Hydrocarbon Exploration and Licensing Policy (HELP)

The Hydrocarbon Exploration and Licensing Policy or HELP, approved by the cabinet in March 2016 is aimed at increasing the transparency and decreasing the administrative discretion in granting hydrocarbon licenses. The license will permit contractors to explore conventional and unconventional oil and gas resources that comprise shale gas/oil, CBM, gas hydrates and tight gas under one single license.

What is HELP?

The Hydrocarbon Exploration and Licensing Policy (HELP) is a policy framework. It provides guidelines for the exploration and production of hydrocarbons in India. It was announced by the Government of India in March 2016. The HELP aims to make India a global hub for hydrocarbon exploration and production. It simplifies the licensing process. It provides fiscal incentives and promotes investment in the sector.

HELP is a uniform policy for granting licenses for exploration of hydrocarbons inside India and its Exclusive Economic Zone. The following are the main features of this policy:

A single licensing format for exploration, production and subsequent marketing of all hydrocarbons.
Open acreage policy for granting exploration blocks.
Easy to understand revenue sharing model which is also easy to administer.
Freedom from government regulation in pricing and marketing on hydrocarbons produced from such exploration.

The policy is designed to enhance domestic oil and gas production, bring additional investment into the sector and generate employment. As discussed earlier, it also aims to increase transparency and decrease the administrative discretion in granting hydrocarbon licenses. Open Acreage will allow E&P Companies to choose blocks from a designated area.

Why is HELP Needed?

The earlier policy that regulated exploration and production companies, called theNew Licensing and Exploration Policy (NELP) was framed in 1997 and was enforced in 1998. It had a few drawbacks as explained below:

The policy regime of NELP dealt separately with conventional oil and gas, shale oil, coal bed methane and gas hydrates.
The fiscal terms in force for acreage allocation were different for different types of hydrocarbons.
Hydrocarbons derived from shale fracking and other unconventional hydrocarbons were not discovered when the NELP was formulated.
The fragmented nature of the policy inherent in NELP leads to inefficiency. For example, when prospecting for crude oil, if an E&P company found natural gas, it had to apply for a separate license, adding to cost and opening the process to corruption.
The NELP mandated government regulation of oil and gas prices leading to loss of revenue, court cases and arbitration. NELP also did not make any distinction for shallow water and deepwater/ultra-deepwater fields, thus imposing a uniform regulatory structure on sectors with different risk/return profiles.

HELP essentially retained the structure of NELP and fixed the loopholes and disadvantages in the earlier policy by introducing the following changes:

A single license for all hydrocarbons granted once under a single policy and licensing regime.
Open Acreage licensing means that any E&P company wishing to bid on an exploration block currently not covered by any exploration license granted to another party. The Government examines the Expression of Interest and justification. If it is suitable for the award, the government calls for competitive bids after obtaining necessary clearances from environmental and other agencies.
Contracts will be granted on the basis of bids in which the bidders will need to quote revenue sharing at two levels designated “lower revenue point” and “higher revenue point”. Revenue share at any revenue point between these points should be calculated by linear interpolation. The bidder sharing the highest revenue at net present values with the Government will get maximum weightage in this parameter.
Deepwater and ultra-deepwater areas will be covered under a regime of concessional royalty for revenue sharing. Seven years of operation will be royalty-free at first for these areas and thereafter the concessional royalty rates would be 5% for deepwater and 2% for ultra-deepwater areas. Shallow water fields will also have concessional rates at 7.5% instead of 10% keeping in mind the risk /return profile of the exploration block.
The contractor has the freedom to price and market hydrocarbons produced and sold in the domestic market. The revenue share of the market is calculated based on international crude oil prices or actual price.

The new HELP will stimulate the creation of exploration business for oil and gas by simplifying the petroleum exploration license and reduce import dependence. This, in turn, will create new job opportunities in the oil and gas sector as well as reduce disputes and corruption as the government will not have too much discretionary power over petroleum exploration licenses.

Major Functions of Hydro Exploration and Licensing Policy (HELP)

Uniform Licensing- HELP policy calls for a uniform licensing scheme. This will apply to all hydrocarbons, including coal bed methane, gas, and oil. Separate licenses were granted under NELP to explore various types of hydrocarbons. This results in extra costs. If a different type of hydrocarbon is discovered while researching a certain type, a separate license is needed.

Open Acreage Licensing Policy (OALP)- Contractors can explore both conventional and unconventional oil and gas resources owing to the OALP. OALP is a crucial component of the Hydrocarbon Exploration and Licensing Policy. It offers consistent licenses for the exploration and production of all hydrocarbons.

Fields come with marketing and price freedom for produced crude oil and natural gas. They are offered on a revenue-sharing basis.
According to the OALP, once an explorer chooses areas after assessing the National Data Repository (NDR) and submitting the EoI, it must be placed up for competitive bidding.
The block is then granted to the company willing to offer the government the largest proportion of oil and gas.
NDR has been developed to give explorers information on the nation’s repositories. Users can select fields based on their skills.
The National Seismic Programme is a thorough investigation of 26 sedimentary basins. It provides data that is regularly being added to the NDR.

Royalty- Royalty is 12.5% for on-land sectors and 10% for offshore areas of royalty. For the first seven years following the start of commercial production, deep water areas with bathymetry of more than 400 m will be subject to royalty at half the going rate.

