C H AP T E R - 1 8

PETROLEUM EXPLORATION LICENSES, PETROLEUM

MINING LEASES AND NEW EXPLORATION LICENSING
POLICY
Introduction:

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.In the business of oil and gas exploration and production, known popularly in the
Industry as E&P Business or Upstream Business, it is essential for a company
to have a designated piece of area on land or in the offshore to carry out these
activities. This designated and demarcated piece of area is called an 'acreage'
after the unit of measurement of area, acre.
It is necessary for any oil and gas company engaged in the exploration and
production of oil and gas in any country to obtain a right of such demarcated
areas from the authorities of the country before commencing the operation.
Procedures to obtain such right or licenses are called acreage acquisition and
subsequent operations in such acreages fulfilling the laid down norms are termed
as acreage management.
Under the topic, Petroleum Exploration Licenses (PEL), Petroleum Mining
Leases (PML) and New Exploration Licensing Policy (NELP) we shall try to learn
the various stages of evolution of such licenses, how to obtain them and how to
effectively monitor and manage them as an E&P executive.

Historical background:
The oil industry developed in a number of countries in a number of different ways
over many hundreds of years. The Burmese have a very old oil industry, so have
the Chinese and the French. In Russia Azerbaijan and Baku, an oil trade, with a
structured system of licensing existed as early as the 1840s. Under the Russian
"contract system" rather small acreages of one to four hectares were offered at
auction by the local representatives of the Tsar in whom subsurface mineral
rights were vested. The consideration which changed hands was to be a share of
production, up to forty percent and the term (duration) was four years. At about
the same time exploration for oil was carried out in Poland and in Romania.
Gas was not wanted, being uncontrollable and a dangerous nuisance.
Oil could be refined into paraffin (kerosene) and used in lamps. The lighter
fraction (petrol, gasoline) was also a dangerous nuisance and was discarded.
In the early years of the oil industry the rights to minerals, including petroleum, in
the subsurface, vested for the most part in the surface rights-holder, the private
landowner. With the growing awareness of the strategic importance of oil and
gas, more and more countries stepped in to issue licenses to companies for
carrying out E&P activities. This was aimed both at regulating as well as
developing the industry.
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Development of Licensing System in India:

In India, during the British period, the growth of E&P industry was limited to the
northeast and the then northwest (now Pakistan) only. With the country's
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independence in 1947, the importance of this strategic mineral was immediately

realized and on 8th September, 1948 itself, The Oilfield (Regulations and
Development) Act, 1948 (ORDA, 1948) was promulgated. The Act was enacted
for Development of Mineral Oil Reserves in the country. This was soon followed
by Petroleum Concession Rules, 1949 which came into force on 5th January,
1950 and was the basis of Rules on oil exploration and exploitation. This Rule
defined three types of licenses to be awarded to a prospective operator.
1. Exploring License: to search by geological & geophysical surveys
including trenching, pitting &. drilling bore-hole for geological information
but hot test drilling for petroleum
2. Prospecting License: License conferring the sole right to conduct all or
any of the operations included under prospecting.
3. Mining Lease: license to mine & extract in any quantity petroleum and
natural gas
Subsequently in suppression of the Petroleum Concession Rules, 1949, the
Petroleum and Natural Gas Rules, 1959 was made and came into existence on
25th November, 1959. With the introduction of this Act, the terms and conditions
of the exploration licenses and leases were modified and further defined.

PEL, PNL & NELP

Rules have been amended from time to time, through Official Gazette
Notifications (last amended wef.1.4.2003 and is called P&NG (Amendment)
Rules, 2003.
In the Petroleum and Natural Gas Rules, 1959, detailed and more
comprehensive definitions were enumerated e.g. Bore hole, Geophysical &
Geological surveys, Petroleum deposits, prospects and stratum etc. Specific
terms and conditions for grant of PEL and PML were laid down and Fees,
Deposits and Royalty payment modalities were explained. Formats were also
designed for reporting. regular activities in the oil fields to the State Govt./
MoPNG with respect to Cess, Royalty and Surface rent etc..
Under P&NG Rules, 1959,
Petroleum Exploration Licenses j(PEL) was to be awarded for 4 years
which could be extended by further two periods of 1 year each through
renewals. At the end of 6 years the PEL expired. PEL could be re-granted
for the same area through fresh application. The licensee was at liberty to
relinquish any part of the area by giving not less than 2 months notice to
the State/ Central Governments. The PEL for land area would be granted
by the respective State Governments while that for offshore area would be
granted by the Central Government.
Date of effect of licenses and leases: Every license and every lease
was effective from the date specified in this behalf in the license or the
lease.
Area and term of license/lease: The area covered by a license would be
specified therein and the term of a license would in the first instance be
valid for a period of four, years which could be extended for two further
periods of one year each. Every licensee would have the exclusive right to
carry out, in addition to geological and geophysical surveys, information
drilling and test drilling operations for petroleum in the area. Licensee
would have the exclusive right to a lease over license area. Every lessee
would have the exclusive right to conduct mining operations for Petroleum
& Natural gas in and on the land demised by lease.
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The P&NG Rules, 1959 envisages grant of Petroleum Mining Lease

