Oil Exploration: Harvesting more oil from fields

India needs to double down on extracting the full potential of its producing oilfields by reforming the older exploration and production regimes even as it continues to improve the policy framework for new acreage.

Hydrocarbon licensing policies since 2016 have progressively jettisoned redundant layers of approvals and introduced improved fiscal terms. Unfortunately, bureaucratic processes and onerous taxation continue to burden older production-sharing contracts (PSCs) that account for most of the country’s oil and gas output.

Securing all the approvals for a field development plan in a PSC can, on average, take up to 20 months, resulting in costly delays in commercialising discovered fields.

Crude imports continue to rise to keep up with domestic fuel consumption. India imported 226.5 million tonnes (about 4.5 million barrels per day) of crude in 2018-19, a 38% increase over 2009-10, according to the government’s Production Planning and Analysis Cell. In the same period, annual domestic production of crude and condensate slipped from 37.7 million tonnes to 34.2 million tonnes, or about 684,000 barrels per day, catering to 13% of the total consumption in 2018-19.

Also Read: LNG imports increase 7% as demand grows

Several of India’s older producing fields are in natural decline. A variety of new technologies can prolong the life of these fields but the acquisition, testing and application of these technologies is capital-intensive, and the fiscal framework must ensure adequate returns for producers.

The approvals process needs to be efficient to encourage adoption. There are two ways to unfetter PSC operators. First, the current approval processes must be simplified with stipulated timelines for each sign-off, thereby avoiding cost escalations due to delays. Second, allow self-certification of accounts that are already subject to government audits.

The October 2018 proposal of fiscal incentives for the use of enhanced recovery and improved recovery (ER/IR) methods in oil and gas fields is a start but does not go far enough. It moots a 50% cess waiver on use of these techniques, which would yield around 5% return on revenue, which according to producers’ estimates is unviable for most projects.

The benefit of lower cess will be partly eroded in the blocks predating the New Exploration Licensing Policy (Nelp) under which producers split profit oil with the government.

The Economic Times
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