Government proposes fiscal incentives for boosting oil, gas output via EOR

New Delhi: The government today floated a draft policy for boosting oil and gas output through projects using Enhanced Oil Recovery (EOR) techniques proposing major fiscal incentives including 50 per cent waiver of oil cess and reduced profit petroleum sharing for companies.

The draft “Policy Framework to Promote and Incentivize Enhanced Recovery Methods” floated by upstream regulator Directorate General of Hydrocarbons (DGH) has also proposed an incentive equivalent to 10 per cent of gas wellhead price on the gross production of gas from approved Enhanced Gas Recovery (EGR) projects for a period of 10 years.

The proposed policy for incentivizing EOR and Enhanced Gas Recovery (EGR) projects is 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.

“Average recovery factor from the oil and gas fields in India has remained below the global average and most of the major producing fields are ageing. As a part of the wider ‘Energy Security’ program, the government has set a goal to reduce 10 per cent of crude oil imports by 2022. EOR/EGR/Unconventional hydrocarbon production techniques have been envisaged as potential solution to increase domestic production,” the draft policy states.

The draft policy has proposed an incentive structure under four categories based on the nature of the asset — Enhanced Recovery (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.

Under ER for Pilot projects, the draft policy has proposed a weighted deduction from business income to the extent of 150 per cent of any sum paid towards ER pilot expenses. Under ER for oil and other unconventional oil production projects, it has proposed a 50 per cent waiver on the applicable cess on gross production of crude oil from designated wells of an approved EOR project for a period of 10 years.

“The waiver on cess shall be applicable for all such projects, onshore and offshore. Under regimes where cess is applicable (Nomination and Pre-NELP) as well as to the fields which were/will be awarded extension under the NELP and Pre-NELP regimes, provided such project is undertaken after the date of notification of this policy. In case of regimes where cess is not applicable, a notional cess shall be calculated, and the equivalent amount shall be reduced from the government’s share of profit petroleum or revenue share, as applicable,” the draft said.

However, the waiver on cess would be applicable only if the average crude oil price of Indian basket during the quarter of claim is below the EOR reference price of $80 per barrel. Under EGR and other unconventional gas projects, the draft policy has mooted an incentive equivalent to 10 per cent of gas wellhead price on the gross production of gas from designated well of an approved EGR project for 10 years. However, the incentive will be capped at $0.6 Million British Thermal Units (MMBTU) for offshore fields and $0.3 MMBTU for onshore fields.

“For offshore fields, the incentive shall be in the form of waiver of applicable royalty on the gross production of gas from designated well of an approved EGR/unconventional gas production project. For onshore fields, the incentive shall be in the form of discount on the government’s share of profit petroleum or revenue share. For onshore fields where no profit share or revenue share is applicable, government will make a budgetary allocation for equivalent incentive,” the draft policy said.

The draft policy has also provided for incentives under mixed projects as well as for production for shale oil, tight oil, oil shale and gas hydrates. Also, besides EOR and EGR any efforts made to increase production of oil and gas beyond 50% of current recovery for oil fields and beyond 75 per cent for gas fields will be considered as an ER process.

The draft policy has also proposed setting up of an ER Committee which will review and provide approval at different stages including Eligibility Criteria, ER pilot, ER commercial phase and the ER incentives applicable for each case of ER technologies or unconventional production process covered in the policy.

According to the eligibility criteria proposed, fields which have been commercially producing for three years will only be eligible for incentives. Also, fields which are currently producing oil or gas using ER techniques for which Field Development Plan (FDP) has been approved for ER projects before the notification date of the policy will not be eligible for incentives under the policy.

According to the draft policy, only those fields whose ER screening report is submitted to DGH within seven years from the policy notification date will qualify for the incentives under the policy. The policy is expected to benefit state-owned oil explorer Oil and Natural Gas Corp (ONGC) 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.

“We expect to undertake more of EOR activities after a policy to incentivize it comes out. There are existing policies around incentivizing EOR in other countries. This is a positive step by the government,” ONGC Chairman and Managing Director Shashi Shanker had recently told ETEnergyWorld.

ONGC managed an incremental gain of 7.36 Million Tonne (MT) through EOR activities last fiscal year contributing to 35 per cent of ONGC’s crude oil production. Also, the company spent around Rs 5,195 crore on EOR activities in 2016-17.

The state-run explorer is working on a plan to invest Rs 57,825 crore on 28 EOR projects to tap an additional 194 Million Tonne of Oil Equivalent (Mtoe), according to information available on its website. Of the 28 projects, the company has already completed 23 projects at a cost of Rs 47,567 crore, helping it tap more than 112 MT of additional crude by the end of 2016-2017.

The DGH has invited comments from stakeholders on the draft EOR policy by 16 January.

Mozaffar EtezadiFar

Founder at Energykade
Mozaffar owns degrees in electrical engineering as BSc and power management as MSc. He has worked in fields of energy and e-commerce. He believes that energy and IT can help each other to save more energy and our planet. So here is energykade...

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