The country in recent years has undertaken a series of upstream reforms, such as greater marketing freedom to producers. Previously, the operator of a field could not directly sell locally produced crude into the market and needed government permission to sell crude and condensates within the country
India's upstream reforms and the removal of the windfall tax on domestically produced crude oil is going to transform country’s oil and gas sector, making it more attractive to private and foreign investors, according to S&P Global Commodity Insights.
The government recently decided to broaden the scope of its exploration policy beyond petroleum and natural gas. It also did away with the windfall tax on domestically produced crude that was in effect since July 2022. Nullifying windfall tax on domestically produced crude oil will likely draw in private and foreign companies to the upstream sector, the S&P report said.
Last week the government passed the The Oilfields (Regulation and Development) Amendment Bill, 2024 in Rajya Sabha. The Bill amends the Oilfields (Regulation and Development) Act, 1948 by expanding its scope to include shale oil, shale gas and coal bed methane, in addition to oil and gas, while proposing a series of other changes to the decades-old act -- such as freedom to pursue international arbitration in the event of disputes, as well as offering a longer lease period.
While replying to the debate on the Bill, Minister of Petroleum and Natural Gas Hardeep Singh Puri said the oil and gas industry requires a significant amount of investment and a lengthy gestation time. The minister said the oil and gas industry will be an essential part of the country’s energy mix for another 20 years. “In order to give our own operators and foreign investors the confidence they need to come and do business here with the intention of benefiting everyone, we must bring this legislation here," the minister said.
India in recent years has undertaken a series of upstream reforms, such as greater marketing freedom to producers. Previously, the operator of a field could not directly sell locally produced crude into the market and needed government permission to sell crude and condensates within the country. Under the new policy, the government ceased its function of allocating domestic crude and condensate output.
"The objective of the changes to the Oilfields Act is to create a more investor-friendly environment and enhance the global competitiveness of future oilfield contracts by addressing long-standing concerns of exploration companies," said Rahul Chauhan, upstream technical research country lead, at S&P Global Commodity Insights.
Upstream companies can now carve out areas for oil and gas exploration under the Open Acreage Licensing Policy that allows explorers to place an expression of interest for any area throughout the year and the areas earmarked are then put on auction.
The windfall tax was introduced to boost revenues at a time when crude oil prices remained at elevated levels. The tax rates were reviewed every two weeks based on average oil prices of the immediate past fortnight.
"The windfall tax was extremely unhelpful for the oil producers that were just emerging from a difficult period of low or barely remunerable prices. In an ideal scenario, India should pursue the opposite of windfall taxes, that is aggressively expanding and incentivizing production growth by all means necessary, because in an energy transition world, the risk of stranded assets is rising," said Rajeev Lala, director for upstream companies and transactions at S&P Global Commodity Insights.
Experts said that by broadening the scope of exploration to include shale oil, shale gas, and coal bed methane, and introducing investor-friendly measures such as extended lease periods and freedom for international arbitration, the country signals its commitment to fostering a competitive and sustainable energy market.