India opts for open acreage system

India is switching to an open acreage system for its upstream licensing, allowing developers to approach the oil ministry directly to negotiate blocks of their choice.

The government will introduce the open acreage system under a proposed uniform licensing policy, which seeks to give rights to explore for oil, natural gas, shale and coal-bed methane gas from one permit compared with separate individual permits in the past, oil minister Dharmendra Pradhan said.

Delhi will also introduce a revenue-sharing contract model to replace the existing cost-recovery system, currently in place under production-sharing contracts (PSCs).

Inadequate incentives for operators to keep costs low, micromanagement by the government to protect its interests resulting in delays and disputes over assessments of recoverable costs is prompting the government to abandon the cost-recovery model. The Comptroller and Auditor-General, India's national auditor, also said that current PSCs do not provide adequate incentives for contractors to reduce capital expenditure.

But the move to switch to a revenue-sharing system has been opposed by sections of the industry. The new revenue-sharing mechanism awards blocks to bidders based on how much oil and gas they agree to share with the government. This contrasts with the previous regime under which blocks were awarded to companies promising the highest amount of work in the area. The PSC model allowed upstream firms to recover all their costs before sharing profits with the government.

The delay in designing a new exploration system has held up India's planned next upstream licensing round. Delhi now plans to hold the next auction by March 2016, offering by March next year around 52 oil and gas blocks in the 10th New Exploration Licensing Policy (Nelp) round. The previous Nelp round was held in 2012.

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