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POLICY FOR EXTENSION OF EXPLORATION PHASES UNDER NELP AND

PRE-NELP PRODUCTION SHARING CONTRACTS

The Government of India has signed over 100 production sharing contracts (PSCs), which are currently valid and are at various stages of exploration. These have been signed within the framework of New Exploration Licensing Policy (NELP) and Exploration Policy adopted prior to NELP.  These contracts generally provided extension in exploration phases for a period of 6 months to complete the unfinished minimum work programme and also provided 6 months extension to complete a well under drilling.  The objective of the exploration policies have been to stimulate exploration of oil and gas in the country.  In the last few years, it was observed that a number of proposals seeking extension in exploration phases were received by the Government citing numerous reasons.  The Government have been considering the cases on merit of individual proposals.

The non-completion of committed work programme within the scheduled time as specified in the respective Production Sharing Contracts has several tangible and intangible effects on the entire process of exploration endeavors. Some of the major implications are:

(i)            The very purpose of accelerating and increasing the efficiency in exploration will be defeated and it may trigger complacency. 

(ii)           The blocks are awarded on the basis of Phase wise committed work programme along with timeframe. Extensions vitiate the integrity of the bidding process and spirit of contracts.

(iii)         The principal aim of equal opportunity, fair chances to all, transparency of the system is affected by frequent extensions. 

In order to adopt a transparent and consistent framework for granting extension in exploration phases, the Government has framed an extension policy for considering proposals, which are either pending with the Government or may be received in future.  The broad objective of the extension policy are as under :

i)              To have a transparent and consistent set of criteria to take decisions on extension proposals of the contractors.

ii)             To act as deterrent for those operators seeking unnecessary extensions or holding on the acreages without doing any exploration activities or activity at slow pace.

iii)           The policy envisages a system of progressive penalty by way of increasing bank guarantee amount and/or cash payment as agreed pre-estimated liquidated damages (mutually agreed pre-estimated amount of liquidated damages) vis-à-vis duration of extension sought and giving due recognition to the companies who have made discoveries and have understood the geology of the block apart from encouragement to additional exploration programme.

iv)           Upto 6 months extension may be given by the Management Committee or the Government on merit in terms of the provisions of the respective PSCs.

v)             Demonstrable delays on account of getting the Government approvals / permits / clearances will be counted as excusable delays. 

vi)           In case, the contractor does not fulfill the work programme within the stipulated period or extended period, as may be the case, shall be required to pay money for the unfinished work programme, if any, to the Government in terms of the respective provisions of the PSC.

With the broad objectives in view, the Government has decided to put inplace the following policy for grant of extensions.  The proposals falling in various categories enumerated below in the table will be considered by the Government as per the respective terms and conditions stipulated against each such category.

A. Extension within the overall exploration period of 7 years or 8 years in phase I& II (but excluding any proposed excusable delays on account of the Governmentapprovals / permits / clearance etc.)

Sl.       Type        of        proposal

No. (applicable for extension in phase I & II)

Suggestion along with proposed conditions

1.Where Minimum Work Programme (MWP) of the relevant phase has not been completed within the stipulated period of that phase and no hydrocarbon discovery (as defined in the PSC) made

where MWP has not been completed and no hydrocarbon discovery have been made by the contractor, the following procedure shall apply :  

a)               First 6 months extension may be granted by MC or the Government in terms of the provisions of respective PSCs maintaining the same terms and conditions of the PSCs.

b)               An additional upto 6 months extension (that is between 6 – upto 12 months) may be granted on the following terms and conditions :

• The contractor will provide 100% bank guarantee and 10% cash payment as agreed pre-estimated liquidated damages for the unfinished minimum work programme as reasonably determined by DGH, keeping in view the relevant factors in computing cost of such unfinished minimum work programme.
• The contractor would be required to relinquish the area in terms of the provisions of the PSC at the beginning of this extension period.
• This period of extension will be set off from the next exploration phase

c)               Any extension beyond 12 months and upto 18 months may be considered subject to the following :

• The contractor would be required to relinquish the area as applicable at the end of relevant phase.
• The contractor would be required to give 100% bank guarantee for unfinished minimum work programme and deposit a cash payment as agreed pre-estimated liquidated damages of 30% of the unfinished minimum work programme as reasonably determined by DGH, keeping in view the relevant factors in 

3 Where MWP has not been completed within the stipulated period of an exploration phase and the operator feels that the prospectivity is too poor to undertake further exploration/drilling:

computing cost of such unfinished minimum work programme.

