India’s first auction of shale gas blocks is expected by 2013-end on terms likely to be remarkably different from those offered in bid rounds for oil and gas blocks.
The Directorate General of Hydrocarbons (DGH), in a draft policy on shale gas offerings, has proposed royalty and production-linked payments to the government for offering areas for exploration of gas.
The draft policy of the DGH does not permit cost recovery and hence profit sharing — the two features that came under criticism by the CAG in its audit report on Reliance’s KG-D6 block. Bidders would be asked to quote a percentage of output they are willing to share with the government at different production slabs.
“This will minimise government intervention and remove complications in accounting, and incentive for gold plating, which may occur while allowing profit sharing, based on cost recovery,” the DGH’s draft policy said. “The government share of production will be net of all statutory dues.”
In the new exploration licensing policy, companies share profit with the government only after recovering all their investment, a regime that CAG found was designed to encourage hike capital expenditure by private contractors thereby reducing the government’s share.
The DGH proposed a fiscal regime for shale gas and oil on the lines of the coal bed methane (CBM) contracts, where the government gets royalty and production linked payment (PLP).
“Ad-valorem royalty at the prevailing rate for crude oil and natural gas would be applicable to shale oil and gas respectively, and accrue to the state governments, whereas the production liked payment on ad-valorem basis, will be made of the central government,” the draft policy said.
This is proposed to be linked to different production slabs which will be biddable item.
Shale oil and gas are unconventional hydrocarbons reserves found in non-porous rock and require fracing technology to extract them from shale.
Different studies have put recoverable reserves of shale gas between 6 trillion cubic feet and 63 trillion cubic feet.