Open Acreage Licensing Policy

In June 2017, the government of India launched the National Data Repository (NDR) and Open Acreage Licensing Policy (OALP) under the progressive, market driven Hydrocarbon Exploration and Licensing Policy (HELP) of Government of India.

What is OALP and how is it different?

OALP is a new government policy which marks a departure from the previous regime in terms of the geographical area that could be explored, the number of licences required, the manner in which proceeds are to be shared with the government, and the procedure to sell what is extracted. OALP is a part of HELP, which itself was a replacement to the New Exploration and Licensing Policy (NELP).

The ‘open acreage’ in OALP refers to the fact that potential investors are now able to choose exactly which areas they want to explore and develop.

Under NELP, the government used to select an area and then place it on the block, and investors had to bid for the entire block even if they were interested in only a portion.

Under OALP, investors choose the exact areas they are interested in, convey their interest to the government, which then places just those blocks up for bidding, typically twice a year.

This is more attractive for prospective operators because in the past, the blocks chosen by the government often were large swathes of land or sea in which only a small fraction had hydrocarbon reserves. By offering companies the freedom to choose exactly the areas they want to explore, and their size, the government has a better chance to woo serious energy investors in an effort to help achieve a more cohesive framework of the country’s energy security.

National Data Repository

National Data Repository is envisaged as a centralised database of geological and hydrocarbon information that will be available to all. Besides allowing potential investors to make informed decisions, this will open up a new sector in India. There are a number of companies around the world that make it their business to simply explore hydrocarbon basins and sell the information they gather. The new initiative seeks to incentivise such prospectors.

What else is different?

The other major difference between the new and old policies is the new one doesn’t require developers to apply for separate licences for each of the hydrocarbons they want to extract from the block. They can obtain a single unified license that will allow them to extract and market oil, gas, coal bed methane, shale oil and shale gas.

The new policy also does away with the earlier provision for a profit-sharing model with the government. Profit sharing as a policy led to a number of delays and complications over what exactly constituted the cost, and therefore profit, of the firm doing the exploring. The new policy hinges on revenue-sharing, doing away with this ambiguity.

Companies may also submit applications through the year and not just at designated and often infrequent points, as was the case earlier. The Directorate General of Hydrocarbons has said that while the auctions will be held twice a year for now, the frequency could be increased as soon as the industry grows accustomed to the new system. This, too, will lend more flexibility to the industry.

Investment-a concern

A concern is whether India can attract enough investment to meet the government’s objective of reducing oil imports by 10% by 2022, especially given the past experience investors have had with large projects such as KG-D6. There are after all proven reserves in other parts of the world, such as the Gulf of Mexico, that could still keep investor appetite for Indian acreage weak.

Sources: The Hindu and The Hindu

Image Source:  Ken Childress Photography

Categories: POINT IAS

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