Cabinet clears policy to promote new methods of hydrocarbon production

To improve India’s hydrocarbon production, the union cabinet on Wednesday cleared a policy framework to promote and incentivise new technologies in the hydrocarbon exploration & production sector.

The 10-year policy will promote enhanced recovery (ER), improved recovery (IR) and unconventional hydrocarbon (UHC) production. According to Dharmendra Pradhan, the minister of petroleum and natural gas, companies using enhanced oil recovery methods for crude oil production will get a fiscal incentive of a 50% discount on the oil cess they are required to pay.

Similarly, Pradhan added that companies using enhanced gas recovery to produce natural gas will get a 75% discount on the royalty they are required to pay. For unconventional hydrocarbon production, which covers production of shale oil & gas, tight oil & gas, production from oil shale, gas hydrates and heavy oil, the incentives will depend on whether the output is crude oil or natural gas.

The policy framework has a sunset clause of 10 years and the fiscal incentives will expire 120 months after the commencement of production under ER and UHC projects. For IR projects, the incentives will be available from the date of achievement of the prescribed benchmarks.

The new policy will be applicable to all contractual regimes as well as nomination fields. In India, hydrocarbon resources were given on a nomination basis to public sector companies. Whereas, for private sector companies, oil & gas fields were given on the basis of different contractual regimes including production sharing and currently it is given on a revenue sharing basis.

"We welcome the Cabinet’s decision to approve the policy framework on EOR and incentivize companies investing in ER/IR techniques to increase production. This policy will attract much-needed investments, and usher in a wave of best-in-class technologies to improve India’s hydrocarbons recovery,” said Sudhir Mathur, CEO, Cairn Oil & Gas, Vedanta Ltd.

Apart from the fiscal incentives, the policy also envisages a systemic assessment of every field for its ER potential, appraisal of appropriate ER techniques and fiscal incentives to de-risk the cost involved in ER projects to make the investment financially viable.

“Mandatory screening of fields through designated institutions, to be notified by the government, and conducting pilot before actual implementation of the ER project on commercial level are other prominent features of the policy,” an official statement from the government said.

Under the policy, an ER committee comprising of representatives of the ministry of petroleum and natural gas, Directorate General of hydrocarbons, experts from the upstream sector, and academia would monitor and implement the policy.

According to the government’s estimates, an increase by 5% in recovery rate of original in-place oil reserves can help increase production by 120 million tonne over the next 20 years. Similarly, a 3% increase in the natural gas output through such techniques can help the country produce 52 billion cubic metre of gas in the next 20 years.