OIL AND GAS

INDUSTRY

August 2018

© THE INSTITUTE OF COMPANY SECRETARIES OF INDIA

Disclaimer

Due care has been taken to avoid errors or omissions in this publication. In spite of this, er ors may

still persist. Any mistake, er or or discrepancy if noted, may be brought to the notice of the Institute,

which shal be taken care of in next edition.

The Institute shall not be responsible for any loss or damage resulting from any action taken on the

basis of the contents of this publication. To avoid any doubt, it is suggested that the reader should

cross-check the contents of this publication with original Government notifications.

This industry specific research report is for wide circulation among experts to receive valuable suggestions and necessary supports for further improving the manuscript. Experts are encouraged to

email their suggestions and contribute any material which they think could value add the manuscript

to research@icsi.edu.

The Section 3, “Legal Framework” is indicative only.

Published by :

THE INSTITUTE OF COMPANY SECRETARIES OF INDIA

ICSI House, 22, Institutional Area, Lodi Road, New Delhi - 110 003

Phones : 41504444, 45341000, Fax : 24626727

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Printed at: Indian Offset Press/August 2018

ii

PREFACE

In the liberalized economic policy regime, the corporate sector has been assigned a major

role as the driver of growth and development of the Indian economy. This has resulted

in a number of changes, especially in the regulatory framework applicable to specific

industry sectors. As an economy is consist of different industries like agriculture, service,

engineering, manufacturing etc., it provides impetus to the economy i.e. employment

generation, production of goods and services, income distribution in the whole economy.

With the intent to further enhance the competitiveness of India’s services sector and

to boost productivity with the creation of new employment opportunities, the Central

Government has focused attention on 12 sectors in the economy as ‘Champion Sectors’

i.e., IT & ITeS, Tourism and Hospitality, Financial, Accounting and Finance, Transport and

Logistics, Construction and Related Engineering, Communication, Education, Medical

Value Travel, Audio Visual, Legal and Environmental.

As part of its support to government’s policy initiatives, the Institute has started an initiative by

projecting Company Secretary as ‘Corporate Saviour’- a person who can be relied upon

by stakeholders i.e., Corporates, Promoters, Shareholders, Government and Regulators.

With this basic objective, the institute has initiated the process of developing industry

specific knowledge through research, creating awareness among the members about

the contribution the Company Secretary can make in specific industry, capacity building

of members in the specific industry, securing recognitions for members in specific industry

sector, and sensitisation of regulatory authorities about the contribution the Company

Secretaries can make in specific industry.

For conducting the detailed analysis in a structured manner, a format is designed with

four sections, Section-I covering the industry profile, Section-II Business Scenario, Section-III

legal framework and Section-IV Contribution of Company Secretary in employment and

in practice. The research publications in all the industry sector are based on exploratory

research.

I wish to express my sincere thanks and gratitude to CS Ahalada Rao V, Vice-President, the

ICSI for his efforts in guiding and finalizing industry specific publications.

I also appreciate Dr. Prasant Sarangi, Director (Research), and Dr. Harpreet Raman Bahl-

Assistant Professor, the ICSI-Research Cell for doing in-depth study of Oil and Gas Industry

iii

and bringing out this research publication, under the guidance of CS Sonia Baijal, Director,

Professional Development, Prospective Planning and Studies and Dr. S.K. Dixit, Mentor,

Research Cel .

I am sure this research publication will prove to be of immense value to professionals,

corporates and researchers. The research is an ongoing process, and I welcome the

readers to give suggestions to make this research publication more comprehensive.

