RK_Sinha.ppt

Directorate General of HydrocarbonsNoida, India

R.K.SinhaAdvisor (Production)

NELP Policy – Global E&P

Practices

Presentation Outline

Petroleum Regulatory Framework

Types of Agreements

Contracts in India – PSC Regime

New Exploration Licensing Policy - NELP

India’s Perception

Conclusions

2

Petroleum Regulatory Framework

3

Petroleum Regime Framework

CONSTITUTION

E & P BUSINESS REGIMES

PETROLEUM LAWS/ REGULATIONS

Legislative/Regulatory

4

CONCESSION

JOINT VENTURE SERVICE

CONTRACT HYBRID PSC

Global Energy Resources Management Structure

More countries adopting the "separation of roles“ for ResourceManagement

MinistryMinistry RegulatorRegulator

NOC/IOC/ JVNOC/IOC/ JV

PolicyPolicy RegulationsRegulations

BusinessBusiness

5

Pillars of Oil & Gas Regulatory Regimes

A good oil & gas regulatory regime addresses certain major regulatory issues in a satisfactory way:

• The right to monetize resources

• Fiscal and contract stability

• Enforceability of contract

A regulatory regime that fails on any one of these points puts its “investment favourability” at risk

6

Types of Agreements

7

Types of Agreements

Concessions

Joint Ventures

Service Contracts

Production Sharing Contracts/Risk Sharing

Contracts

Hybrids

8

Concession

• Contractor has exclusive rights to explore, develop,

sell, and export oil/gas from a specified area for a

fixed period of time

• “Equity” or “Royalty & Tax” structure

• Maximum control to Contractor

• Oldest & most widely used

9

Joint Venture

• Private/Foreign Companies and NOC form a Joint

Venture

• Each JV partner pays/receives its share in

proportion to its Participating Interest.

• JV pays royalty, income tax and usually some form

of Petroleum Revenue Tax (PRT)

• Low success rate, less commonly used

10

Service Contract

• Contractor pays all exploration and development

costs

• Contractor works under government’s mandate and is

paid for its work

• Government maintains ownership and title of minerals

• Most suitable for Contractor for risk-free operations

and for States having Producing Assets

11

Production Sharing Contract

• State enters into a PSC with Contractor for a

specified period

• Contractor finances exploration and development.

• If successful, Contractor will recover its costs and

earn a profit by receiving a share of production.

• Royalty & Income Tax are paid as applicable

• Significant control to Contractors, but State has

contractual controls

12

Hybrids

• Combinations of Concession /JV / PSC, royalty,

tax, cost oil / profit oil shares and fees etc.

• Efforts to develop a world model Hybrid agreement

have been unsuccessful because structures are

becoming more diverse

• Host governments seeking structures that suit

their particular needs

13

Comparative Analysis of Agreements

14

Type of agreements Contractor Government

Concession

All riskAll reward

Reward is a function of production & price

Joint venture Share in risk & reward

Share in risk & reward

Service contract No risk All riskAll reward

Hybrid Mixed Mixed

PSC Exploration riskShare in reward

Share in reward

Usage of Contract Types

15

Type of agreements Number of countries utilizing this type

Concession 59

Joint venture 31

Service contract 2

Hybrid 16

PSC 40

Source: Macleod Dixon Workshop, 2007

Countries and Agreement Types

16

TYPE OF AGREEMENTS COUNTRIES UTILIZING

CONCESSIONS (59)

UK, US , Norway, Australia, Canada, Peru, Namibia, Thailand, Sudan, Ecuador, Kuwait, Bahamas

JOINT VENTURES (31) Colombia, Cameroon, Netherlands, Pakistan

PSC (40) Egypt, Yemen, Angola, Indonesia, India, Guatemala, Sri Lanka

SERVICE CONTRACTS (2) Iran , Qatar

HYBRID (16) Libya, China, Malaysia, Kenya, Tanzania, Gabon, Myanmar

Right Agreements – Main Elements

• Right contract is vital to a government’s effort to

reap the benefits of its natural resources

• Balance needed between country’s and investor’s

interests

• Takes into consideration the communities or entities

not party to the deal but who will be interested or

affected by it

17

Approaches to Resource Exploitation

• Many developed countries use unilateral licensing /

leasing approach

• Many developing countries use consensual

approach and prefer mining agreements

• Political will of host country to develop resources is

key and expressed through regulatory instruments,

Contractual obligations, National Policies and

guidelines

PSC in India

19

Historical Background

• First concept for PSC was introduced in Bolivia in 1950

• PSCs were successfully implemented in Indonesia in 1966

• PSCs are being widely used in more than 40 countries

• In India, first PSC was signed in 1993 for a Pre-NELP Block

• 231 Exploration PSCs have been signed so far

• PSC terms continuously improved in consecutive NELP

rounds

20

Constitution of India, 1950

The Oilfields (Regulation and Development) Act, 1948

The Petroleum and Natural Gas Rules, 1959 & Amendments

Territorial Waters, Continental Shelf, Exclusive Economic Zone

and other Maritime Zones Act, 1976

Income Tax Act, 1961

Customs Act, 1962

Foreign Exchange Management Act, 1999

Environment Protection Act, 1986

Arbitration and Conciliation Act, 1996

Legal Framework

21

Production Sharing Contract Attributes

– Contract term– Relinquishment– Management Committee– Discovery, Development & Production– Unit Development– Cost Recovery & Production Sharing– Taxes, Royalties & Rentals– Domestic sourcing & supply obligations– Employment & training– Title to assets

