Oil and Gas Industry

Submitted to:Dr. A.K. Sharma

Submitted By:Divye Garg (10810023) Rahul Agarwal (10810047) Rishi Arora (10810051) Sudeep Dakua (10810061) Udit Gupta (10810065) Varun Thirani (10810070)

Contents
Why we chose Oil and Gas Industry? Profile of Oil and Gas Industry Age of Oil and Gas Industry Growth of Oil and Gas Industry Companies and their Market Share Current Import and Export Scenario Level of Competition Flow of Foreign Investments Government Policies and Regulation Legal Aspects Taxation

WHY WE CHOSE OIL AND GAS INDUSTRY?

Why Oil and Gas Industry?

The Indian oil and gas sector is one of the six core industries in India. The Indian oil and gas sector is of strategic importance and plays a predominantly pivotal role in influencing decisions in all other spheres of the economy.

PROFILE OF OIL AND GAS INDUSTRY

About Oil and Gas Industry

India has total reserves (proved & indicated) of 1201 million metric tonnes of crude oil and1437 billion cubic metres of natural gas as on 1.4.2010.

The total number of exploratory and development wells and metreage drilled in onshore and offshore areas during 2009-10 was 428 and 1019 thousand metres respectively.

About Oil and Gas Industry

Crude oil production during 2009-10 at 33.69 million metric tonnes is 0.55% higher than 33.51 million metric tonnes produced during 2008-09. Gross Production of Natural Gas in the country at 47.51 billion cubic metres during 2009-10 is 44.63% higher than the production of 32.85 billion cubic metres during 2008-09.

The refining capacity in the country increased to 184.386 million tonnes per annum (MTPA) as on 1.4.2010 from 177.968 MTPA as on 1.4.2009.

Indias Oil and Gas Reserves

Sedimentary Area 3.14 Million Sq. Km (four per cent of the worlds sedimentary area) Sedimentary Basins 26 ( Exploration initiated in 15 ) Prognosticated Resources (O+OEG) 205 Billion Barrels (For 15 Basins only; needs up-gradation) Established reserves 65 Billion Barrels (as of April 1,2008)

AGE OF THE OIL AND GAS INDUSTRY

History of Oil & Gas Industry in India

Oil struck at Makum near Margherita in Assam in 1867 First commercial oil discovery in Digboi in 1889 Systematic E&P in 1899 after Assam Oil Company formed 1947 Indias domestic oil production just 250,000 tonnes per annum 1954 IPR - petroleum to be core sector 1955 ONGC set up 1958 - First Gas & Oil pool discovered in Jwalamukhi (Punjab) and Cambay. Oil India Limited (OIL) was set up Discovery of giant Bombay High field in 1974 Western offshore highest producer

History of Oil & Gas Industry in India

1991 Liberalized petroleum exploitation and exploration policy 1991-1994 4th, 5th, 6th, 7th and 8th Rounds of exploration bidding 1999 - New Exploration Licensing Policy (NELP) 2000 NELP II 2002 NELP III 2003 NELP IV 2004 NELP V 2006 NELP VI 2007 NELP VII

GROWTH OF OIL AND GAS INDUSTRY

Growth of Oil and Gas Industry in India

Total Oil production has been increasing over the last 30 years.

Growth of Oil and Gas Industry in India (Contd.)

Total Oil Consumption has also been increasing linearly over the last 30 years.

Growth of Oil and Gas Industry in India (Contd.)

Total Natural Gas production has been increasing over the last 30 years. In last few years there has been a quantum jump.

Growth of Oil and Gas Industry in India (Contd.)

Total Natural gas consumption has also been increasing over the last 30 years.

COMPANIES IN OIL AND GAS INDUSTRY AND THEIR MARKET SHARE

Structure of Oil and Gas Industry

Market Share of Oil and Gas Companies

Market Share of Oil and Gas Companies
1%
11% 28% 18% IOCL ONGC Reliance HPCL

BPCL
20% 22% Others (GAIL, OIL)

CURRENT IMPORT AND EXPORT SCENARIO

Import and Export of Crude Oil and Petroleum Products

During the FY 2009-10, imports of crude oil were 159.25 MMT valued at Rs. 375378 crores. Imports of crude oil during 2008-09 was 132.27 MMT valued at Rs. 348288 crores. This marked an increase of 20.39 per cent during 2009-10 in quantity terms and 7.07 per cent in value terms.
During the financial year 2009-10, exports of petroleum products in quantity terms is 50.97 MMT valued at Rs. 144037 crores marking an increase of 15.9 per cent in value terms compared to 2008-09. Imports of petroleum products and crude oil are more than the exports and there is trade imbalance.

Imports of Oil and Gas for last 5 years

Growth of Imports of Oil and Gas (Rs. Crores)
400000 350000 300000 250000 Crude Oil 200000 150000 100000 50000 0 Petroleum products Natural Gas

2006

2007

2008

2009

2010

Imports of Petroleum Products have been rising over the years. Majorly, India imports crude oil.

