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
 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
 COMPANIES IN OIL AND GAS
INDUSTRY AND THEIR MARKET
SHARE
Structure of Oil and Gas
Industry
Market Share of Oil and Gas
Companies
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

Imports of Petroleum Products have been rising

over the years. Majorly, India imports crude oil.
 Exports of Oil and Gas for
last 5 years

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 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) 2006 2007 2008 2009 2010
Royalty from
50.67 58.57 65.44 71.55 NA
Crude Oil
Royalty from Gas 8.637 10.75 14.87 16.24 NA
Oil Development
51.96 71.77 71.56 68.86 65.59
Cess
Excise and
631.43 718.93 783.73 705.57 717.67
Customs 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