FROM THE DIRECTOR GENERAL’S DESK

The Government of India launched the NELP-VIII and CBM-IV rounds on 9th April 2009. Subsequently, due to unforeseen and unavoidable reasons, the road shows had to be deferred. Notwithstanding this, a team of senior DGH officials visited various countries and had high level meetings with representatives of E & P companies to present before them the opportunities for oil and gas exploration in India.

During the course of the meetings, some of the companies have expressed their concerns and apprehensions about the evaluation and award of blocks to the bidding agencies. A common undercurrent relates to the aggressive work program submitted by some of the bidding companies to garner additional points under the Bid Evaluation Criteria (BEC). The other concern is regarding a perception that some companies are being shown undue favors under the Production Sharing Contract (PSC), in matters such as grant of extensions, calculation of cost of unfinished work programs etc.

At the outset, I would like to make it amply clear that DGH is totally committed to transparency in all dealings. In fact, transparency has been the hallmark of our governance. We are in the process of creating a website that would be a true reflection of the level of transparency that we intend to achieve. Once the website is updated, it will be ensured that all relevant matters relating to PSCs would be posted and will be available to the public.

DGH’s relationship with the operators is always maintained at arms length. The production sharing contract (PSC) is the sacrosanct document that guides all activities and decisions pertaining to E & P activities in India. There is a well-established system of management committee to monitor this and to ensure that no operator takes undue advantage of the contractual terms and conditions. All the E & P operations come under the ambit of the PSC. It is a document signed between the contractor and government of India and is valid during the tenure of the contract. Under the provisions of the PSC, a Management Committee comprising representatives of the contractor and the government of India is constituted. The Management Committee has wide ranging functions and responsibilities with respect to the PSC and the decisions are taken through majority opinion. I would like to assure all operators that the treatment accorded to each and every company is equal and without any bias. Nevertheless, if any operator has any doubt or apprehensions, I would welcome comments and suggestions for improvement.

In order to adopt a transparent and consistent framework for granting extension in exploration phases, the government of India has framed an extension policy for considering proposals, which are either awaiting government’s consideration or those that may be received in future. Similarly the policy for determination of cost of unfinished Minimum Work Program have also been enumerated. Details of these policies can be accessed on the DGH website www.dghindia.org under policy guidelines.

Further, DGH is constantly interacting with operators and other agencies for improvements in the PSC. The objective is to ensure that petroleum operations are conducted smoothly with the best interests of all the stakeholders in mind. One of the important modifications carried out in the NELP-VIII Model PSC relates to the calculation of the cost of the unfinished work program. In order to avoid any ambiguity or subjectivity in the calculation of the penalty for the unfinished work program, the NELP-VIII incorporates the amount to be paid by the contractor in case of default in completion of the minimum work program. In other words, the contractor would know, upfront, the penalty that would be imposed on account of minimum work program commitments not being fulfilled.

The government of India has provided a level playing field to all the companies to compete on equal terms for award of exploration acreage. From two National Oil Companies engaged in oil and gas exploration in the pre-NELP era, we have today about 70 E & P companies in India. This has brought in a healthy spirit of competition between National Oil Companies and private companies. Further, there has been a welcome and perceptible increase in the partnerships between the public and private companies. The terms and conditions of this open and transparent policy rank have been acknowledged by E & P companies as comparable to the most attractive in the world. By providing tax rebates, cost recovery and other fiscal and contractual incentives, we have acquired a competitive edge among global peers and we have been able to attract the best companies to Indian shores.

There have been 103 discoveries since the year 1999 of which about 70% are gas discoveries. Such an encouraging scenario exists despite the fact that the drilling density in Indian basins is very low. The major oil and gas discoveries in the east coast of India perhaps represent only the tip of the iceberg. The estimated in-place reserves are of the order of 200 TCF. The biggest gas discovery of 2002 in the Krishna-Godavari basin has emerged as a gas hub. Production from this field has commenced with effect from 1st April, 2009.

The global perception of India’s hydrocarbon endowment is rapidly changing with more investments and modern technology pouring into India. Today, a climate of positive expectation pervades the Indian E & P sector. The discoveries of oil and gas in various basins has resulted in a paradigm shift in the way E & P companies across the globe view the hydrocarbon prospectivity of India. Today, India is a favored destination for companies to invest in E & P business.

Notwithstanding the above, in case any operator has any query or requires a clarification, they may feel free to write to me at my email id: dg@dghindia.org.

(V.K.Sibal)