          This period of extension will be set off from the next exploration phase.

In case the contractor and DGH, based on available information at that time, come to a conclusion that the prospectivity of the block / area is poor and does not warrant completion of MWP (say drilling of exploration wells due to lack of technocommercial viable prospects), DGH will reasonably decide based on the available information whether the prospectivity of the block is indeed poor and also determine an alternative work programme in consultation with the contractor, which will be atleast equal in terms of investment and effort (in physical terms) the unfinished minimum work programme.  Such substitution of work programme would require the Governments approval.

In this scenario with a substitute work programme, extension may be granted as under :

a)             For the first 6 months by the Management Committee or the Government in terms of the provisions of respective PSCs maintaining same terms and conditions of the PSCs (except for unfinished substituted work programme to be approved by the Government).

b)            Next 6 months extension (i.e. 6-upto 12 months) may be granted on the following terms and conditions :

• The contractor will provide a 100% bank guarantee of the unfinished minimum work programme (equivalent unfinished substituted work programme to be approved by the Government).
• The block will come in the domain of open acreage and may be offered in a bidding round or under open acreage system ( as and when it comes in force).  However, in case of any discovery or any drilling under implementation during this period, the contractor will have the right to retain such areas as reasonably determined by DGH.  In case the contractor as a result of exploration during this extended period desires to go to the next phase of exploration, the contractor would be allowed to proceed to the next phase for only such areas for which no licenses / leases have been issued or which has not been placed under a bidding process by such time.

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1. Where MWP has not been completed but a hydrocarbon discovery is made within the exploration phase and does not want to relinquish the area at the end of phase:

• No further extension will be given beyond 12 months and the contractor shall be required to relinquish the entire area along with payment, if any, equivalent to the unfinished minimum work programme, to the Government in terms of the provisions of the PSCs.

In this scenario, DGH will reasonably decide the work programme, in addition to the unfinished minimum work programme, required to be carried out in the area which is not proposed for relinquishment by the contractor.  The following extension may be granted:

• First 6 months extension may be given in terms of 

4. Where MWP has been completed with no hydrocarbon discovery and additional work programme is proposed: the provisions of the respective PSCs.

• Another extension of upto 12 months (i.e. 6-upto 18 months) may be given subject to the contractor providing 50% bank guarantee of the unfinished minimum work programme and the additional work programme (for retaining additional area) reasonably decided by DGH.
• The contractor would undertake to appraise, decide on commerciality and development of the discovery within the time frame provided in the PSCs for these activities.

In this scenario, the contractor may be given extension as under 

:

a)             6 months extension may be given in terms of the provisions of the PSC.

b)            Additional upto 6 months (6-upto 12 months) extension may be given subject to the following:

• The contractor will provide bank guarantee of 35% amount of the unfinished additional work programme.
• Will not be able to set off this work programme from subsequent phase (s).
• DGH will reasonably determine the expected time required for completing additional work programme.

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5.        Where MWP has been completed                and hydrocarbon discovery has been made and the contractor wants to retain the area for additional exploration:  

c) Another upto 6 months (12-upto 18 months) extension may be granted subject to the following:

• the contractor will provide bank guarantee of 

100% amount of the unfinished additional work programme.

