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.
 India’s Oil and Gas Reserves
Sedimentary Area
3.14 Million Sq. Km (four per cent of the world’s
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 India’s 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%
IOCL
28%
ONGC
18%
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
Petroleum products
Natural Gas
150000

100000

50000

0
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
Petroleum products

60000 Natural Gas

40000

20000

0
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 market-
determined.

• 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 2008-
09.
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 India’s
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) 2006 2007 2008 2009 2010
Royalty from Crude Oil 50.67 58.57 65.44 71.55 NA

Royalty from Gas 8.637 10.75 14.87 16.24 NA

Oil Development Cess 51.96 71.77 71.56 68.86 65.59

Excise and Customs

631.43 718.93 783.73 705.57 717.67
Duties

Sales Tax 459.34 539.49 564.45 633.49 649.99

 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.
THANK YOU