Cabinet approves policy to incentivise enhanced recovery methods for oil and gas
Offers 50 per cent cut on oil cess and 75 per cent cut on royalty for boosting oil and gas output The Union Cabinet today approved a policy framework to incentivise enhanced recovery methods for oil and gas. Under this, a company would be provided with a 50 per cent cut in oil cess and 75 per cent cut in royalty to boost crude oil and gas output, respectively. Oil minister Dharmendra Pradhan said, “Currently, the nominated oilfields are ageing due to which oil and gas production is coming down, it is the nature of fields. To boost recovery rate from such fields more capital expenditure is required, that is why the government has approved this policy to incentivise oil and gas recovery techniques.” The oil ministry said that the strategic objective of the policy was to build a supportive ecosystem through academic and research institutes, industry-academia collaboration and to encourage exploration, production contractors to deploy enhanced recovery, improved recovery, and unconventional hydrocarbon production techniques. “The policy will be applicable to all contractual regimes and Nomination fields,” the ministry said. It added that an enhanced recovery committee comprising of representatives from Ministry of Petroleum and Natural Gas (MoPNG), Directorate General of Hydrocarbons (DGH), experts from upstream sector, and academia would monitor and implement the policy. Commenting on the development, Sudhir Mathur, chief executive officer at Cairn Oil & Gas, said, “This is yet another progressive decision under the leadership of Shri Dharmendra Pradhan and MoPNG to spur the growth of the Indian oil and gas industry. This policy will attract much-needed investments, and usher in a wave of best-in-class technologies to improve India’s hydrocarbons recovery.” According to the oil ministry, the policy would have a sunset clause and would be effective for 10 years from the date of its notification. Also, the fiscal incentives would be available for a period of 120 months from the date of commencement of production in case of enhanced recovery or unconventional hydrocarbon production method projects. In case of improved recovery projects, the incentives would be available from the date of achievement of the prescribed benchmark. The ministry said defined timelines have been prescribed to complete the various processes under the policy and that fiscal incentives would be extended in the form of partial waiver of applicable cess or royalty on incremental production resulting from the adoption of enhanced recovery methods on designated wells. “An increase by five per cent in recovery rate of original in-place volume in oil production is envisaged producing 120 million metric tonne additional oil in next 20 years. In case of gas, an increase of three per cent recovery rate on original in-place volume is envisaged, leading to additional production of 52 billion cubic metres of gas in next 20 years,” the oil ministry said. Pradhan said that 50 lakh crore worth of oil and gas would be produced in the coming 20 years if an incremental five per cent increase in oil and gas production was achieved. EOR, is a special technique used by upstream oil and gas companies to increase the amount of crude oil that could be extracted from a field over and above what was recovered through basic water flooding method. The government had in January this year floated a draft policy for boosting oil and gas output through projects using EOR techniques, proposing major fiscal incentives including 50 per cent waiver of oil cess and reduced profit petroleum sharing for companies. The draft policy has proposed an incentive structure under four categories based on the nature of the asset — ER for pilot projects including oil and gas; waiver on applicable cess for EOR and other unconventional oil production projects; incentive for EGR and other unconventional gas production projects; and incentives for mixed projects. According to the eligibility criteria proposed in the draft policy, fields which have been commercially producing for three years would only be eligible for incentives. Also, fields which are currently producing oil or gas using ER techniques for which field development plan has been approved for ER projects before the notification date of the policy would not be eligible for incentives under the policy. According to the draft policy, only those fields whose ER screening report was submitted to DGH within seven years from the policy notification date would qualify for the incentives under the policy. The policy was expected to benefit Oil and Natural Gas Corp and Cairn Oil and Gas, a subsidiary of London-listed metals and mining giant Vedanta, which operates the largest onshore oil and gas block in the country. The policy for incentivising EOR and enhanced gas recovery projects was aimed at arresting the declining oil and gas production of the country and meeting Prime Minister Modi’s target of reducing the country’s costly oil imports by 10 per cent by 2022.