Indian parliament approves changes to decades-old upstream act to woo investors

India's parliament has given its final approval to the amendment of a decades-old upstream act, aiming to broaden the scope of its exploration policy beyond petroleum and natural gas. The amendment also seeks to ease some of the rules to attract private and overseas players to invest in the sector.

The lower house of parliament, or Lok Sabha, approved the amendment to the Oil Fields (Regulation and Development) Act of 1948 on March 12, three months after the upper house of parliament, or Rajya Sabha, had given its nod for the amendments to the act.

"The present global energy scenario and the hydrocarbon landscape have dramatically changed. Hence, there was a need to amend the act to reflect current realities, national priorities, promote ease of doing business, decriminalize provisions and align India's exploration and production framework with practices of competing geographies," Petroleum Minister Hardeep Singh Puri said after the lower house approved the amendments, paving the way for it to become law.

The Rajya Sabha passed a bill on Dec. 3 seeking to amend the act to expand its scope to include shale oil, shale gas and coal bed methane, in addition to oil and gas. The bill also proposed several changes to the decades-old act, such as freedom to pursue international arbitration in the event of disputes and offering a longer lease period.

Puri said there was an urgent need to step up exploration and production activities to meet the country's growing appetite for energy.

"Today, we are consuming 5.5 million b/d of crude oil. Just three-and-a-half years ago this consumption was 5.0 million b/d. If we continue to grow at the rate at which we are, we will go up to 6.5 million-7.0 million b/d. India's transformation to become a developed nation will require a large amount of energy in all forms. Steps have been taken to enhance India's energy exploration and production," Puri said.

For exploration leases, the amendment also seeks to use the phrase "petroleum lease" instead of "mining lease," which was part of the original act. That had created ambiguity and confusion for international oil companies seeking to invest in the upstream sector, sources said.

Upstream revival a key priority

According to analysts at S&P Global Commodity Insights, India's upstream output has been declining at an average annual rate of 1.1% over the past decade. This decline is attributed to the natural depletion of mature fields operated by state-run producers, delays in monetizing existing discoveries and a reduced number of new discoveries. Additionally, overseas interest in exploration bidding rounds has remained elusive.

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, Commodity Insights analysts added.

In recent years, India has undertaken a series of upstream reforms, such as greater marketing freedom for 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.

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.

"Earlier, a 1 million sq km area of our sedimentary basin used to be a 'no go' area. As a result, our import dependence was on the rise. We opened up that 1 million sq km out of the 3.5 million sq km of sedimentary basin to encourage and enhance domestic crude production. This has sent positive signals to prospective investors -- 76% of the total area under exploration has come under active exploration only since 2014," Puri said.