Agenda

1. Review of Oilfield (Regulation and Development) Act, 1948 and Petroleum and Natural Gas Rules, 1959

2. Agenda • Proposed Amendments to Act/Rules - 6 Nos. • Proposed Additions to Act/Rules - 3 Nos. • Other Linked Recommendations - 3 Nos.

3. Definition of the term "mineral oil" Current Position • Mineral Oils' include natural gas and petroleum. [Sec 3(c)] • Industry wishes to include specific mention of other hydrocarbon energy sources as well within the ambit of the term Mineral Oil though DGH maintains that such a change is not necessary. Suggestion: Include CBM, Gas Hydrates, and any other conventional and/or non-conventional hydrocarbon energy resource in the definition of "mineral oil" as given in the Act.

4. Royalty calculation Current Position • The Act and Rules recognize non-payment of Royalty on oil/gas/casing head condensate/CBM/Gas hydrate unavoidably lost during production only whereas the loss in handling not covered under existing provisions. Suggestion: No royalty should be payable on the quantity of crude oil, casing head condensate, natural gas, coal bed methane or gas obtained from gas hydrates which is lost during transportation or processing till the 'Delivery Point'.

5. Disparity in royalty rates for crude oil from onshore nominated blocks Current Position: • Under Govt's new scheme effective April 1, 2002, royalty on crude oil from onshore nominated blocks to be paid @20% of the wellhead value till 2006-07. • Thereafter, royalty to gradually taper to reach 12.5% in the year 2011-12. • No action taken till now. Suggestion: • To gradually taper the royalty rates for crude oil produced from onshore nominated blocks, as decided earlier by the Government under the new scheme of royalty.' Rates to converge with royalty rate as applicable to NELP blocks. • Schedule to the Act be amended.

6. Payment of royalty on pre-discount price for crude from onshore fields Current Position • Currently companies offering discounts are paying royalty on pre-discount prices i.e. before deduction of share of subsidies borne by them. • This translates into an effective rate higher than 20% which is a cap on royalty rates as prescribed by the Act. Suggestion: The 20% cap on royalty rates prescribed in the Act should be on post-discount price.

7. Post wellhead expenses to be deducted to Arrive at wellhead price Current Position: • Currently, for nominated fields, Rs 1,251 per MT (onshore) and Rs 947 per MT (offshore) to be deducted from sale price for arriving at wellhead value. • Post well head cost for other fields is arrived at based on actual post wellhead expenditure reported in previous year's audited accounts. Suggestion: • Statutory levies paid on nomination blocks such as Oil Industry Development (OID) Cess, National Calamity Contingent Duty (NCCD), Education Cess on OID Cess and NCCD should also be treated as post wellhead cost and allowed to be deducted from the selling price to arrive at wellhead value.

8. Reduced royalty rates on production from EOR/IOR schemes to be notified Current Position: • Currently, GSR 8H(E) dated 16th December 2004 provides for reduced rates of royalty for EOR/IOR. Suggestion: • Government is requested to notify reduced rates of royalty for the EOF/IOR projects currently being undertaken by company(ies) in India.

9. Simultaneous exploration and production of CBM and oil & gas Current Position: • Separate policies in place - NELP & CBM; s • Operational efficiency; • Practical difficulties in multi-operator scenario Suggestion: • Preference may be given to the existing operator who has made the additional discovery of either CBM or Oil & Gas. • In case the Government decides against awarding such E&P rights on nomination basis, it may think of assigning special additional marks to the existing operator under the existing respective bidding process. • Rule 7, relating to grant of exclusive rights for undertaking exploration and production of petroleum and natural gas may have to be amended to include CBM.

10. Extended Well Test (EWT) Current Position: • Currently no provision regarding EWT mentioned in the Act/Rules/MPSC International Practice: • UK: Department of Trade and Industry considers any well test with total flow duration of more than 96 hours or which produces a total of more than 2,000 tonnes of oil to be a EWT requiring application for a specific EWT consent. Suggestion: • The Rules should be suitably amended to insert relevant clauses relating to Extended Well Tests addressing issues such as approvals, duration, volume, liability to pay royalty, tax obligations, environmental concerns etc. • The MPSC should also include provisions to guide the Contractors |in case they undertake EWTs to test reservoir characteristics.

11. Rule making powers with respect to safety for offshore operations Current position: • Industry recommendations, coordinated by PetroFed, were submitted to OISD. • On June 18, 2008, the Govt. notified the Petroleum and Natural Gds (Safety in Offshore Operations) Rules, 2008 for regulation of safety in offshore oil and gas operations in exercise of powers conferred by Sections 5, 6 and 7 of the Act. • OISD has been designated as competent authority to exercise power under the Petroleum and Natural Gas (Safety in Offshore Operations) Rules, 2008. • This issue stands resolved. Suggestion: • Rule making power with respect to safety (HSE matters) for offshore areas should be explicitly mentioned in the Act and the Rules. • Rule making power to notify agency for supervision of safety in offshore E&P operations be provided in the Act and the Rules.

12. Royalty in kind: Current Position: • First Proviso to Rule 14(1)(a) provides for the Government to take royalty in kind (in petroleum and natural gas). Suggestion: • It will be difficult in practice because of varying wellhead values, evacuation facilities, marketing process and valuation. • Hence it is suggested to delete this Proviso.

13. 'Frontier Block' - Basis not defined Current Position • The Act and Rules do not define basis for categorisation of 'Frontier Block'. International Practice (UK): • Distance of block from existing petroleum related infrastructure • Great water depth; or • The lack of existing pertinent technical data relating to such area. Suggestion: • Appropriate basis for categorising 'Frontier Block' should be defined

14. Access to third-party oil & gas infrastructure Suggestion: • Suitable enabling guideline(s) may be issued by the Government for sharing of oil and gas infrastructure in the national interest. International Practice: • UK offshore Operators Association (UKOOA) has developed a non-statutory Code of Practice on Access to Upstream Oil and Gas Infrastructure on the UK Continental Shelf.

15. Definitions • 'Mineral Oils' include natural gas and petroleum • 'Petroleum' means naturally occurring hydrocarbons in a free state, whether in the form of natural gas or in a liquid, viscous or solid form, but does not include helium occurring in association with petroleum, or coal, or shale, or any substance which may be extracted from coal, shale, or other rock by the application! of heat or by a chemical process. • 'Natural gas' or 'gas' means gas obtained from bore-holes and consisting primarily of hydrocarbons but does not include helium occurring in association with such hydrocarbons. • 'Coal bed methane' means natural gas obtained from bore holes occurring in coal or lignite seams and consisting primarily of hydrocarbons. • 'Gas hydrates' means naturally occurring solids composed of water molecules forming a rigid lattice of cages each containing a molecule of natural gas.

16. Thank You