I wish all the readers a happy reading

New Delhi

CS Makarand Lele

Date: August 23, 2018

President

The Institute of Company Secretaries of India

iv

TABLE OF CONTENTS

Section No. Title of the Section / Sub Topics

Page

Number

1

Introduction

1

1.1 Introduction

1

1.2 Classification of Energy Sector

2

2

Business Scenario

7

2.1 Economic Scenario

7

2.2 Facts and Figures

8

2.3 Growth Drivers

9

2.4 Import/Export of Crude oil and Petroleum Products

9

2.5 Trend of Natural Gas Consumption in India (Period

13

2007-08 to 2017-18)

2.6 Demand of Petroleum Products

14

3

Legal Framework

16

3.1 Specific Laws Applicable to Oil and Gas Sector in

16

India

3.2 Specific Policies Applicable to Oil and Gas Sector in

18

India

3.3 Regulators

22

4

Contribution of Company Secretary

30

4.1 Position in the Value Chain

30

4.2 Vertical and Horizontal Reporting

30

4.3 Opportunities for Company Secretary

31

4.4 Conclusion

39

Bibliography

40

v

vi

1

SECTION 1

INTRODUCTION

1.1 INTRODUCTION

The roots of Oil and Gas industry in India are one and a half century old and can be traced

back to the year 1889, itself when the oil deposits in the country were first discovered near

the town of Digboi in the state of Assam.

Later, the foundation of the natural gas industry in India was set in the year 1960s with the

discovery of gas fields in Indian states of Assam and Gujarat. However, the Natural gas

industry got boosted actually with the discovery of large reserves in the South Basin fields

by ONGC in the 1970s. Until 1970’s, the production of petroleum and the exploration of

new locations for extraction of petroleum were mainly restricted to the north-eastern state

in India. However, there was a turnaround in the Indian petroleum industry when Industrial

Policy Resolution in 1956 was passed that emphasized on goal of growth and promotion

of industries in India. In a macro perspective, the petroleum industry has a noteworthy

role to play in turning the Indian economy from an Agrarian Economy to an Industrial

Economy.

1.1.1 Type of Industry

The oil and gas industry is usual y divided into three major sectors: upstream, midstream

and downstream.

The upstream Industry: This sector includes searching for potential underground or

underwater crude oil and natural gas fields, drilling exploratory wells, and subsequently

drilling and operating the wel s that recover and bring the crude oil or raw natural gas to

the surface. The upstream is sometimes known as the exploration and production (E&P)

sector.

The midstream Industry: It processes, stores, markets and transports commodities, such as

crude oil, natural gas, natural gas liquids (NGLs, mainly ethane, propane and butane) and

sulphur. The midstream provides the vital link between the far-flung petroleum producing

areas and the population centres where most consumers are located.

The downstream Industry: This ncludes oil refineries, petrochemical plants, petroleum

products distributors, retail outlets and natural gas distribution companies.

1

2

OIL AND GAS INDUSTRY

1.2 CLASSIFICATION OF ENERGY SECTOR

The energy sector consists of Petroleum and Natural Gas, Coal, Renewable Energy sector

and power sector in India. There is some or the other inter-linkages between themselves

among all these sectors. A brief outline of each sectors are as follows:

• Coal

• Renewable Energy

• Power

• Petroleum and Natural Gas

• Coal

The Ministry of Coal (MoC) has the overall responsibility of determining policies and strategies

in respect of expansion and development of coal and lignite reserves, sanctioning of

important projects of high value and for deciding all related issues. These key functions

are exercised through its public sector undertakings, namely Coal India Limited (CIL)

and Neyveli Lignite Corporation Limited (NCL) and Singareni Collieries Company Limited

(SCCL), a joint sector undertaking of Government of Telengana and Government of India

with equity capital ratio of 51: 49. The overal production of coal for 2016-17 was projected

at 724.71 MT.

The Geological Survey of India has estimated 308.802 billion tonnes of coal reserves in

India. The reserves have been identified mainly in Jharkhand, Odisha, Chhattishgarh, West

Bengal, Madhya Pradesh, Telengana and Maharashtra. Whereas the lignite reserves in

the country have been estimated at around 44.59 billion tones. The major deposits are

located in Tamil Nadu, Rajasthan, Gujarat, Kerala, West Bengal, Jammu and Kashmir and

in the union territory of Pudducherry.

• Renewable Energy

Ministry of New and Renewable Energy (MNRE) is the nodal ministry at the central level for

al matters relating to new and renewable energy. The ministry has been facilitating the

implementation of broad spectrum programmes including harnessing renewable power,

renewable energy to rural areas for lighting, cooking and movie power, use of renewable

energy in urban, industrial and commercial areas and development of alternate fuels

and applications.