22

NATIONAL OIL COMPANIES

1950s-93

1993+

POLICYMinistry of Petroleum & Natural Gas

Prime Minister’s

Office

REGULATOR

Upstream: DGH

Downstream: Gas Regulator

OPERATOR

Public (Central):

ONGCOIL

GAIL

Public (State):GSPC

Private:RelianceJubilant

VideoconEssar

Foreign:BGENI

Cairn Niko

Planning Com

• Hydrocarbon sector vision

• Role for different sectors in energy fuel mix

• Managing resource base

• Bringing accountability

• Managing licensing

• Mandate for data repository

• Investing capital and technology

Effective Regulatory Mechanism

23

Petroleum Expenditure & Revenue Profile

$

5 10 20 30 40

Exploration

& Appraisal

Development

ProductionAbandonment & Reclamation

CostsRevenues

24

25

Cash Flows Under PSC Regime

Production value

Cost Petroleum

Profit Petroleum

Contractor’s share Government’s share

Development

Exploration

Production

Royalty

Income tax Government’s take

Contractor’s take25

26

Pre Tax Investment Multiple (PTIM)

Gross RevenueGross Revenue

Profit Petroleum (both of contractor & Government)

Profit Petroleum (both of contractor & Government)

Cost Petroleum(includes Royalty, OPEX

and allowed cost recovery of CAPEX)

Cost Petroleum(includes Royalty, OPEX

and allowed cost recovery of CAPEX)

Contractor’s take = Cost petroleum + Contractor’s share of Profit petroleum

Contractor’s net cash flow = Contractor’s take – ( Production cost (OPEX) +Royalty )

Contractor’s Cumulative net cash flow

Cumulative exploration & development cost PTIM =

27

Sharing of Profit Petroleum

• Profit share bidding (example) :

PTIM Tranches Profit Share to Government

Upto 1.5 30%

3.5 and above 80%

Upto 1.5

3.5 & above

Pro

fit

Sh

are

PTIM

Methodology of Bid Evaluation

1.Technical Capability

2. Work Programme

3.Fiscal Package

1. Operatorship Experience2. Annual Accretion of proved reserves3. Acreage Holding4. Annual Production

1 3D seismic surveys

2 Exploratory wells

3 Other Surveys

1. Cost recovery2. Profit share to Government

Income Tax Regime in Oil Industry

29

33.66%

Cost Oil Limits

0%

20%

40%

60%

80%

100%

120%

Cost Recovery Limit

100%

Royalties

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

Fixed Percentage Royalties

(10%-12.5%)

NELP – A Progressive Policy

32

POLICY REFORMS

New Exploration Licensing Policy (NELP)New Exploration Licensing Policy (NELP)

• New Exploration Licensing Policy (NELP)New Exploration Licensing Policy (NELP) announced in 1997, Effective since 1999announced in 1997, Effective since 1999

• Administrative Price Mechanism (APM) abolishedAdministrative Price Mechanism (APM) abolished

• 100% FDI in E&P sector approved 100% FDI in E&P sector approved

• Seven rounds of international bidding completed Seven rounds of international bidding completed

• 203 blocks awarded up to NELP-VII203 blocks awarded up to NELP-VII

• Vision to offer 80% by 2012Vision to offer 80% by 2012

Award of licenses through international competitive bidding

Fast track approval mechanism, DGH as single window clearance

No State participation or any carried interest

International pricing for Crude oil

Approval of price formula/ basis of Natural gas by Govt , Allocation governed by Gas utilization policy

Cost recovery biddable - Up to 100%

No custom duty on imports for Petroleum Operation

Path Breaking Exploration Policy

• No Signature, Discovery or Production bonus

• Sharing of Profit Petroleum with Govt. on biddable pre-tax investment multiple

• Low to moderate royalty rates between 5% to 12.5%

• Special concessions for deepwater blocks

• Full repatriation of profits

• Liberal set off of losses and carry forward provisions for income tax purposes

• Tax Incentives for Site Restoration Fund Scheme (SRFS)

Path Breaking Exploration Policy

• Opened up more acreage

• Voluminous E&P data generated

• Impetus to E&P Activities

• Growing Competition

• Remarkable Hydrocarbon Discoveries established

• Proven Potential

• Increasing oil and gas production

• Remarkable Investment in E&P and Infrastructure

NELP- Positive Results

19902 Companies3 Producing Basins



19471 Company1 Producing Basin

E&P Activities Growth

AREA awarded : 2.15 Million Sq Km (68%)

