“Given the challenges in managing the oil and gas sector, it is necessary to focus on the agenda of critical reforms needed in this sector in the 12th Plan period,” said the central planning body, headed by Indian Prime Minister Manmohan Singh, in the 12th Plan main document.

The plan, which received approval from the country’s National Development Council (NDC) recently, is a guide for all the ministries, including the Petroleum and Natural Gas Ministry, to follow in making decisions and setting policies for the next five years.

The agenda of reforms prescribed for the petroleum ministry covered subjects ranging from regulation to acquisition of equity in overseas oil and gas projects.

These include:

1. Introduce an open-acreage licensing policy to achieve the target of full exploration coverage by 2017. The current method of awarding oil and gas blocks under the New Exploration Licensing Policy (NELP) was launched as a stop-gap arrangement until a National Data Repository was ready to facilitate an all-year round acreage award policy;

2. Take up seismic surveys in the entire unlicensed sedimentary area to facilitate 100% exploration coverage during the current plan period. The unexplored area still remains at 15% of 3.14 million sq km (1.2 million sq miles) in sedimentary basins spread over 26 zones;

3. Incentives for exploration and production of non-conventional fuels like shale gas, CBM, coalbed methane, and underground coal gasification;

4. Develop a policy framework to exploit shale gas. It is proposed that a new policy for exploration and production of shale gas be launched, and acreage be speedily awarded during the plan period;

5. Put in place a policy for simultaneous exploitation of CBM, coal, coalbed methane, oil, and gas in a unified manner wherever such resources are available;

6. Allow the operators to share offshore infrastructure to make marginal offshore oil and gas discoveries viable. DGH needs to announce regulations to encourage operators to collaborate on mutually beneficial terms;

7. Set up a regulatory authority for the upstream sector. As long as the government is the upstream regulator, the reasoning is that the Directorate General of Hydrocarbons (DGH) provides technical advice, which does not lend it independence;

8. Direct the state-run ONGC Ltd. and Oil India Ltd. (OIL) to step up efforts to raise oil and gas production from near stagnant levels of the past decade or so. These companies ought to enhance production by reducing R/P ratios. The companies should be encouraged to quickly appraise their entire licensed areas to enhance reserves and induct cutting-edge technology in these acreages;

9. Eliminate the uncertainty that has arisen regarding gas pricing from NELP production sharing contracts by implementing a new design of contracts. Appropriate steps should be taken to resolve conflicts in existing contracts where the interpretation of the contract term is open to multiple options; and

10. Encourage the Indian companies to acquire equity in oil and gas projects abroad, including conventional and shale gas assets.

These policy reforms have been prescribed to the petroleum ministry in the wake of slippage in production targets in the 11th five-year plan (2007-12). “Both oil and gas production targets have slipped by large percentages during the 11th Plan period. Against the crude oil production target of 206.73 million metric tons (MMmt) in the 11th Plan, the actual achievement is only 177 MMmt (14% below target). The actual natural gas production was 7.5 Tcf against the production target of 9 Tcf, with a shortfall of about 17% of the 11th Plan targets,” according to the plan document.

The planning body has set a target for produced crude oil of 216.339 MMmt/y and natural gas of 12 Tcf/y in the 12th Plan. Oil and gas companies, both state-run and private, are to drill 1,310 exploratory wells and shoot 2D seismic surveys covering 138,974 km (83,384 miles) and 3D surveys covering 82,488 sq km (31,849 sq miles) in the five-year period.

The objective of the exploration is to achieve hydrocarbon reserve accretion of about 727 MMmt of oil and oil equivalent gas in the country by the end of the 12th Plan.

Besides, the Rangarajan Committee, headed by economic advisor to the Prime Minister, C. Rangarajan, last month recommended drastic changes in the production contract regime for oil and also CBM blocks. It recommended replacing the cost recovery-led PSC model with a system of sharing of revenue from an E&P block from the first day of production in all future rounds.

The committee favors the government’s share in the overall revenues of the contractor without setting off any costs. The share will be determined through a competitive bid process for future PSCs. The bids will be made in a bid matrix, in which the bidder will offer different percentage revenue shares for different levels of production and price levels. The bids will have to be progressive with respect to both volume of production and price level.

It suggested taking a combination of two global methods of valuation of gas to arrive at an arms-length price for gas in India. The first is the volume-weighted net-back price to producers at the exporting country wellhead (such as Qatar) for Indian imports for the trailing 12 months.

The second is the volume-weighted price of the US Henry Hub, the UK NBP and Japan Custom Cleared (on net-back basis) prices for the trailing 12 months.

The petroleum, coal, and finance ministries have already started debating the suggestions made by the Planning Commission and the Rangarajan Committee to streamline the policies for the oil and gas sector. Finance Minister P. Chidambaram is expected to address some of the recommendations in his budget statement for 2013-14 later this month.

Ravi Prasad, Special to E&P