• Would be required to relinquish the area as applicable for relevant phase.
• Will not be able to set off this work programme from subsequent phase.
• DGH will reasonably determine the expected time required for completing additional work programme.
• In case of being unable to complete the additional work programme within this period, the contractor will pay for 50% of the unfinished additional work programme 

In this scenario, the extension may be granted in the following manner :

a)             6 months extension may be given in terms of the provisions of the PSCs.

b)            Additional extension of upto 12 months (6 – upto 18 

6.        Where MWP has been completed                andmonths) may be given subject to the following :

• DGH will reasonably determine the estimated time required for completing additional exploration work programme.
• the contractor would be required to give a bank guarantee of 35% amount of the unfinished additional work programme.
• Will not be able to set off this work programme from subsequent phase.
• In case the contractor is unable to complete the additional work programme within this period, the contractor will pay for 50% of the unfinished additional work programme 

In this scenario, the extension may be granted in the following manner :

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hydrocarbon discovery has been made and the contractor is willing to relinquish the area as per the PSC, however, wants extension to carry out additional exploration:

a)             6 months extension may be given in terms of the PSCs.

b)            Additional 6 months (6 – upto 12 months) extension may be given on the following conditions :

• DGH will reasonably determine the estimated time

7.

Blocks falling in unprospective area, MWP has not been completed (these may be blocks, which were awarded on a single bid basis)

required for completing additional work programme.

• Will not be able to set off this work programme from subsequent phase.
• the contractor would be required to give a bank guarantee of 35% amount of the unfinished additional work programme. 
• In case unable to complete the additional work programme within this period, will pay for 35% of the unfinished additional work programme.

c)             Another 6 months (12-upto 18 months) extension (beyond 12 months) may be granted subject to the following :

• DGH will reasonably determine the estimated time required for completing additional work programme.
• the contractor would be required to give a bank guarantee of 50% of the unfinished additional work programme. 
• Will not be able to set off this work programme from subsequent phase.
• In case unable to complete the additional work programme within this period, will pay for 50% of the unfinished minimum work programme.

In this scenario, the extension may be  granted in following manner:

a)             6 months extension may be given in terms of the provisions of the PSCs.

b)            Another upto 12 months (6-upto 18 months) extension may be given subject to the following:

DGH to determine the block falls in unprospective 

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8.        Block falling in unprospective area and MWP have been completed but the contractor wants to retain the area to carry out additional work(these may be blocks, which were awarded on a single bid basis):  

area along with the supporting documents / data.

• DGH to reasonably determine the time for completing the unfinished minimum work programme.
• The contractor will provide bank guarantee of 50% amount of the unfinished minimum work programme.
• The contractor will relinquish the area in terms of the provisions of the PSC at the beginning of this extension period.
• The block will come in the domain of open acreage and may be offered in a bidding round or under open acreage system (as and when it comes in force).  However, in case of any discovery as a result of work programme under implementation during this period, the contractor will have the right to retain the relevant discovery areas as reasonably determined by DGH / MC.  In case, the contractor as a result of exploration during this extended period desires to go to the next phase of exploration, the contractor would be allowed to proceed to the next phase provided no licenses / leases have been issued or the area has not been offered under bidding process at the time.
• Will be required to pay equivalent amount of the unfinished minimum work programme, if MWP is not completed in the extended period.

In this scenario, extension may be given in the following manner :

a)             6 months extension may be given in terms of the provisions of the PSCs.

b)            Another 12 months (6-upto 18 months) extension may be given subject to the following:

• DGH to determine whether the block falls in unprospective area on the basis of supporting documents / data.
• DGH to reasonably determine the time for completing the unfinished additional work programme.

• The contractor to provide bank guarantee of 35% amount of the unfinished minimum work programme.
• The contractor to relinquish any area in terms of the provisions of the PSC at the beginning of this extension period.
• The contractor will not be able to set off the additional work programme from the next phase.
• The block will come in the domain of open acreage and may be offered in a bidding round or under open acreage system (as and when it comes in force).  However, in case of any discovery as a result of work programme under implementation during this period, the contractor will have the right to retain the relevant discovery areas as reasonably determined by DGH / MC.  In case, the contractor as a result of exploration during this extended period desires to go to the next phase of exploration, the contractor would be allowed to proceed to the next phase for such remaining area as is still open i.e. no licenses / leases have been issued or has not been offered under any bidding process at the time.
• Will be required to pay 50% of the equivalent amount of the unfinished additional work programme, if MWP is not completed in the extended period.

