Open acres the new hydrocarbon policy opens us exploration

Open acres the new hydrocarbon policy opens us exploration

The new hydrocarbon policy makes exploration more attractive for investors.
The recently unveiled Open Acreage Licensing Policy and the National Data Repository together are a significant and welcome step towards opening up the hydrocarbon exploration and production industry in India. By placing greater discretion in the hands of explorers and operators, the Licensing Policy attempts to address a major drawback in the New Exploration Licensing Policy, which forced energy explorers to bid for blocks chosen by the government. Companies can now apply for particular areas they deem to be attractive to invest in, and the Centre will put those areas up for bids. This is more attractive for prospective operators because in the past, the blocks chosen by the government often were large swathes of land or sea in which only a small fraction had hydrocarbon reserves. By offering companies the freedom to choose exactly the areas they want to explore, and their size, the government has a better chance to woo serious energy investors in an effort to help achieve a more cohesive framework of the country’s energy security. Tied to this is the National Data Repository, which is envisaged as a centralised database of geological and hydrocarbon information that will be available to all. Besides allowing potential investors to make informed decisions, this will open up a new sector in India. There are a number of companies around the world that make it their business to simply explore hydrocarbon basins and sell the information they gather. The new initiative seeks to incentivise such prospectors.
Companies may also submit applications through the year and not just at designated and often infrequent points, as was the case earlier. The Directorate General of Hydrocarbons has said that while the auctions will be held twice a year for now, the frequency could be increased as soon as the industry grows accustomed to the new system. This, too, will lend more flexibility to the industry. However, there are still some concerns about the implementation of the overall Hydrocarbon Exploration and Licensing Policy. The policy awards an extra five points to bidders for an acreage if they have already invested in the exploration and development of that area, but it is doubtful if this is enough of an incentive, since the investment needed to simply explore is significant. By contrast, no such preference is given to mineral explorers while auctioning mining rights — instead, a revenue-share from mining operations is their recompense for exploration efforts. This could be considered for the hydrocarbon sector as well. Another concern is whether India can attract enough investment to meet the government’s objective of reducing oil imports by 10% by 2022, especially given the past experience investors have had with large projects such as KG-D6. There are after all proven reserves in other parts of the world, such as the Gulf of Mexico, that could still keep investor appetite for Indian acreage weak.