1

DOMICILE -----------DOMESTIC ----------------------------------------------------- -----------FOREIGN ------------------------

Ownership GOV PVT

E&P SIZE

*

*

LARGE

MEDIUM *

SMALL

We are ………

22

The Past …. an era characterized by ..

Governance philosophy:

− Moved away from the main objective of NELP of “maximize Exploration , Production & Energy Security to a “notional government revenue maximization” .

− Policies are designed with a huge trust deficit without recognizing the “convergence” of interests in the PSC regime

− PSC administration being misused to settle extraneous disputes or suspected frauds

Contract sanctity:

− Contract terms interpreted to suit the needs of the day

− Fiscal stability violated

Contract Administration

− Contract Administration, Facilitation, Regulation & Policy making hybridized

− Bias to micro-manage

− Flexibility – the hallmark of working contract interpreted to discourage work

− No sanctity to timelines in decision making

RESULTED IN ….

3

0

20,000

40,000

60,000

80,000

2008-09 2012-13

Line kms

Offshore 2D seismic

-95%

India loosing sheen as an upstream destinationIndia’s attractiveness on various parameters

NELP participation trend

Private risk capital has dried up - Exploration activity has nosedived over last 5 years

0

3,000

6,000

9,000

2008-09 2012-13

Line kms

Onshore 2D seismic

-91%

0

2,000

4,000

6,000

2008-09 2012-13

Sq kms

Onshore 3D seismic

-31%

0

30

60

90

2008-09 2012-13

No. of wells

Exploration wells drilled

-22%

WHAT WENT WRONG ?

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2008-09 2012-13

Sq kms

Offshore 3D seismic

-54%

44

7 major reasons..

Quick Significant Discoveries Made Us lose Perspective1

Government struggled in its role as contract administrator2MOPNG was unable to resolve policy conflicts in a timely manner 3

India ignored marginal Oil 4

Hybridization of functions and responsibilities created ambiguity on issues and solutions.

5

6 Contract sanctity lost due to arbitrary changes in policies

Lack of recognition that Indian upstream derives its strength from the enthusiasm of the existing players

7

5

Quick Significant Discoveries Made Us lose Perspective

Nearly 30 years after Mumbai-High, India made four quick & significant discoveries(KG-D5, KG-D6, Rajasthan, DeenDayal) in a short period of 2002-05

Indian Geology Challenging Challenges and risks in finding new

resources overlooked Shift of focus away from E&P towards

the likely impact decision on Government revenues

additional controls even when PSC provided only reviews resulted in delays, disputes and suboptimal work.

Tepid response to NELP ignored

India must Realistically assess its Geology Focus on collecting and making

available geological information Manage the “Reward to Risk”

ratio to make it attractive for investors

Minimise/remove unnecessary controls that do not add value

1

Problem… Solution…

6

Government struggled in its role as contract administrator

E&P decisions are made in situations with high uncertainty and no guarantee of success

Officials became more concerned with guessing how its decisions would be viewed in a post-facto review by the CAG/ CVC, etc. Procrastination, escalating the decisions

upwards , biasing everything towards Govt revenue

-Exploration slowed down /stopped. Routine automatic decisions became

discretionary Entire industry held captive to issues

with a single Block Even 2013 attempts to address issues,

not closed for want of CCEA decisions

Clarity on Government objectives for exploration and production, will benefit both Government and Investor. These need to be in writing , widely circulated and form touchstone of decision making

Develop quicker / independent dispute resolution mechanisms

PSC should not be the instrument to deal with Fraud/Collusion

Government role and methodology for financial oversight of Operators needs clarity & transparency.

Develop robust PSC based economic model with help of experts for understanding of overall economics by key decision makers

2

Problem… Solution…

7

MOPNG was unable to resolve inter ministry policy conflicts in a timely manner

Inability to address important issues such as

Environment clearances, mineral oil definition, Defence clearances, etc. has Impacted activities in a number of Blocks

Energy issues have not received its due.

Energy security taken out of consideration, in many policies / decisions that affect domestic production and exploration activity

Consequences of increased exploration costs in India ignored.

CCI was a step in the right direction to resolve policy disputes – however conflicts need to be settled by establishing parameters established for Indian economy - rather that finding ad-hoc half way solutions that do not work for the hydrocarbons industry (and hydrocarbon importing country)

Greater formal support required at highest levels of the Government for petroleum exploration and production and time bound up gradation of disputes to this body.

