Upstream Sector

By:
Ashwani Aman (35)
Anadita Trivedi

Midstream

Transportation, Storage
Downstrea
m

Refning
Upstream

Exploration and Production

Oil and Gas Sector

Upstream Sector
Includes
Prospecting
Exploration
Production

Major Players
Govt.
ONGC
OIL
OVL

Private Players
Reliance Petroleum
Cairn Energy

Jurisdiction over Oil and

Natural
Gas
Resources
Jurisdiction to regulate oilfelds vested with
Central Government
CoI: Entry 53 of List I
Regulation and development of oilfelds and
mineral oil resources; petroleum and
petroleum products

CoI: Entry 25 of List II

Gas and Gas Works

Presidential reference, Supreme Court

judgment
Natural gas- a petroleum product and hence, a
central subject

Jurisdiction over Oil and

Natural Gas Resources
Presidential reference (contd.)
Right in natural gas and oil resources
as publici juris
Upstream regulation of exploration
and transmission of natural gas also in
central domain.

Jurisdiction to regulate gas clearly

identifed with Centre by the
judgment
Paved the way for a unifed central6

Regulator
Director General of Hydrocarbon

The Oilfelds (Regulation

& Development) Act,
1948
Basic enabling statute for
licensing and leasing of
petroleum and gas blocks by the
appropriate government
Covers mineral oils which is
defned as including natural gas
and petroleum [S.3(c)]
Mining lease is defned
exhaustively to cover all forms
of exploring and exploiting
8

The Oilfelds (Regulation

& Development) Act,
1948

Empowers central government

to make rules with regard to
mining leases [S.5]
Also empowers central
government to make rules for
the development of mineral oil
[S.6]
NELP Enabling Provisions

Power to vary royalty or exempt it

altogether [S.6A]
PSC additional terms and
9
conditions to PEL [S.12]

New Exploration
Licensing Policy
Uses auctions to allocate petroleum
blocks thus bringing benefts of
transparency and efficiency
Identifes biddable areas.
Identifes commercial terms on
which the bid would be evaluated
including proft sharing
Lays down the bidding procedure
10

CONTRACTUAL FRAMEWORK
BIDDER 1
BIDDER 2

Joint
Bidding
Agreement

CONSORTIUM /
CONTRACTOR

Bid

GOVERNMENT

Production sharing
contract

BIDDER 3

License
Work program & budget
approvals
Exploration Activities.

M
O
P
N
G

NOTI
CE
OF
OFFE
R

DISCOVERY

Notification to Government
Appraisal and testing
COMMERICAL

11

mining lease
Development and production

The Petroleum and

Natural Gas Rules, 1959
Rules provide framework for
grant of exploration licenses and
mining leases
Salient features of the Rules:
Prohibition on prospecting and
mining except under a license or
lease granted under the rules [Rule
4]
Central Government has the power
to grant licenses or leases in respect
of any land vested with it or
minerals underlying the ocean
12

The Petroleum and

Natural Gas Rules, 1959
Salient features of Rules (contd)
State government has power to
grant license or lease over lands
vested with it [Rule 5(ii)]
Person obtaining exploration license
obtains the exclusive right to a
lease for producing (i.e. extracting)
oil/gas over any part of area
covered in license
AsLicensee, prospector required to
furnish security deposit and annual13
license fees for exploration license;

The Petroleum and

Natural Gas Rules, 1959
Salient features of Rules (contd)
License fees increase every year in
a pre-determined manner
As Lessee, producer required to
furnish security deposit and dead
rent or royalty (payable to
appropriate government)
whichever is higher as well as
surface rent (payable to SG)
Increasing Licensing fee structure
and dead rent payments
incentivise early exploitation14
of

The Petroleum and

Natural Gas Rules, 1959
Salient features of Rules (contd)
Provides for arbitration of disputes
which may arise between the
Government and the licensee or
lessee

15

Territorial Waters, Continental

Shelf, Exclusive Economic Zone
And Other Maritime Zones Act,
1976
Article 297 of the Constitution
vests resources found in these
areas with Central government
No exploration in the Continental
shelf and exclusive economic
zone permitted without Central
Governments permission
16

Regulating the upstream

sector
Creation of an independent and impartial
upstream regulator is a key challenge for
regulation in upstream sector
Currently MoPNG is in charge of regulating
upstream sector. Director General of
Hydrocarbons performs technical advisory
function
But government has a signifcant ownership
stake in certain upstream companies
Regulatory functions should not be
discharged by the government when it is also
competing with private players. Will avoid 17

Regulating the upstream

sector
This has been achieved in other
infrastructure sectors like Electricity and
Telecom by constitution of independent
regulatory bodies through comprehensive
statutory framework

The downstream sector will soon see the

introduction of a omnibus regulator for oil
and natural gas (Petroleum Regulatory
Board Bill 2002)
Independent regulator for upstream would
assure private players that they would be
provided a level playing feld. This should
18
attract greater competition and the benefts

Regulating the upstream

sector
Other areas which would beneft from such
regulatory oversight include:
Better appreciation of operators
commercial interest and minimizes
opportunities for rent seeking behavior
Coordination with downstream regulation
Acting against anti-competitive practices
Role as arbitrator in case of dispute
arising between operator entities and
other stake holders; minimizes delay in 19

Regulating the upstream

sector
Options for creation of independent
regulatory body

Create a new regulatory authority

and vest it with power to
implement licensing policy as well
as regulatory functions
Increase the independence of DGH
possibly through separate statutory
framework and confer additional
powers on it to enable it to
discharge role of upstream
regulator
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UALP
Revenue Sharing Model
Cover both conventional & NonConventional Resource

THANK YOU!
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