Cabinet clears cess, royalty waiver on enhanced hydrocarbon production

In a major boost to hydrocarbon exploration in India, the Union Cabinet on Tuesday cleared policy to promote enhanced and improved recovery of oil and gas from existing fields that may unearth assets to the tune of Rs 50 trillion.

"The measure to incentivise Enhanced Recovery (ER), improved Recovery (IR) and Unconventional Hydrocarbon (UHC) production methods will bring in Rs 50 trillion of additional resources in next 10 to 20 years," petroleum minister Dharmendra Pradhan said addressing a press conference.

The policy will avail 50 per cent waiver on cess for oil and 75 per cent waiver on royalty for gas for existing players on incremental production.

A 5 per cent increase in the recovery rate of original in-place volume in oil production is envisaged, producing 120 million tonnes additional oil in next 20 years.

In case of gas, a 3 per cent increase in recovery rate on original in-place volume is envisaged, leading to an additional production of 52 billion cubic metres of gas in next 20 years.

The ER includes Enhanced Oil Recovery (EOR) and Enhanced Gas Recovery (EGR), Unconventional Hydrocarbon (UHC) production methods include Shale oil and gas production, tight oil and gas production, production from oil shale, gas hydrates and heavy oil. 

"Enhanced Recovery, Improved Recovery and exploration and exploitation of unconventional hydrocarbons are capital intensive, technologically complex and challenging in nature. It calls for supporting infrastructure, logistic support, fiscal incentives and enabling environment," a government statement said.

It added the strategic objective of the Policy is to build a supportive ecosystem through academic and research institutes, industry-academia collaboration and to support and encourage Exploration and Production (E&P) Contractors to deploy new techniques. The Policy will be applicable to all contractual regimes and Nomination fields.

The Policy, having a sunset clause, will be effective for 10 years from the date of its notification. However, the fiscal incentives will be available for a period of 120 months from the date of commencement of production in ER/UHC projects.

"The fiscal incentives are extended in form of a partial waiver of applicable Cess/Royalty on incremental production resulting from the adoption of ER methods on designated wells," the statement added. 

The Policy envisages systemic assessment of every field for its ER potential, appraisal of appropriate ER techniques and fiscal incentives to de-risk the cost involved in ER Projects to make the investment financially viable. Mandatory Screening of fields through designated institutions, to be notified by Government, and conducting Pilot before actual implementation of ER Project on commercial level, are other prominent features of the Policy.

An Enhanced Recovery (ER) Committee comprising of representatives of Ministry of Petroleum & Natural Gas, Directorate General of Hydrocarbons (DGH), experts from the upstream sector, and academia would monitor and implement the Policy. 

1. An increase by 5 per cent in oil recovery rate will add 120 million tonne additional oil in next 20 years. 

2. In gas, an increase of 3 per cent recovery rate may lead to additional production of 52 billion cubic meter of gas in 20 years