Oil firms may get to operate fields for full economic life

The oil ministry is planning to offer companies the licence to operate oilfields for their full economic life in a shift from the current practice of limited durations, with a view to reducing uncertainties for investors and make investments in the Indian upstream attractive, according to people familiar with the matter.

The proposal is expected to apply to all future contracts as well as existing contracts at the time of renewal, they said.

Companies will not be required to seek renewal in future contracts, helping them plan their investments better.

For the existing contracts, the current rules allow an extension of only 10 years. If the oil ministry's proposal takes off, the renewal will be for the entire economic life of an oilfield.

Explorers get around 3-7 years for exploration and, if they make a discovery and intend to develop it commercially, another 20 years to operate the field under the Open Acreage Licencing Policy (OALP), the latest government guide on exploration and production. The duration varies for contracts under the policies that preceded OALP.

For exploration, companies have to obtain Petroleum Exploration Licence (PEL). And for the field operation, they must obtain a Petroleum Mining Lease (PML) based on the production or revenue-sharing contract with the Centre.

The government is planning to offer companies both PEL and PML at the beginning of the exploration period itself, people cited before said.

This will give companies flexibility, save time, cut bureaucratic hassle and expedite the monetisation of discoveries, they said.

The central government grants PEL and PML for offshore blocks while the state governments do so at the recommendation of the Centre for onshore blocks.

Private companies have been lobbying the government for making contractual durations equal to the economic life of oilfields. Vedanta, which has been engaged in a legal tussle with the government over the terms of the renewal of its contract for the prolific Barmer block in Rajasthan, wants the government to offer a longer extension.

Private sector operators of coal bed methane (CBM) fields have also been lobbying for longer contracts as they feel it would allow them to invest more in their fields to explore shale resources. They say longer contracts would help them raise finance and make better returns on investments.