Exports of Oil and Gas for last 5 years

Growth of Exports of Oil and Gas (Rs. Crores)
160000 140000 120000 100000 Crude Oil 80000 60000 40000 20000 0 Petroleum products Natural Gas

2006

2007

2008

2009

2010

Exports of Petroleum Products have been rising over the years. India does not export crude oil and natural gas

LEVEL OF COMPETITION IN OIL AND GAS INDUSTRY

Level of Competition
Level of competition generally refers to the life cycle of the Indian Petroleum and Gas Industry. Out of four stages, namely initiation, growth, maturity and stagnation, Indian Oil and natural Gas Industry is in its growing phase.

Level of Competition (Contd.)

FLOW OF FOREIGN INVESTMENTS

FDI Policy
The present policy on FDI in the Petroleum & Natural Gas sector vide Press Note No 5 (2008) permits FDI up to 100% under the automatic route in all activities other than refining and including market study and formulation, investment/financing, setting up infrastructure for marketing in Petroleum and Natural Gas Sector subject to sectoral policy. In Refining, FDI up to 49% in case of Public Sector Undertakings, without involving any divestment or dilution of domestic equity in existing public sector undertakings through Foreign Investment Promotion Board (FIPB) and FDI up to 100% is permitted in case of Private companies under Automatic route subject to sectoral policy.

Private & Foreign Investments are on the rise

Many Indian private sector players (RIL, PetroNet, Essar, etc) Under seven rounds of NELP, 212 blocks were awarded, of which 56 blocks went to private companies & JVs International players and approx. investments in India: Cairn Energy Plc over US$ one billion, British Gas - over US$ 800 million, Shell - US$ 650 million, BP - US$ 444 million Other global players with India operations - Total, Exxon Mobil, Gaz De France, and Chevron

Private & Foreign Investments are on the rise (Contd.)

GOVERNMENT POLICIES AND REGULATIONS

POLICIES AND REGULATIONS

The Petroleum Act to control issues relating to import, transport, storage, production, refining and blending of petroleum was already in place since 1934. Further, the Oil Fields (Regulation and Development) Act, 1948 and the Petroleum and Natural Gas Rules, 1959 provided regulatory framework for domestic exploration and production of Oil & Gas. Hydrocarbon Vision The Hydrocarbons Vision 2025 lays down the framework which would guide the policies relating to the hydrocarbons sector for the next 25 years. Issues such as E&P, refining, marketing, external policy, oil security, tariff and pricing, and restructuring and disinvestment are addressed.

NELP (New Exploration Licensing Policy)

Prior to the NELP, the Oil fields (Regulation and Development) Act, 1948 and Petroleum and Natural gas Rules, 1958 regulated the issue of license and PSU's. ONGC and OIL were the only public sector companies involved in exploration and production till 1997 while IOCL was the primary entity concerned with refining and processing oil after extraction. Main features include - Discovery or production bonus by the bidder; income tax holiday for seven years from the start of commercial production - No customs duty on imports - Freedom to the contractor for marketing of oil and gas in the domestic market of commercial production. Eight rounds of NELP have been completed till now and the Ninth Round has recently started in 2010. Two major discoveries as production by Reliance Industries' (RIL) KG-D6 basin and crude oil production in Barmer (Rajasthan) by Cairn India are the result of NELP

Policy for Change in Price of Petroleum Products

In line with the recommendations of a High Level Expert Group headed by Dr. Kirit Parikh the Government has decided that the pricing of petrol and diesel, both at the refinery gate and the retail level, will be marketdetermined.

It has also been decided that in case of a high rise and volatility in international oil prices, Government will intervene in the pricing of petrol and diesel. In view of the importance of the household fuels, namely PDS Kerosene and Domestic LPG, the Government has decided that the subsidies on these products will be continued.

 The PDS Kerosene and Domestic LPG Subsidy Scheme 2002 and the Freight Subsidy scheme, 2002 have been extended till 31.03.2014. However, in order to reduce under recoveries, it has decided to increase the retail price of PDS Kerosene by Rs.3/litre and of domestic LPG by Rs.35/cylinder.
Directorate General of Hydrocarbon The DGH was established under the administrative control of Ministry of Petroleum & Natural Gas by Government of India Resolution in 1993 to promote sound management of the Indian petroleum and natural gas resources having balanced regard to the environment, safety, technological and economic aspects of the petroleum activity and to review the exploration programmes of companies and advise the Government on the adequacy of these programmes

Regulatory Bodies
Petroleum and Natural Gas Regulatory Board

The Petroleum and Natural Gas Regulatory Board Act, 2006 was enacted in April, 2006. Consequently, Government has set up in October, 2007, the Petroleum and Natural Gas Regulatory Board (PNGRB) to regulate the refining, processing, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas, excluding production of crude oil and natural gas.
Section 11 and 12 of the PNGRB Act, 2006 states the functions and powers

Policy for Development of Natural Gas Pipelines

The natural gas sector is at the threshold of rapid growth. With increased exploration efforts under NELP, large scale discoveries of gas in the East Coast there is an imminent need to provide a policy framework for the growth of the pipeline infrastructure with a view to facilitate the evolvement of a nation-wide gas grid and the growth of city or local gas distribution networks. The objective of the policy is to promote investment from public as well as private sector in natural gas pipelines, to facilitate open access for all players to the pipeline, promote competition among entities, and secure the consumer interest in terms of gas availability and reasonable tariff for natural gas pipelines and city or local natural gas distribution networks.