Pricing- Before HELP, contracts were based on production share. It had the risk of “manipulating profit” by “gold plating” (incorporating expensive and superfluous features) the investment. It undermined the government’s investment. It was modified to revenue sharing to simplify contract management. Marketing and pricing decisions are up to HELP.

A graduated system of royalty rates will be implemented under the new system. The royalty rates will fall under this scheme as you move from shallow to deep to ultra-deepwater.
The current approach must differentiate between shallow water and deep water fields when setting royalties. In shallow water areas, exploration costs and risks are lower. In deep water areas, costs and risks are higher.

Revenue Sharing Model-The NELP was a profit-sharing concept. Upon cost recovery, earnings are split between the Government and the Contractor. It became necessary for the government to review the expense information provided by private parties. This resulted in several delays and disagreements.

The government will get a part of the total proceeds from the sale of oil, gas, and other commodities under the revenue-sharing model stipulated by HELP. The costs incurred will not be taken into account.

National Data Repository (NDR)- The National Data Repository (NDR) is an integrated data repository for the Indian sedimentary basins’ exploration and production data.

In keeping with the Digital India goal, NDR will offer a crucial data resource.
A bidder can review the data via NDR. He may then submit an Expression of Interest (EOI) at any time during the year in two windows. He need not wait for the notification of bids.

Advantages of HELP

The policy aims to enhance transparency in allocating hydrocarbon licenses. It ensures fairness and reduces the chances of favoritism or corruption.
HELP streamlines the licensing process. It reduces administrative discretion and simplifies the procedures for granting licenses. This helps expedite exploration activities and promotes efficiency.
Under the HELP policy, a single license allows contractors to explore conventional and unconventional hydrocarbon resources. This includes shale gas/oil, CBM, gas hydrates, and tight gas.
The policy creates a favorable environment for investment in the hydrocarbon sector. It provides clear guidelines and a level playing field for all stakeholders.
HELP allows the exploration of various types of hydrocarbon resources under one license. It helps maximize the potential of India’s energy reserves.
The policy encourages the adoption of advanced technologies and techniques for hydrocarbon exploration. This facilitates the exploration of unconventional resources and promotes innovation in the sector.

What is New Exploration and Licensing Policy (NELP)?

The New Exploration and Licensing Policy (NELP) is an initiative introduced by the Indian government. It attracts domestic and international investment in the exploration and production of hydrocarbon resources. NELP was launched in 1997 to boost oil and gas exploration activities in the country. It offers exploration and production blocks to companies through a competitive bidding process. The policy aims to provide a level playing field. It aims to provide transparent procedures for allocating exploration rights.

Drawbacks of the New Exploration and Licensing Policy (NELP)- Some of the problems associated with NELP are as follows:

Diverse hydrocarbons include:
- conventional oil and gas,
- coal-bed methane,
- shale oil and gas, and
- gas hydrates.

These had varied policies and permits.

Additionally, distinct financial conditions applied to the land distribution to explore various hydrocarbons. In reality, there was resource overlap across many contracts. When NELP was framed, unconventional hydrocarbons (such as shale gas and oil) were unheard of.
This had a disjointed policy framework for the exploration of unconventional hydrocarbons. If a different form of hydrocarbon is discovered while researching one type, it will need a separate license. This will raise the cost.
The nation is dealing with a situation where oil and gas account for a sizable and rising portion of all imports.
While gas production has decreased, oil production has remained constant. To boost local production, deliberate policy actions are required.
The government announced a new regulatory regime for exploration licensing in 2016. This was done under the Hydrocarbon Exploration and Licensing Policy (HELP).

Difference between NELP and HELP
Sl. No.	Parameter	NELP	HELP	Cause & Consequences
1	Licensing System	Multiple Licensing system	Uniform Licensing system	A contractor does not have to worry about obtaining individual licenses for each hydrocarbon exploration, thanks to the universal licensing scheme.
2	Royalties	Standard rates	Low rates for Deep/Ultra-Deep-Water	Royalty rates have been decreased due to the hazards associated with the exploration of deep and ultra-deepwater areas.
3	Fiscal Model	Pre-tax investment multiple (PTIM) or a Profit sharing model	Revenue Sharing model	While NELP advocated recovering costs and operational investments before splitting the profit, HELP requires companies to split revenue as soon as production begins.
4	Exploration period	7 years for On land and Shallow Water; 8 years for Deep/Ultra-Deep-Water	8 years for On land and Shallow Water; 10 years for Deep/Ultra-Deep-Water	In order to encourage convenience and freedom of doing business, exploration years have been increased.
5	Acreage Licensing Policy	Restricted	OALP (Open Acreage Licensing Policy)	When the exploration sites were awarded to the contractors, there were numerous delays. The contractor is now free to select the location.

FAQs

What is a petroleum exploration license?

A petroleum exploration license is a legal authorization granted by the Indian government to individuals or companies allowing them to explore for and extract petroleum resources within a specified area.

What are the steps involved in obtaining a petroleum exploration license ?

The steps may vary slightly depending on the state and regulatory body involved. Generally, the process involves application submission, technical evaluation, financial assessment, environmental impact assessment, and approval by the relevant authorities.

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