Sluggish participation by foreign companies lowers oil revenue estimates

The budget estimates revenue collection from the Petroleum sector at Rs 14,922 crore

A sluggish participation of foreign companies in exploration and production (E&P) so far has prompted the government to moderate its revenue collection estimates from the petroleum sector in FY25 (2024-25), officials said.

Under the petroleum head, the interim Budget has listed Budgetary Estimates (BE) of Rs 15,933 crore non-tax revenue collection in FY25. This is Rs 1,011 crore more than the Revised Estimates (RE) of Rs 14,922 crore for FY24.

However, the latest figure points to an overall downward trend. BE FY25 is as much as 38 per cent lower than what the government had initially hoped to get in FY24. In BE FY24, the Centre had initially mentioned Rs 24,185 crore. BE FY25 is also 19.4 per cent lower than the actual collections of Rs 19,785 crore in FY23, and 20.4 per cent lower than the Rs 20,036 crore collected in FY22.

The government lists receipts from licence fees for the right of exploration of oil and gas, as well as royalty on off-shore crude oil and gas production. It has been difficult to get foreign oil producers to participate in the bidding process under the Open Acreage Licensing Policy (OALP). Under OALP, eight rounds of bidding have already been held and blocks have been awarded.

“The government is constantly engaging with foreign companies and has made the process of exploration much more flexible and easier. Globally recognised dispute resolution mechanisms, and play-based exploration have been allowed. But participation (of foreign companies) in E&P has been muted so far,” an official said.

This has been taken into account while calculating the government’s potential revenue windfall from the petroleum sector in FY25, he added.

Officials also pointed to a data centre being opened at the campus of University of Houston in Texas, United States, to make the geographical data of India’s sedimentary basins easily viewable. Several international oil companies including ExxonMobil, Shell, TotalEnergies, Eni, Chevron, Posco, Japex, Murphy Oil and EOG have visited the data room so far.

Smaller bidding rounds

The revenue generation estimates for FY25 were also affected due to the latest bid round — OALP IX — being smaller than expected. Opening for bids in January, it offers 28 blocks with an area of approximately 1.36 lakh square km. Out of these, 23 blocks are based on expressions of interest (EoIs) received from companies while five blocks have been carved out by the Directorate General of Hydrocarbons.

While this was one of the largest areas put up for exploration so far, officials had earlier said OALP IX would make up an ever larger area of 2.2 lakh square km. It was set to double the area under exploration and production awarded under the previous eight rounds.

Meanwhile, OALP VIII ran for a year till July 5, 2023. First opened on July 7, 2022, the round offering 10 blocks saw the deadline for submission of bids extended more than four times. While officials had blamed interested bidders for requesting the extensions, industry sources had said the government was hoping to attract more foreign players.

Last month, state-owned Oil and Natural Gas Corporation was announced to have won seven blocks for exploration of oil and gas, after bidding for nine blocks. Oil India Limited, Sun Petrochemicals Pvt Ltd and a consortium of Reliance Industries Ltd and BP Plc won one bloc each in OALP IX.

More exploration

The government is targeting 1 million square kilometres under exploration by 2030. The area has doubled during the past five years to 242,055 (2.4 million) sq km as of 2024.

To reduce the “no-go” areas in the Indian offshore sedimentary basins by 99 per cent, the Centre has rolled out a series of measures to make oil and gas exploration easier for companies. This includes providing pre-approved clearances of blocks, permitting self-certification to cut the application process, and granting companies the freedom to carve out operational areas from within the blocks.

It is also working to reduce the number of licences required. Contractors and operators of oil and gas blocks must obtain statutory clearances and approvals from various state and central government authorities to start exploration and production activities. These include petroleum exploration licence, petroleum mining lease, and environment related approvals like environment, forest, and wildlife clearance among others.