Cabinet changes pre-NELP oil, gas block terms to boost output

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SME Times News Bureau | 19 Jul, 2018
The Cabinet on Wednesday made changes to the pre-1999 New Exploration Licensing Policy (NELP) oil and gas contracts to allow proportionate sharing of royalty and cess between the operators of an area, without putting the entire burden on state-run explorers ONGC and Oil India.

Briefing reporters here after a Cabinet meeting, Petroleum Minister Dharmendra Pradhan said the Cabinet Committee on Economic Affairs (CCEA) also extended the policy of marketing and pricing freedom to natural gas produced from difficult deep-water areas to cover fields in the northeastern region.

"In order to incentivise some of the pre-NELP private bidders, the government had put all the responsibility of paying royalty and cess on the ONGC (Oil and Natural Gas Corp) and OIL (Oil India Ltd)," Pradhan said.

"This, however, led to a decline in the field output and the ONGC felt that paying 100 per cent of the levies was making these unviable.

"CCEA has decided that statutory levies including royalty and cess will now be shared in proportion to the PI (participating interest) of the contractor in the pre-NELP exploration blocks," he said.

Noting that the Cabinet decision would impact seven fields, the Minister that the levy paid in this manner has been made cost recoverable with prospective effect. Thus, the statutory levies can now be first recovered from the sale of hydrocarbons before sharing the profits with the government.

"This will benefit pre-NELP exploration blocks in which fresh investment for additional development and production activities is expected as sharing of royalty and cess, and cost recoverability of same will help in making additional investment commercially viable for licencee companies ONGC and OIL," he said.

In a related decision, the CCEA has extended income tax benefits to all the 28 oil and gas fields awarded before NELP came into force in 1999.

Noting that 13 of these blocks did not have the tax benefits earlier, Pradhan said: "All pre-NELP blocks will now get exemptions under Section 42 of the Income Tax Act."

This provision allows companies to claim 100 per cent of the expenditure incurred under a production sharing contract as tax deductible.

Pradhan also said that based on the recommendations in the "Hydrocarbon Vision 2030 for North-East", the government has extended timelines for the exploration and appraisal period in 10 operational blocks of the region considering its geographical and logistical challenges.

"The exploration period has been increased by two years and appraisal period by one year," he said.

"Also, to stimulate natural gas production in the region, the government has allowed marketing, including pricing freedom for natural gas, to be produced from discoveries which are yet to commence production as on July 1, 2018."

The CCEA also relaxed the timeline from seven days to 15 days for giving written notice to notify the occurrence of a "force majeure" crisis event in a production sharing contract.

"The approvals given today (Wednesday) are expected to help in ensuring the expeditious development of hydrocarbon resources," a Petroleum Ministry statement said.