India has an estimated renewable energy potential of about 900 GW from

commercial y exploitable sources viz., wind – 102 GW (at 80 meter mast heights),

smal hydro- 20 GW, bio-energy- 25GW and solar power-750 GW, assuming 3%

wasteland. Under National Solar Mission, 26 SPV projects of aggregate 330 MW

capacity have been commissioned. Thus, 523 MW Solar PV project and 202.5 MW

SECTION 1 – INTRODUCTION

3

Solar Thermal Power projects have been commissioned under the scheme. Under

the 100 SPV power plants, 78 projects were selected to set up 98 MW capacity

projects from 12 states. Against this, 71 projects of total capacity 90.80 MW have

been connected to grid. A payment security mechanism involving a revolving fund of

Rs. 486 crore has been put in place to ensure timely payment to developers in the event

of delay/default in payments by the purchasing state utilities.

India has taken a voluntary commitment of reducing emission intensity of its GDP by

33-35 per cent levels from 2005 by 2030. In the recent concluded 21st Conference of

the Parties to the United Nations Framework Convention on Climate Change (UNFCCC)

held at Paris, India committed to achieve about 40 per cent cumulative electric

power instal ed capacity from non-fossil fuel based energy resources by 2030 with the

help of transfer of technology and low cost international finance including from Green

Climate Fund (GCF).

• Power Sector

India’s power sector is one of the most diversified in the world. Sources of power

generation range from conventional sources such as coal, lignite, natural gas, oil,

hydro and nuclear power to viable non-conventional sources such as wind, solar, and

agricultural and domestic waste. Electricity demand in the country has increased

rapidly and is expected to rise further in the years to come. In order to meet the

increasing demand for electricity in the country, massive addition to the instal ed

generating capacity is required. Power systems across the world are witnessing

significant changes on account of various external factors. Climate change is leading

to increased power demand, which is putting pressure on generators as wel as grid

operators.

India ranks third among 40 countries in EY’s Renewable Energy Country Attractiveness

Index, year on the back of strong focus by the government on promoting renewable

energy and implementation of projects in a time bound manner.

India has moved up 73 spots to rank 26th in the World Bank’s list of electricity accessibility

in 2017, as declared in a conference by Government of India. In September 2017, the

Government of India launched the Saubhagya scheme to provide electricity connections to

over 40 million families in rural and urban areas by December 2018 at a cost of US$ 2.5 billion.

• Petroleum and Natural Gas

Oil and Natural Gas Corporation Ltd., engaged in the expansion and production of

crude oil, natural gas and value-added products was incorporated in 1993 under the

Companies Act, 1956, pursuant to government’s decision to transform the statutory

commission into Public Limited Company, through the Act of the Parliament [Oil and

Natural Gas Commission (Transfer of Undertaking and Repeal, Act, 1993)]. There are

other players like ONGC Videsh Limited (for production and expansion outside India),

Oil India Limited (for business expansion), Gas Authority of India Limited (for natural

4

OIL AND GAS INDUSTRY

gas), Indian Oil Corporation (India’s first flagship national oil Company), Hindustan

Petroleum Corporation Limited (with navratna status), Bharat Petroleum Corporation

Limited (integrated oil company) for sector’s expansion.

Source: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas,

Government of India accessed from http://ppac.org.in/WriteReadData/userfiles/file/

RefineriesMap.pdf

SECTION 1 – INTRODUCTION

5

1.2.1 The Push to FDI in Oil and Gas Sector after Introduction of LPG Reforms

The adoption of significant policy shift in terms of liberalization and privatization in July 1991

completely changed the situation again. With this new model of economic reforms, the

government started al owing the Indian petroleum industry to go into private hands and also

entered into government and private joint ventures. Not only this, the government also eased

the stringent regulation process on the petroleum industry. This gave a tremendous boost

to the petroleum industry in India. It began to grow at a marvel ous pace. The production

of petroleum and petroleum products also showed a momentous rise. Through adoption

of liberalization and privatization, the overall economy of India grew. Also, the demand for

petroleum products increased at an annual rate of about 5.5 per cent. After 1991 economic

policy shift, the demand for petroleum and petroleum products stil continues to grow, and

there is great potential for investors to invest in the sector and gain valuable returns while

meeting the increasing demands for the petroleum products.