LEGAL ASPECTS OF OIL AND GAS INDUSTRY

Legal Aspects Of Oil And Gas Industry

Oil and Gas sector is divided into 3 parts Upstream Midstream Downstream Upstream Sector The upstream sector is also known as the Exploration and Production of Oil and Gas. following are the laws which are directly related to the upstream sector.

Constitution of India Jurisdiction to regulate oilfields vested with Central Government CoI: Entry 53 of List I "Regulation and development of oilfields and mineral oil resources; petroleum and petroleum products CoI: Entry 25 of List II "Gas and Gas Works.

Legal Aspects Of Oil And Gas Industry

Midstream The midstream industry processes, stores, markets and transports commodities such as crude oil, natural gas, natural gas liquids (LNGs, mainly ethane, propane and butane) and sulphur. Generally midstream is clubbed with downstream industry. Downstream The downstream sector includes oil refineries, petrochemical plants, petroleum product distribution, retail outlets and natural gas distribution companies.

The total refinery crude throughput during 2009-10 at 160.03 million metric tonnes is 0.46% lower than 160.77 million metric tonnes crude processed in 2008-09 and the prorate capacity utilization in 2009-10 was 89.92% as compared to 107.43% in 200809.

Legal Aspects Of Oil And Gas Industry

Oilfields (Regulation and Development) Act, 1948 Basic enabling statute for licensing and leasing of petroleum and gas blocks by the appropriate government. Covers mineral oils which are defined as including natural gas and petroleum [S.3(c)]. Mining lease is defined exhaustively to cover all forms of exploring and exploiting mineral oils and all purposes connected thereto [S.3(d)] Empowers central government to make rules with regard to mining leases [S.5] Also empowers central government to make rules for the development of mineral oil

Legal Aspects Of Oil And Gas Industry

Petroleum and Natural Gas Rules, 1959 Rules provide framework for grant of exploration licenses and mining leases Salient features of the Rules : Prohibition on prospecting and mining except under a license or lease granted under the rules [Rule 4] Central Government has the power to grant licenses or leases in respect of any land vested with it or minerals underlying the ocean within the territorial waters or the continental shelf [Rule 5(i)] State government has power to grant license or lease over lands vested with it [Rule 5(ii)] Person obtaining exploration license obtains the exclusive right to a lease for producing (i.e. extracting) oil/gas over any part of area covered in license

Legal Aspects Of Oil And Gas Industry

Land acquisition Act, 1894
The law deals with the acquisition of land for Public purpose. The Act is a general Act which deals with the procedure and the conditions under which a land can be acquired. The only requirement is that the land can only be acquired for public purpose as per Section 3(f) of the Act.

The Petroleum Act, 1934

The act deals with import, transport, storage, production, refining, and blending of petroleum. The Act is one of the oldest acts in the oil and gas sector. Earlier to this act the rules regarding the above specified activities were separate for separate States. The Petroleum Minerals Pipelines (Acquisition of Right of users in Land) Act, 1962

TAXATION

Petroleum Product Pricing Taxation comparisons

In April 2002 India abolished the Administrative Pricing Mechanism (APM) controlling the domestic price of petroleum products in India. Under the APM, product prices were directly administered by Indias Central Government based on an opaque and complex cost of operating capital plus formula.

Effect of Taxation and Subsidies: A Comparison

The effect of lower product prices than input prices - a large effective subsidy has been the increasing accumulation of under-recoveries by OMCs. Under-Recoveries represent the difference between the trade-parity cost of Refined product paid by OMCs and their realised change frequently depending on a number of factors.

Taxes paid by Oil and Gas Industry over the years

(Rs. Billion) Royalty from Crude Oil Royalty from Gas Oil Development Cess Excise and Customs Duties Sales Tax 2006 50.67 8.637 51.96 631.43 459.34 2007 58.57 10.75 71.77 718.93 539.49 2008 65.44 14.87 71.56 783.73 564.45 2009 71.55 16.24 68.86 705.57 633.49 2010 NA NA 65.59 717.67 649.99

Conclusion
The Indian oil and gas sector is one of the six core industries in India and has very significant forward linkages with the entire economy. Government has taken many steps to regulate it. The Steps are also taken to increase the Indigenous oil and gas reserves. Although there are few loopholes which should be taken care of as soon as possible, one major drawback in the E&P sector is that the Regulatory Body (DGH) does not have any statutory value. The decisions of the DGH are merely advisory in nature and the Government is not to follow them.

References
Ministry of Petroleum and Natural Gas Website. Ministry of Trade and Commerce Website. Ministry of External Affairs Website. India Brand Equity Forum (IBEF) Website. Wikipedia.

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