exploration in their producing fields irrespective of its effect on the government’s share of the profit, multiple people familiar with the matter have said.

    The recommendation by DGH, the technical arm of the ministry and upstream regulator, was debated for months in the oil ministry, with officials also seeking guidance from the Prime Minister’s Office (PMO) on the matter. Officials felt the current guidelines, which are in line with a previous observation by the national auditor that such a petroleum operation could be supported only if it raised government take, didn’t need to be amended.

    An informal calculation by the ministry showed that the government could lose thousands of crores in its share of profit if the proposal were to go through, according to people familiar with the matter. A senior executive at a private firm, however, rejected this assessment, calling it improbable.

    The PMO too wasn’t persuaded by the proposal that could have helped Vedanta, RIL and other explorers in the country.

    Under the older licensing rules, companies first receive Petroleum Exploration License (PEL) for a ‘contract area’. After the exploration licensing period expires, the operator must relinquish entire contract area to the government except for places where discoveries have been made. Once discoveries have been appraised, a ‘Development Area’ is carved out for which operator gets Petroleum Mining Lease (PML) that allows it to produce oil and gas from that area.

    Private players have been demanding permission to undertake exploration in ‘Development Area’, or PML area after the exploration license has expired. In February 2013, the government unveiled a policy, allowing exploration in PML area in a ring-fenced manner, and permitting cost recovery only when the contractor proved exploration activity wouldn’t reduce the government takes.

    “Subsequently there have been views that the terms and conditions are regressive, not in the interest of promoting petroleum operations in the country. The terms are also found to be difficult to administer particularly the ‘ring-fencing’ concept,” the DGH had said in a draft policy paper.

    “Permitting exploration throughout field life will promote investment and chances of increasing new discoveries and more production. A higher Royalty is invariably paid to the government when production increases consequently to further exploration,” the DGH had further said. Rob Gronkowski Authentic Jersey

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