R.P. SHARMA

Reliance Industries Limited

11th December, 2012

11th Petro India

Regional Cooperation in Accessing & Developing Resources

Soft Infrastructure – Bridging the Gap

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Policy Initiative to Enhance Domestic Energy Resources

Volatile International Prices of Energy,

fluctuating dollar and ever increasing

demand of energy in country makes it

imperative to find new resources of energy

to bring modicum of stability

NELP framed in 1997 has been a Policy initiative in such direction to enhance oil / gas resources

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New Exploration Licensing Policy (NELP)1997Objective:-

Step-up level of investment in exploration for higher level of domestic production by attracting large private investment in oil/gas sector

Features :-

• No mandatory State participation

• ONGC/OIL also to compete on same terms that to private companies

• Freedom for marketing of crude oil and natural gas in domestic market

• Crude oil - import parity• Natural gas - market related price

• Fiscal stability during entire period of contract.A move from Administrative Regime to Free Market Regime

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NELP – Offer Process

• NELP Blocks are carved and statutory clearances are obtained by

MoP&NG before offer

• NELP round is launched with block data/ technical dockets/model PSC

• Offers evaluated by DGH and scrutinized by MoP&NG considered by

ECS and recommendation made to CCEA

• CCEA approves award of blocks

• PSC signed by GoI based on model PSCGovernment commitments under PSC being at highest level,

as such are sacrosanct

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Salient Features of Production Sharing Contract

• Government enters into a PSC with Contractor for a specified period

• Contractor takes exploration/development as per committed MWP

• Contractor finances exploration and development work

• Cost of unsuccessful exploration/development is borne by Contractor

• Successful exploration/development Government and Contractor

share the valueGovernment is absolved of all risks and expenses involved in highly risky business of Exploration and

Development

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NELP Status

9254

32113

Under Production Blocks 3Fields 6*

Bidding RoundsBlocks awardedBlocks RelinquishedDiscoveries

*Out of Six producing fields three are in KG D6

Award of Blocks under NELP-1 in year 2000

Current Status

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NELP - Contribution

Blocks under oil/gas production

< 500 bpd-

10,000 bpd25 MMSCMD

50,000 SCMD*-

Operator Block # of Fields under Production

Date of Commencement

Production

GSPCL CB-ONN-2000/1 1 (Oil) July, 2007

RIL KG-DWN-98/3 1 (Oil) & 2 (Gas) September, 2008 & April, 2009

NIKO CB-ONN-2000/2 2 (Gas) May, 2004 & October, 2004

Production from blocks other than KG D6 is less than 500 bpd of crude oil and around 0.05 MMSCMD of Natural Gas

* Production Peaked at 3 Lakh SCMD

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Production During XI FYP

Sector/ Source

2007-08 2008-09 2009-10 2010-11 2011-2012

Crude Oil (in TMT)

Share of PSUs

29019 28834 28243 28003 27559

Share of Private/JV

5087 4674 5262 9682 10527

Total 34106 33508 33505 37685 38086

Natural Gas

(in MMSCM)

Share of PSUs

24678 24757 25523 25447 25949

Share of Private/JV

7727 8090 21985 26774 21609

Total 32405 32847 47508 52221 47558

Crude oil & Natural gas production by NOC remained stagnant through XI FYP

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Projected Availability and Demand of Fertilizer / Power Sectors

Source 2012-13 2013-14 2014-15 2015-16

Domestic 104 105 113 118

RLNG 73 105 115 170

Total 177 210 228 288

Demand

Price Sensitive Power/ Fertilizer

197 263 284 302

Growth in Price sensitive demand*

66 21 18

*While the domestic availability is projected to be stagnant growth in Fertilizer / Power sector through 2016 is projected at 105 MMSCMD

In MMSCMD

Affordability and sustainability of RLNG in Fertilizer / Power Sector?

