India’s move to broaden the scope of its exploration policy beyond petroleum and natural gas while abolishing a windfall tax on domestically produced crude oil will likely draw in private and foreign entities to the upstream sector.

The exploration and production (E&P) sector has witnessed an uneven growth trajectory over the past decade, points out S&P Global Commodity Insights.

Last week, Rajya Sabha passed a bill seeking to amend the Oil Fields (Regulation and Development) Act of 1948 by expanding its scope to include shale oil, shale gas and coal bed methane, in addition to oil and gas, while proposing a series of other changes to the decades-old act, it added.

These include the freedom to pursue international arbitration in the event of disputes, as well as offering a longer lease period. The amendment still needs to be passed by the Lok Sabha to become law.

“The objective of the changes to the Oilfields Act is to create a more investor-friendly environment and enhance the global competitiveness of future oilfield contracts by addressing long-standing concerns of exploration companies,” said Rahul Chauhan, upstream technical research country lead at S&P Global Commodity Insights.

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India in recent years has undertaken a series of upstream reforms, such as greater marketing freedom to producers, S&P said.

Previously, the operator of a field could not directly sell locally produced crude into the market and needed government permission to sell crude and condensates within the country. Under the new policy, the government ceased its function of allocating domestic crude and condensate output.

Upstream companies can now carve out areas for oil and gas exploration under the Open Acreage Licensing Policy that allows explorers to place an expression of interest for any area throughout the year and the areas earmarked are then put on auction.

The government also decided to abolish a windfall tax on domestically produced crude that was in effect since July 2022. It was introduced to boost revenues at a time when crude oil prices remained at elevated levels. The tax rates were being reviewed every two weeks based on average oil prices of the immediate past fortnight.

“The windfall tax was extremely unhelpful for the oil producers that were just emerging from a difficult period of low or barely remunerable prices. In an ideal scenario, India should pursue the opposite of windfall taxes, that is aggressively expanding and incentivising production growth by all means necessary, because in an energy transition world, the risk of stranded assets is rising,” said Rajeev Lala, director for upstream companies and transactions at S&P Global Commodity Insights.

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