(PML) for 20 years; at the end of which the PML expires. PML could be regranted for the same area through fresh application, PML is awarded after
GOI Approval is issued by MoPNG to respective State Govt. which in turn
would issue formal Grant (For Offshore areas, PML Grant is issued by
Govt. of India).
PEL and PML Fees: Under Petroleum & Natural Gas Rules, J959,
(Ammendments-2003), the applicant for a Petroleum Exploration License
(PEL) shall deposit
Rs.1,00,000/- as security for due observance of the terms & conditions,
Rs.25,000/-as initial application fee
Yearly license fee in advance, a sum calculated for each Sq. km. or part there of
at following rates:

Rs.50for1stYr.
Rs.10dfdr2ndYr.
Rs.500 for 3rd Yr.
Rs.700 for 4th Yr.
Rs.1000 for each subsequent year of renewal.

The applicant for Petroleum Mining Lease (PML) shall deposit

Rs.. 2,00,000/- as Security for due observance of the terms & conditions,
Rs.50,000/- as initial Application fee prior to formal grant of lease and Rs.
30,000/- as Preliminary expenses.
Rs.25/- per hectare or part thereof for the first 100 sq.km. and Rs. 50/- per
hectare or part thereof for the area exceeding the first 100 sq.km.-a fixed
yearly Dead Rent/ royalty whichever is higher in amount, but not both.
Additionally, the lessee shall also pay to State Govt., Surface Rent (per
km2 per annum, based on land revenue and cesses assessed) of the land
actually used for the purpose of operations conducted under the lease.
(Currently Govt. of Gujarat charges surface rent @Rs. 10,000/
km2/annum).

New Exploration Licensing Policy:

Passage of time and increasing awareness of the importance of oil, made
governments step in to issue 'licenses' on specific terms for exploring oil.
Unexpected price rise during 70's and 80's, forced many International Oil
Companies (IOC) to look for oil in places other than their own country. This led to a
globalization of the E&P business where companies with money and
technology started to look towards countries with resources. Many countries with
huge prognosticated resources but no finance or technology to explore/exploit
them also started extending invitations to International Oil Companies (IQC). This
led to a win-win situation for both and led to many countries defining or redefining their petroleum licensing policies. This new licensing can be defined as,
"the identification by government of potential (upstream) petroleum
investment opportunities in the national territory, their subdivision into
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discrete Contract Areas of prospective size, their offering to the

international/private oil companies by a suitable tendering process and the
establishment and negotiation of technical, financial and contractual terms
and conditions (for award) consistent with their petroleum prospectivity
and with the national interest" This was different from the earlier licensing in the sense that an element of
competition was brought in as a tendering process was initiated for allotment of
acreages.
India too was influenced by this wind of change. In the initial years after
independence, E&P activities in the country were largely dominated by the two
nationalized oil companies, ONGC and Oil India. The earliest efforts to attract
foreign investment in the E&P sector was made in 1979 when exploration blocks
were offered under bidding rounds and nine such rounds took place between the
year 1979 and 1995. Liberalized economic policy adopted by GOI in 1991,
sought to further de-regulate and de-license the petroleum sector in our country.
With the efforts of two nationalized oil companies, up to the beginning of 1990's,
only about 17 per cent of the entire sedimentary area of the country covering
about 0.52 million sq km was under the oil and gas map with commercial
production. Logistically difficult and geologically complex regions remained
largely under-explored as perceived geological risk involved was rather high.
The steadily increasing demand for petroleum and natural gas consistent with the
economic growth of the nation necessitated acceleration of domestic exploration
activities, implying substantial additional investment and induction of new
concepts and technology. Govt. of India announced the New Exploration
Licensing Policy (NELP) in 1997, for providing a level playing field to all the
companies in the allocation system of exploration acreages through competitive
bidding besides offering lucrative fiscal terms. ,
Salient features of NELP:
National Oil Companies compete with Private/MNC for obtaining the
exploration blocks
All parties would have to bid for the blocks that have been offered and the
choice of the successful bidders would be purely on the basis of the merit
of the bid itself.
The blocks are offered for a period of 7/8 years with clearly defined
phases of exploration.
There is mandatory relinquishment of the area after each phase of
exploration
At the end of the period of 7/8 years, the entire area has to be relinquished
unless there is a discovery. There is no provision of regrant of licenses.
With the introduction of New Exploration Licensing Policy (NELP), Government
also ended the allotment of PEL under nomination to national oil companies
(NOC). As such, all the PELs held earlier by ONGC and OIL was given one last
regrant under PNG Rules, to convert them to PML or relinquish them for ever.
This policy brought in a sense of competitiveness among the NOCs and both
ONGC and OIL have been quick and able to adapt the changing business
environment.
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Conclusion:
As we all need land to live in, we need acreage to carry out E&P Operations.
Irrespective of our discipline and demanding professional schedule, we need to
be proactive in monitoring our license/lease acreages,
a. to obtain leases in prospective basins,
b. to ensure timely grant of PEL & PMLs
c. to obtain all necessary clearances in time
d. to fulfil the work commitments in time
v
e. to explore the acreage with the best available concepts and technology
f . to avail concessions offered by Govt. of India in the form of Custom Duty.
Exemptions etc, which can result in huge financial gains to the Company

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