Simplification of processes under oil & gas production sharing contracts

The Directorate General of Hydrocarbons (DGH) on 25 April 2020 introduced new measures to simplify the process and procedures associated with Production Sharing Contracts (PSC) of Pre-NELP and NELP oil and gas blocks.

Background

Pursuant to the resolution dated 8 April 1993 (Resolution), the Ministry of Petroleum and Natural Gas (MoPNG) set up the DGH under the administrative control of MoPNG. The DGH has been set up with the objective to promote sound management of the Indian petroleum and natural gas resources having a balanced regard for the environment, safety, technological and economic aspects of the petroleum activity. The Resolution provides that the DGH shall have the functions and responsibilities including review of the exploration programmes of companies operating under Petroleum Exploration Licences granted under the Oilfields (Regulation and Development) Act, 1948 (Oilfields Act) and the Petroleum and Natural Gas Rules, 1959 (PNG Rules) with a view to advise the Government on the adequacy of these programmes. The Government has pursuant to a notification dated 1 September 2006, further delegated certain additional powers under the Oilfields Act and PNG Rules to the DGH. One of the main responsibilities of the DGH is to monitor upstream oil and gas operations.

Categorisation of the Processes

The DGH, after reviewing the processes for various approvals and submissions of documents to the DGH or MoPNG under the PSCs of NELP or Pre-NELP blocks, divided the processes into following 3 categories:

§	processes where documents will be accepted on a self-certification basis and no further approvals are required;
§	processes where approvals will be deemed on expiry of 30 days from the submission of documents under self-certification; and
§	processes where approvals shall be required as per PSC or Oilfields Act or PNG Rules.

Pursuant to the evaluation of the processes, a total of 22 processes have been identified under the self-certification route, 3 processes have been identified under the deemed approval route, and 12 processes have been identified under the approval route.

A.      Self-Certification without Approval

The DGH has recommended acceptance of documents based on a self-certification without any need of further approvals for the following 22 process:

§	information of discovery;
§	potential commercial interest;
§	bank guarantee and legal opinion, and renewal and revised bank guarantee;
§	notification to the DGH for test (drill stem test / well testing / production testing);
§	calibration of flow-meters, witness custody transfer operations;
§	inventory report;
§	local goods and service report;
§	information about hiring of vendors through tenders;
§	change of Management Committee (MC) members (MC comprises of representatives of Government as well as contractor);
§	submission of geological and geophysical data;
§	submission of insurance and indemnity;
§	submission of operating agreement;
§	environment impact assessment report;
§	contingency plan;
§	value of production and pricing statement;
§	quarterly reports;
§	vendor qualification criteria;
§	appointment of auditor by operator under PSC;
§	well location review / change/ deepening;
§	procedure for measurement of petroleum;
§	notice for entering next phase or relinquishment; and
§	commercial discovery.

The contractor is required to submit the documents under the self-certification mode in accordance with the provision of the PSC together with the relevant documents duly attested by the authorised signatory of the contractor. MoPNG or the DGH may review the documents  which are submitted to check whether the same are in conformity  with the relevant provisions of the PSC, policies or guidelines issued by Government or the DGH, Good International Petroleum Industry Practices and other applicable statutory requirements.

B.      Deemed Approval

The DGH has introduced the procedure for deemed approval for the following 3 processes which earlier required approval of the DGH / MoPNG / MC:

§	work programme and budget – budgetary estimates and revised estimates;
§	appraisal programme or its revisions; and
§	field development plan or its revisions.

With the new measures, unless the documents are returned or rejected, approval will be deemed to be given after 30 days of submission of such documents by the contractor.

The DGH, in consultation with various stakeholders, has also introduced standard formats for online submission for processes under self-certification and deemed approval route.

C.      Mandatory Approval

The mandatory approvals of MC or DGH or MoPNG, as the case may be, are still required pursuant to the provisions of the PSC or Oilfields Act or PNG Rules for the following processes:

§	extension of exploration phase;
§	grant of petroleum exploration license or extension application;
§	grant of petroleum mining lease or re-grant application;
§	unit development plan;
§	liquidated damages on account of cost of unfinished work programme;
§	assignment or transfer of participating interest;
§	site restoration plan or abandonment plan;
§	extension of PSC;
§	cost and profit petroleum calculations;
§	accounting procedure;
§	end of the year annual audited statements; and
§	audited accounts.

Comment

As per the latest annual report of DGH there are 88 blocks having 9 active PSCs under pre-NELP rounds and 79 PSCs under NELP rounds. The present measures can be seen as part of a series of initiatives by DGH / MoPNG for incentivising the oil and gas exploration and production for these blocks. In 2017, the Government had approved the policy to grant extension of 10 years to PSCs awarded under the pre-NELP blocks. In 2018, for pre-NELP blocks, the policy framework for streamlining operations of PSCs provided for: (i) sharing and cost recovery of levies; and (ii) tax benefits. 

The present measures are in continuation of the objective of the Government on the ‘ease of doing business’ as the simplification brought about provides transparency and swiftness to the various processes under the PSCs. The pre NELP and NELP blocks have been subject to various litigations, and the recent move to simplify procedures will reduce certain grievances of contractors of such blocks.

Given the present global outlook of the oil and gas sector facing a slump in oil prices and abundant supply in the market, the recent measures to provide procedural comfort in terms of compliance is certainly a welcome step to make the Indian exploration and production sector more investment friendly and reduce the procedural delays. It is important for the implementing authorities to adhere to the revised procedure in letter and spirit to achieve the objective. The overreaching powers to check the conformity of the self-certified documents with the relevant provisions of the PSC, policies, or guidelines issued by Government or DGH, Good International Petroleum Industry Practices, and other applicable statutory requirements should be exercised judiciously.

-       Dibyanshu (Partner), Prateek Bhandari (Principal Associate) and Sathyajith Nair (Associate)

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