3

Problem… Solution…

8

India ignored marginal Oil

Marginal Oil Exploration/Extraction can be more expensive and can reduce “anticipated short-term Government Revenue”. With emphasis on Government Revenue , the policies discourage this avenue.

The current decision making basis does not permit marginal Hydrocarbons to be produced due to short term impact on Govt revenue

USA despite being Energy Rich produces 1 mmbod from such wells.

Inadequate focus on IOR/EOR Internationally ,there are companies

that specialise is last drop recovery

Exploration in mining lease a normal global activity and within PSC to be allowed to progress without ring fencing,

Extension of PSC/PML without additional Govt. take, till operator perceives commercial value is in country’s interest and should be encouraged.

New policy to be developed for marginal, stranded areas as well as shut down wells, that offers attractive terms for specialist companies to bid.

Revenue generation should be only tertiary objective where additional hydrocarbon production is possible

Invite or develop marginal field specialists. Increase investment in EOR/IOR including

through innovative contractual scheme Encourage all Hydrocarbon production

4

Problem… Solution…

9

Hybridization of functions and responsibilities created ambiguity on issues and solutions

The Government nominee role, swings between regulator, facilitator, contact administrator and shareholder.

Since all nominees concurrently play all roles, the objectives evaluation of issues, separately from different perspectives is lost.

Since everyone wears all hats, the processes as envisaged in contract get stymied by considerations alien to the function at hand

It robs the process of due resolution incase of a conflict, and often results in legal disputes.

The three functions have a conflict of interest, resulting in non-optimal solutions.

As an immediate measure segregate and isolate these three functions within MoPNG, with distinct reporting.

Design terms to ensure capable independent personnel deployment in DGH

Consider independent regulator

5

Problem… Solution…

10

Contract sanctity lost due to arbitrary changes in policy

IT benefit on Gas was provided at the time of signing , but later removed by a sleight of hand

Additional Taxes e.g., Service tax levied, though contract provides for Fiscal Stability

Utilization policy was re-interpreted as allocation policy destroying free market prices as committed in contract

Allocation and Free Market cannot co-exist

Contract should not be tinkered , as it destroys credibility of system and scares future participants in Indian industry

Restore Status quo Ante as soon as possible

Work out an early plan to reach the final gas-on-gas competition

Implement RR recommended and Cabinet approved and notified new gas price formula without further delay as a first step

If required, provide subsidy direct to final consumer

Service Tax re-imbursement for failed explorations should be considered

6

PSC provides for Fiscal stability. On ground realities have been different.

While PSC provides market price for both Oil & Gas, gas being treated differently.

Problem… Solution…

11

Lack of recognition that Indian upstream derives its strength from the enthusiasm of existing players

For last many years now, the news from Indian Upstream has been negative Disputes -- Government vs. Operators Litigations Lack of timeliness in approvals Arm twisting

Majority of bids come from Existing players.

New players give weight to recommendations of existing players

It is unlikely that existing players shall be good brand ambassadors if the existing contracts are mired in disputes, make tardy progress, or unreasonable conditions are imposed.

We should set the house in order, by clearing backlog and causes of disputes, issue necessary notifications that encourage E&P , and show Government resolve to give Upstream a rightful place.

NELP X should happen only after the above has stabalised for some time , so that we have good “Brand India” ambassadors.

7

Problem… Solution…

12

BUT …..

ALL IS NOT WRONG

13

There are strengths to be acknowledged and positive actions to be enhanced

1. Acknowledged & Respected Transparent allocation System

2. Recently introduced open stakeholder brain storming and solution hunting

3. Acceptance that our objectives are convergent

4. Unknown Geology can also be hugely productive

Need to continue building upon these strengths

Setting objectives in stone and make these touchstone is a missing key.

A superior body to resolve inter-policy conflicts on timeline basis shall make a huge difference.

Build trust amongst investors and Government to jointly work to address India’s energy problem.

14

We submit that .....

India’s exploration policy has to be in sync with the perception that India’s

geological Prospectivity is poor to moderate

Geology of the country cannot be changed but Government Policy and its

implementation can ensure extensive appraisal and exploration

Focus of the Government should be on providing appropriate policy and an

enabling operating environment to make the sector attractive for investors

Issues which hinder the growth of Indian E&P sector are not insurmountable, it is a

question of change in mindset and effort to take sector forward

Resolution of policy issues, operating environment and their stabilization are pre-

requisites for a successful NELP X bidding round

AOGO IS SEPARATELY SUBMITTING TO MOPNG A NOTE ON ACTIONS THAT ARE REQUIRED IMMEDIATELY, IN SHORT &

MEDIUM TERM.