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Cabinet approves HELP & new pricing policy for gas discoveries

The Union Cabinet approved a new pricing formula for gas discoveries made in difficult-to-access areas such as deep-sea, ultra-deep sea and high-temperature, high-pressure areas. It was done to incentivize hydrocarbon exploration in India. The formula will be based on a weighted one-year average of prices of fuel oil, naptha and imported coal.

Efforts announced to incentivize hydrocarbon exploration

  1. New price formula for undeveloped gas discoveries in deep-sea, ultra-deep sea and high-temperature, high-pressure areas using average of landed price of naphtha, fuel oil and liquefied natural gas (LNG)To provide calibrated marketing freedom

NOTE: Price fixed at a pre-determined ceiling price to be discovered on the principle of landed price of alternative fuels will definitely be positive for upstream companies since the new pricing will be applicable to existing as well as future discoveries.

  1. The Cabinet also approved the Hydrocarbon Exploration and Licensing Policy (HELP). The highlights of the new policy involve granting explorers a uniform license for exploration and production of all forms of hydrocarbons. The previous policy required a separate license for each type of hydrocarbon.

NOTE: This is positive from the long-term perspective.

  1. The new policy also incorporates an open acreage policy wherein exploration and production companies will be allowed to choose the blocks they want to use from the designated area.

NOTE: This will give leverage to the new explorers

  1. The cabinet decided to move towards an easier revenue-sharing mechanism from the current profit-sharing mechanism.

NOTE: The earlier contracts were based on the concept of profit-sharing where profits are shared between government and the contractor after recovery of cost. Under the profit-sharing methodology, it became necessary for the government to scrutinise cost details of private participants and this led to many delays and disputes. Under the new regime, the government will not be concerned with the cost incurred and will receive a share of the gross revenue from the sale of oil, gas, etc.

This will give freedom and autonomy to the explorer at production level as well as end possibility of political corruption.

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