HELP vs NELP: Which is better?

Crippled by the rigidities, New Exploration Licensing Policy (NELP) was inviting a complete makeover as it suffered serious procedural and substantial structural flaws. HELP is replacing NELP now, as introduced by the present government in power. Undoubtedly, the economists and industry experts are keen to compare them: HELP vs NELP. Let us learn from this blog how would it impact the Indian Oil and Gas industry.

According to the industry experts, Hydrocarbon Exploration Licensing Policy (HELP) is a progressive step towards policy makeovers. It shall also help India to reduce its oil and gas imports by 10% by 2022.

A look into the past

In 1991, India, for the very first time in its fiscal life opened its gates, inviting foreign players to enter its market. It also passed an exploration policy (NELP) which was floated in 1999 with the Directorate General of Hydrocarbons (DGH) as its nodal implementing agency. The policy provided level playing field to both public and private players to take part in the exploration of hydrocarbons. And in its 18 years of operation, it observed nine rounds of block auctions which only amounted to 128 hydrocarbon discoveries, with 82 in gas and 46 in oil, a much lower mark owing to its structural and functional flaws. As many as 106 of the 254 awarded blocks were relinquished because of many rifts between political agencies and private players, bureaucratic hurdles, delayed approvals and disputes related to acreage policy.

India is the world’s third-largest oil consumer after USA and China. In March 2016, the Ministry of Petroleum and Natural Gas of Government of India released a new fiscal model with HELP for the hydrocarbon exploration and a new structure to release the expression of interest for the same.

HELP vs NELP

Let us first gather an elementary knowledge of both the models:

Points of Comparison	NELP	HELP	Cause & Consequence
Fiscal Model	Pre-tax investment multiple (PTIM) or a Profit sharing model	Revenue Sharing model	NELP encouraged recovering cost and operational investments first before sharing the profit however in HELP company must share revenue from the start of production.
Licensing System	Multiple Licensing system	Uniform Licensing system	With uniform licensing system, a contractor need not worry about taking individual licenses for each hydrocarbon exploration.
Acreage Licensing Policy	Restricted	OALP (Open Acreage Licensing Policy)	Multiple delays occurred during the award of exploration areas to contractors. Now freedom to choose the site lies with the contractor.
Royalties	Standard rates	Low rates for Deep/Ultra-Deep-Water	Owing to the risks involved in the exploration of deep and Ultra-deep-water blocks royalty rates have been reduced.
Exploration period	7 years for On land and Shallow Water; 8 years for Deep/Ultra-Deep-Water	8 years for On land and Shallow Water; 10 years for Deep/Ultra-Deep-Water	Exploration years have been increased to promote ease and freedom of doing business.

If we go deep into the analysis of the execution of these models, HELP is sure to win this debate against NELP, hands down. But the quintessential assertion is that this policy is advocated to be a reform to improve the financial health of public sector oil companies. However, the proposed deregulation and private sectors intervention in upstream activities seem to do the opposite.

A quick assessment would allow us to note that it is fairly easy to predict how HELP would surely upscale the number of exploration and production companies in India.

We are one among the many countries whose oil buying capacity is increasing while oil prices continue to be on the lower side. The question that arises is, is this; How India plans to deal with the all-time low in the global market?

This global tussle will surely be affected by the new policy and the private players involved in it. It would be too early to expect a visible change, but the prospect seems promising.