B. Extension beyond exploration period i.e. after exploration phase – III (butexcluding any demonstrable condonable delays on account of getting the Governmentapprovals / clearances / permits etc.)

Sl.        Type of proposal        Suggestion along with proposed conditions No.

1. Extension sought to As the contractor has not been able to make any discovery even complete MWP of phase in 7 or 8 years and has also not been able to complete the MWP III and no discovery of phase-III, no extension shall be given and contractors shall made : be required to pay the money to the Government in terms of the provisions of the PSCs.
2. Where MWP have been Upto 12 months of extension may be given on the following completed, no terms and conditions :

hydrocarbon discovery made and contractor The contractor will provide 100% bank guarantee and 30% wants to carry out cash payment as agreed pre-estimated liquidated damages additional work for the additional work programme.

programme and retain The Contractor would be required to retain only minimum the area : area along with justification and reasonability of the work 

1. Extension sought to complete MWP of phase III but hydrocarbon discovery made :

programme along with proposed extension period.  This is to be decided by the Government in consultation with DGH.

• No assignment of participating interest (PI) shall be permitted during the extended period.
• The block will come in the domain of open acreage and may be offered in a bidding round or under open acreage system (as and when it comes in force).  However, in case of any discovery as a result of work programme under implementation during this extended period, the contractor will have the right to retain the relevant areas as reasonably determined by the Government in consultation with DGH.
• In case of pre-NELP PSCs, the contractor (in place of NOCs) will be the licensee / lessee after expiry of exploration period and will be liable for all statutory levies and other obligations under the PSCs / laws. Other terms and conditions of the PSCs shall remain unchanged.

In this scenario, extension may be given on the following conditions :

• The contractor will provide 100% bank guarantee and 30% cash payment as agreed pre-estimated liquidated damages for the unfinished minimum work programme.
• The Contractor would be required to retain only minimum area along with justification and reasonability of the work programme along with proposed extension period. This is 

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4. Where MWP have been completed, discoveries/commercial discoveries have been made and contractor wants to carry out additional exploration work programme and retain the area:

to be decided by the Government in consultation with DGH.

• No assignment of participating interest (PI) shall be permitted during the extended period.
• The block will come in the domain of open acreage and may be offered in a bidding round or under open acreage system (as and when it comes in force).  However, in case of any discovery as a result of work programme under implementation during this extended period, the contractor will have the right to retain the relevant areas as reasonably determined by the Government in consultation with DGH.
• In case of pre-NELP PSCs, the contractor (in place of NOCs) will be the licensee / lessee after expiry of exploration period and it will be liable for all statutory levies and other obligations under the PSCs / laws and other terms and conditions of the PSCs shall remain unchanged.
• The contractor would be required to enter into separate ring fenced PSCs for exploration areas w.e.f the date of extension.

In this scenario, extension may be given on the following conditions :

• The contractor will provide 35% bank guarantee and 30% cash payment as agreed pre-estimated liquidated damages for the additional work programme.
• The Contractor would be required to retain only minimum area along with justification and reasonability of the work programme along with proposed extension period. This is to be decided by the Government in consultation with DGH.
• No assignment of participating interest (PI) shall be permitted during the extended period.
• The block will come in the domain of open acreage and may be offered in a bidding round or under open acreage system (as and when it comes in force).  However, in case of any discovery as a result of work programme under implementation during this extended period, the contractor will have the right to retain the relevant areas as reasonably determined by the Government in consultation with DGH.
• In case of pre-NELP PSCs, the contractor (in place of NOCs) will be the licensee / lessee after expiry of exploration period and it will be liable for all statutory levies and other obligations under the PSCs / laws and other terms and conditions of the PSCs shall remain unchanged.
• The contractor would be required to sign separate ring fenced PSC for exploration area and discovered areas w.e.f the extended date.

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