AREA AWARDEDAREA AWARDED

Total area : 3.14 Million Sq Km

Area Opened upArea Opened up

NELP – GLOBAL INTEREST

Growth of Discoveries

107

180

Discoveries in all Basins

KG, 43%

Cambay, 24%

Rajasthan, 15%NE Coast, 7%Cauvery, 3%

Mahanadi, 3%

A-Arakan, 2%

GS, 1%, MUMBAI, 1% SAURASTRA, 1%

Discovery by all Operators

44

EMERGING GAS POTENTIAL - EAST COAST EMERGING GAS POTENTIAL - EAST COAST

Basin Area (Sq.km) : 299,000

Resources (O+OEG) : 48 (Billion bbl)

Resources Gas : 153 TCF (Approx)

GIIP Reserves (TCF) : 16.38

Current Gas Production : 60 (MMSCMD)

Anticipated Production: 100 (MMSCMD)

Drilling Density : 0.15 wells/ 1000 Sq. Km


45

ProspectivityMateriality and scale of opportunities are world class - as proved by Barmer Basin oil and KG Basin gas discoveries


MarketGas market policies and regulatory framework are in place now – gas pricing and marketing rules are simple and clear

CompetitionIt’s a level playing field – bid evaluation system is more transparent, fair and competitive. Technical and commercial merits weights have been optimized

USGOM

Optimizing Bid Evaluation

Fiscal Weight

Technical Weight

Competitive Landscape

ConcentratedDiversi

-fied

Norms & Benchmarking

Weak Strong

PricingAdministered

Market-based

Data availability

UndevelopedRich-

Accessible Data

Bidding

Negotiated Access

Open & Transparent Bid rounds

INDIA

INDIA

INDIA

INDIA

INDIA

INDIA

Nigeria 2006

Nigeria 2006

Nigeria 2006

Nigeria 2006

Nigeria 2006

Nigeria 2006

USGOM

USGOM

USGOM

USGOM

USGOM

Indonesia 2007

Indonesia 2007

Indonesia 2007

Indonesia 2007

Indonesia 2007

Indonesia 2007

Brazil Round 9

Brazil Round 9

Brazil Round 9

Brazil Round 9

Brazil Round 9

Brazil Round 9

Operator Friendly Policies

Source :PFC Energy

47

*

HOW ARE WE DIFFERENT FROM OTHERS ?HOW ARE WE DIFFERENT FROM OTHERS ?HOW ARE WE DIFFERENT FROM OTHERS ?

YesYesYesNoYesYesYes Ring fence

0%0%0%0%0%0%15%Govt. carry

100%100%95%100%87%91%87%Access to gross revenue

100%100%100%100%70%80%75%Cost rec. limit

5 & 10%**

10%5%0%-7.5%***3%10.5%Royalty

Biddable56%46%46%30%32%Contractor take

PSCPSCR/T*R/T*SA*PSCPSCType of system

Deep Water

Shallow water

INDIANEW ZEALAND

AUSTRALIAPHILIPPINESINDONESIAMALAYSIA

PARTNERING OPPORTUNITIES

NATIONAL OIL COMPANIES

FOREIGN PLAYERSINDIAN PRIVATE SECTOR

OIL

ONGC

HPCL

BPCLIOC

NTPC

Reliance

Tata

Jubilant

VideoconEssar

HOEC Adani

AbanWelspun

BG

Geoglobal

BP

Deep

Eni StatoilCairn

SantosTullow Hardy

NIKO Petrobras Naftogaz

Gazprom

Canoro M3energy

BUSINESS RISK EVALUATION

PFC ENERGY ANALYSIS

PETROLEUM RISK MANAGER (PRM)

FOR 59 COUNTRIES

AGGREGATING 5 RISK CATEGORIES

27 INDIVIDUAL RISK FACTOR

1990 – 2014 TIME HORIZONS

COMPARED ENTRY RISK, EXPLORATION RISK AND DEVELOPMENT RISK

India: Operations Risk

“A”“B” “C” “D” “F”

In terms of Oil Sector Operations Risk, India scores in the low risk range (B).

Source: PFC EnergySource: PFC Energy

Best

worst

India: Oil Sector Entry Risk

“A”“B”

“C” “D” “F”

In terms of Entry Risk, India scores in the medium risk

range (B), while many major resource holders are in the D

to F range


Best

worst

India and Other Asian Countries

5 = best

4.173.91

3.33 3.33 3.323.66

3.172.96

3.63 3.49


India’s Politics and Economics scores are among the highest in Asia, Oil Sector Entry scores are average for the region.

India and Other Deepwater Players

4.17

3.743.43 3.33

3.14 3.07

3.63 3.63


Compared to other Deepwater Players, Oil Sector Entry scores are

higher than major resource holders such as Mexico and Brazil.5 = best

• Indian PSC is considered to be Progressive & investor

friendly

• India has large unexplored area with uncertain

prospectivity

• Needs extensive exploration and risk capital

• PSC enables exploration at no cost to Government

• “Cost Recovery” acts as incentive to continue

exploration till success is achieved

Conclusions

55

Documents

RK_Sinha.ppt