Be it PSC or revenue sharing contracts; key to investments lies in balancing rewards and risk
When India imports 75% of its oil and 40% of its gas requirements, it becomes vital to improve the ease of doing E&P business in India. The various initiatives being taken by the Ministry of Petroleum and Natural gas augurs well for the future.
The recently proposed alternative fiscal and contractual regimes are in line with the ’Make in India’ objective of increasing domestic production. As a global operator BP is neutral to the choice of regimes. Indeed the decision on adopting any fiscal regime is the sole prerogative of the government. Their move to consult all stakeholders before rolling out the new policy is affirmative and egalitarian.
We have recently seen two accelerated policy initiatives like the uniform licensing and the marginal fields policy rolled out by the Ministry. In this context the open acreage licensing policy ensures a more active and year-round approach to attract investments. Investors can bid for blocks which are contiguous to their existing acreage, and it also gives them access to blocks with similar geology. All this becomes rewarding as India is still at an early stage of exploration with 52% of Indian sedimentary basins yet to be appraised.
India could also consider a hybrid system of bidding. The basins and blocks could be graded on the basis of prospectivity and risk perception. The higher risk frontier areas including ultra-deep blocks could fall into the open acreage regime. And the low risk high prospect area could continue to be offered under accelerated bidding rounds.
Over the years we have observed that pricing and marketing of natural gas is a key lever for driving investments to the sector. Administered pricing, even with a formula, has failed to deliver affordable market price equilibrium. Gas sold in India today (Domestically produced Gas and imported LNG) is priced at two ends of the spectrum of alternate fuels. The optimal approach that one suggests is that of a market discovered gas price that will be reflective and responsive to the demand-supply dynamics. It also provides a right level of risk/reward balance for the E&P investor.
An overarching understanding that the interests of the Government and the contractor are aligned in this high risk area of oil and gas exploration would speed up decision making. The defining and proactive role of DGH, the technical arm of the government, along with the management committee that oversees all blocks will help reach the elusive goal of minimum government – maximum governance.
When the goal is enhanced domestic production, there needs to be complete trust without which no contractual regime will be successful.
The views expressed here are personal and those of the author.