AS HELD BY THE SUPREME COURT IN THREESIAMMA JACOB AND OTHERS V GEOLOGIST, DEPARTMENT OF MINING AND GEOLOGY AND OTHERS ((2013) 7 SCR 863)
There is nothing in the law that declares that all mineral wealth subsoil rights vest in the state; the ownership of subsoil or mineral wealth should normally follow the ownership of the land, unless the owner of the land is deprived of the same by a valid process of law.
Article 297 of the Constitution
- All lands, minerals and other things of value underlying the ocean within the territorial waters, or the continental shelf, or the exclusive economic zone, of India shall vest in the Union and be held for the purposes of the Union;
- All other resources of the exclusive economic zone of India shall also vest in the Union and be held for the purposes of the Union;
- The limits of the territorial waters, the continental shelf, the exclusive economic zone, and other maritime zones, of India shall be specified by or under any law made by parliament.
Exploration and Production – General
What is the general character of oil exploration and production activity conducted in your country? Are areas off-limits to exploration and production?
Both onshore and offshore oil exploration activities are undertaken in India. Some areas may be off-limits due to defence requirements or existence of national parks and are excluded from bidding. No drilling is allowed (except with central government permission) within prescribed minimum distances of pipelines, railways, dwellings, industrial plants, aircraft runways, military buildings, or within 3 km of any mine.
Exploration and Production – Rights
How are rights to explore and produce granted? Procedure for applying? Terms negotiable?
Rights are granted by the Ministry of Petroleum and Natural Gas (MoPNG) via international competitive bidding per government policies. Revenue-sharing contracts (RSCs) are executed and not open to significant negotiation. Applications follow Petroleum and Natural Gas Rules, 1959, with fees of ₹100,000 for a licence and ₹200,000 for a lease (subject to change). Terms and conditions are as prescribed by rules and the agreement.
Government Participation
Does the government have rights to participate in a licence? Cost-recovery mechanisms? Operatorship rights?
A state oil company may participate in a licence, but no mandatory participation or carried interest exists. Revenue share is specified in the RSC, with bidders quoting different shares at lower and higher revenue points. Government receives its share from the first day of production.
Royalties and Tax Stabilisation
Royalty rates? Differences onshore/offshore? Other payments or tax stabilisation?
- Onshore: 12.5% of crude oil/condensates, 10% of gas produced and saved.
- Offshore: 10% of crude oil/condensates and gas; beyond 400m isobath: 5% first seven years, 10% thereafter.
Under HELP:
- Onshore: 12.5% oil, 10% gas/CBM
- Shallow water: 7.5% oil, gas, CBM
- Deep water: 0% first seven years, then 5%
- Ultra-deep water: 0% first seven years, then 2%
MoPNG resolution 28 Feb 2019 prescribes concessional royalty rates if production begins within four years (onshore/shallow) and five years (deep/ultra-deep). No additional tax stabilisation measures exist.
Licence Duration
Customary duration?
Licence: 4 years, extendable twice by one year each. Mining lease: ordinarily 20 years, area 250 km². Central government may relax terms. Model RSC under HELP provides 8-year onshore/shallow water exploration period and 10-year for frontier/deep/ultra-deep water, divided into two phases. Extensions beyond six months require government approval.
Extent of Offshore Regulation
Seaward extent?
Sovereignty extends to territorial waters (12 nm), seabed, subsoil, and airspace. Contiguous zone: 24 nm. Continental shelf: natural prolongation to 200 nm. Exclusive Economic Zone: 200 nm. Government may make provisions by notification for exploration, exploitation, and economic activities within these zones.
Onshore vs Offshore Regimes
Differences and rights by hydrocarbon type?
Differences exist in exploration licence periods, royalty rates, and insurance. Policies, acts, rules, and regulations are common. HELP provides single uniform licence to explore and extract all hydrocarbons regulated by the Oilfields Regulation and Development Act, 1948.
Authorised E&P Entities
Who may perform exploration? Registration requirements?
All entities (Indian or foreign) may undertake exploration and production, subject to foreign exchange and company law. Non-residents require approval to establish a company, branch, or project in India (~4 weeks, conservation cost ~US$2,500). Entities selected through international competitive bidding.
Regulatory Powers over Operators
Controls? Can operatorship be revoked?
Operators are governed by terms of the licence, mining lease, RSCs, or joint operating agreements. HELP does not envisage revocation of operatorship. Operator changes require government approval.
Joint Ventures
Joint ventures are commercial arrangements. Incorporated ventures follow domestic laws; unincorporated JVs may participate in upstream sector.
Reservoir Unitisation
Domestic and cross-border reservoirs?
RSCs envisage reservoir unitisation. No cross-border reservoir policy exists.
Licensee Liability
Limit on liability?
Model RSC under HELP: members’ liability is joint and several, limited to their individual participating interest. Contractor liable for work programme failures via liquidated damages. Joint liability and limitation flows from contract law.
Guarantees and Security Deposits
Parental guarantees or security deposits required?
RSCs require parental bank guarantees and bank guarantees from each contractor/operator for work commitments.