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Gas Supplies in India

• Producer Suppliers : E & P

Companies

• Merchant Suppliers : LNGTrans – National Pipelines

• Producer suppliers under NELP are regulated

• Merchant Suppliers enjoy absolute freedom and support

Level playing field between producer suppliers and merchant suppliers is missing

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Gas Pricing and Marketing Provision Under NELP - Article 21.1

NELP-I NELP-V NELP-VIII

Subject to Article 21.2, the Indian market shall have the first call on the utilization of natural gas discovered and produced from Contract Area. Accordingly, any proposal by contractor relating to Discovery and production of natural gas from Contract Area shall be made in context of the Government’s policy on utilization of natural gas and shall take into account the objectives of the Government to develop its resources in the most efficient manner and to promote conservative measures

Same as under NELP-I

Until such time as the total availability of natural gas from all petroleum production activities in India meets the total national demand as determined by Government, each company comprising the Contractor, shall sell in the domestic market in India all of the Company’s entitlement to Natural Gas from the Contract Area.

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Gas Pricing and Marketing Provision Under NELP - Article 21.3 & 21.6

NELP-I NELP-V NELP-VIII

21.3For the purpose of sale in domestic market in India, Contractor shall have freedom to market gas

21.6.1The Contractor shall endeavour to sell all natural gas produced and saved from Contract Area at arms-length prices to the benefit of the parties to the contract

21.3For the purpose of sale in the domestic market, the Contractor shall have freedom to market gas and sell its entitlement

21.6.1Same as NELP-I

21.3For the purpose of domestic sale obligation, the Contractor shall have freedom to market gas and sell its entitlement as per Government Policy for utilization of gas among different sectors21.3.1For purpose of Article 21, Government may from time to time frame policy for utilization of gas among different sectors, both for ANG as well as NANG which would cover issues relating to different consumer sectors.21.6.1Same as NELP-IModification amounts to restricting marketing

freedom

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Whether NELP Achieved its Objective?

• Award of E&P blocks under NELP since year 2000 was step in right direction to enhance domestic resources• During its 12 years of operation 254 blocks have been awarded but only one block worth reporting resulted in addition of resource

Reasons - attributable

1. Changes in various rounds of NELP and to make them applicable to earlier rounds creating uncertainty

2. As NELP provided marketing freedom to contractor, Gas Linkage Committee was abolished in year 2005 but all gas is allocated by Government for specific

- Plant location

- Purpose

- Quantity

Contd….

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Continued

3. Specific allocations by Government amounts to

going back to administrative pricing mechanism

4. Allocation and price discovery are mutually

exclusive

5. Current pricing mechanism shows a shift from

arms length price to focus on sharing of

Government subsidy

1-5: Creates economic climate which discourages investment in E & P sector.

Dr. Rangarajan Committee has been formed to go into PSC related issues

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Dr. Rangarajan Committee on Designing

Future PSCs• Main issues under reference

- Review of existing PSC

- Minimize monitoring

- Suitable mechanism for managing contract implementation

- Guidelines for determining basis/formula for price of

domestically produced gas

Committee report likely to be submitted in December 2012

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Pricing Presented by Industries to Committee

• Crude oil* - Import parity

• Petroleum Products** - Import parity

- Trade Parity@

• Natural Gas* (NELP) - Arms Length pricing (Market price)

• Long Term LNG - Indexed to JCC

@Trade Parity – 80% Import parity + 20% Export parity

*NELP / PSC

** Rangarajan Committee (2006)

Mechanism of gas price fixation to be same that of oil/oil products

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Ex Terminal Prices of Gas (NHV)

Domestic 2007 Current

APM 2.0 4.2Non APM-Nominated Blocks -

4.5 to 5.25*NELP-KG-D6 4.2

4.2Imported

LNG Qatar 3.86 12.96LNG Australia( $100/bbl)@ -

17.63TAPI P/L($100/bbl)@ -14.29

@Supply yet to start

In $/MMBtu

*NELP (KG D6) Price was highest in 2007 but today it is the lowest– a deterrent for investment in high risk

exploration in Deep / Ultra deep water

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Conclusion

Need to Incentivize domestic resources

• Sanctity of PSC

• Separation of regulated and regulating agencies

• Independent agency for monitoring obligations under

PSC

- Contractor

- Government

Dr. Rangarajan Committee may address these concerns

Thank YouThank You