Oil ministry seeks more flexibility for exploration companies

The Oil Ministry has approached the Cabinet to give companies including Cairn India and Reliance Industries greater flexibility to continue exploring for oil and gas even after the expiry of deadlines.

The government had allowed companies in February last year to launch probe missions to find more oil and gas within already-producing areas.

The approval was subject to severe conditions such as ensuring the government's share of profit from existing fields was not affected due to the additional investments needed to find and produce more oil or gas.

This, as well as other stipulations such as capping the cost of developing a discovery, were opposed by the industry, which said they were restrictive and discouraged contractors from making further investments.

The ministry earlier this month moved a draft note for the consideration of the Cabinet Committee on Economic Affairs (CCEA) to relax some of these conditions, sources privy to the development said.

The clause allowing companies to explore further only after demonstrating that the government's cumulative share of profit petroleum from existing discoveries would not be adversely impacted has been diluted.

This clause is proposed to be changed to require companies to prove commercial and techno-economical viability of new discoveries as a result of such exploration on a stand-alone basis, they said.

Under production sharing contracts (PSCs) signed before and after the advent of the New Exploration Licensing Policy (NELP) in 1997, companies are allowed to recover costs incurred on finding oil and gas from sales before sharing profit with the government.

However, the recovery of expenses is not allowed in an area where the initial exploration phase of up to seven years has been completed and discoveries have either been put on production or are being developed.

The February 2013 policy for continuation of exploration activities in mining lease areas was aimed at facilitating that.

After the February policy, RIL and its partner BP of UK made the MJ-1 discovery about two kilometres below the currently producing Dhirubhai-1 and 3 gas fields. The discovery is estimated to hold 0.5 to 3 trillion cubic feet of gas reserves.

Cairn has claimed that extension of exploration in the Barmer field would result in the addition of 1.25 lakh barrels of oil a day to the current output of 1.75 lakh barrels a day.

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