CCEA meeting heralds the beginning of a new ecosystem

Ashu SagarThe press releases on March 10 following CCEA meeting herald the beginning of a new ecosystem for the upstream community. It felt good that oil gas exploration and production had made an entrance on the policy radar, and a number of decisions that had been hanging for years are finally closed. The end of uncertainty is always welcomed by the industrial community, irrespective of the level of enthusiasm with the actual proposals.

What do these initiatives say? First that delays in the current system are recognized; hence a new type of contract is thought necessary – The Revenue Sharing Model. Second those periodic auctions do create artificial prices and don’t take advantage of the knowledge and specialization that may exist in Industry - hence Open Acreage Licensing is introduced. Third the operational restrictions on oil & gas from tight rocks (including Shale) were self defeating and artificial; hence recognize what was always there in the mining license i.e. unified licensing for all Hydrocarbons. Fourth that the Government role in product pricing has led to unrealistic gas price and languishing of developments - so some pricing freedom or liberty to sell is introduced. Lastly that the current operators are in best position to extract maximum oil gas without opening a maze of legal abandonment obligations and time delays- so Contract Extension to certain old contracts is the preferred way forward. All these steps are positive and encouraging at the top level and need to be applauded.

The devil is however in detail, intention and the customer base reactions.

In this industry, we have seen over last 18 years that the policymaker’s best intentions can be subverted in the implementation of detailed systems at a subsequent time. Industry believes that being an increasingly energy deficit country our policies should driven for extracting last molecules of Hydrocarbons from the ground, with maximum number of drill bits on the ground from a much larger set of explorers. We therefore need a rigorous evaluation whether these policies shall take the country towards this energy “dreamland” or it has only moves the needle slightly to lure and delude.
The details when available shall answer some of these questions. That the driver of greater revenues has trumped more barrels of oil is already showing in the wings. So how do the current customers on current blocks fare could become a crucial test.

In the days and weeks that follow, these debates shall abound. We shall hear both sides on whether the glass is half full or half empty, whether the new policies are opening up what the implementers were practicing or restricting what original policymakers had always implemented, and the credibility questions.

The debate between politically acceptable ways forward and economically valid solutions shall ultimately be answered by those who put money down to validate their position.(The writer is Secretary General, Association of Oil & Gas Operators (AOGO))