Oil & Gas: Gas price cap formula could have been more lenient; Expect benefits in long term

Motilal Oswal | May 18, 2012, midnight


- Post the diesel price deregulation and LPG DBTL implementation success, government has now embarked on E&P sector reforms.

- Cabinet Committee on Economic Affairs announced key E&P sector reforms: (1) replaced ‘NELP’ with ‘HELP’; (2) granted PSC extension for small/medium fields with higher taxes and (3) new gas price formula for yet-to-be-developed deep water wells.

- Our View: (1) While ‘HELP’ (Hydrocarbon Licensing and Exploration Policy) tries to minimize government interference, clarity on industry response will take time and benefits will only be in the long term, (2) PSC extension is positive but higher taxation impacts field economics and (3) new gas pricing is positive, but given the longgestation period of deep water projects, price cap could have been more lenient.

- Applicability of new price to RIL’s discoveries will be contingent on arbitration withdrawal/resolution while ONGC could commence KG-DWN-98/2 development.

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