Not only this, but, LPG reforms have also given a push to foreign direct investment in the

sector.

Table1: FDI Limits In Oil And Gas Industry

Section/Activity

% of

Entry

Equity/

Route

FDI

Cap

• Exploration activities of oil and natural gas fields,

100% Automatic

• infrastructure related to marketing of petroleum products

and natural gas,

• marketing of natural gas and petroleum products,

• petroleum product pipelines,

• natural gas/pipelines,

• LNG Regasification infrastructure,

• market study and formulation and Petroleum refining in

the private sector, subject to the existing sectoral policy

and regulatory framework in the oil marketing sector and

the policy of the Government on private participation in

exploration of oil and the discovered fields of national oil

companies.

• Petroleum refining by the Public Sector Undertakings (PSU), 49%

Automatic

without any disinvestment or dilution of domestic equity in

the existing PSUs.

Source: Department of Industrial Policy and Promotion, Ministry of Commerce and

Industry, Government of India accessed from http://dipp.nic.in/sites/default/files/

6

OIL AND GAS INDUSTRY

CFPC_2017_FINAL_RELEASED_28.8.17.pdf

1.2.2 SWOT Analysis of Oil and Gas Industry in India

Strengths

Weaknesses

v Optimistic economic growth rate

v High dependence on imports

v Demand is more than supply in India

v Late entry of Private and Foreign

v Presence of large base of middle income

players in the market

class population in India

v High Political risk

v Deregulation

v High operational costs

v Huge natural resource base

v Policy framework not too effective

v Legal intricacies

v Post- GST tax credit issues

v Rate of technology obsolescence

Opportunities

Threats

v Most of the natural reserves are still v Environmental concerns

untapped

v Hefty investment and technology

v India being 2nd largest populated

based

country in world, enormous dependent v Recession

on fuel

v Economic instability

v Not much use of renewable energy v Increasing raw material prices

sources yet

v Rising competition

v Supply channels

v Prone to changes political based

v Interdependence of Nations

regulations and policies

v Technology based

v Product substitution

v High global demand

v Limited to a few players

v Optimism of investors both private and

foreign

v Environmental friendly fuel demand with

use of renewables

v Necessity item

v LPG reforms

v Upstream and downstream integration

Source: Self-compilation after analysis of industry

7

SECTION 2

BUSINESS SCENARIO

2.1 ECONOMIC SCENARIO

Oil and Gas is also one of the 25 key areas identified under the Government’s “Make in

India” initiative besides being among 8 core sectors in India. Some facts related to current

economic scenario pertaining to Oil and Gas are given hereunder:

v Growing economy and population growth are the main drivers for oil & gas

demand, increasing every year.

v Import content in oil & gas sector is in the range of 15% for refinery to 67% for

upstream.

v A number of policy reforms have been taken by the Government to remove

obstacles to investment and incentivize oil and gas sector on the lines of ease

of doing business, minimum government maximum governance and promote

Make in India initiative.

v Several private companies have emerged as important players in the past

decade. Cairn India, produces more than 23% of India’s crude oil production

through its operation of major stakes in the Rajasthan and Gujarat regions and

Krishna-Godavari basin. Reliance Industries Limited and Essar Oil have become

major refiners.

v It is a transparent and level playing field for Indian private/foreign investors and

national oil companies – both enjoy the same fiscal and contract terms.

v Supportive Government Regime – ease of doing business moved to sector specific

policy HELP (Hydrocarbon Exploration & Licensing Policy). Also to encourage private

players and global oil companies, Income generated from storage and selling of

Crude Oil in Strategic crude oil reserves has been exempted from Income Tax.

v Despite being a net importer of crude oil, India has become a net exporter of

petroleum products by investing in refineries designed for export, particularly in

Gujarat.

v Investment opportunities are in upstream, gas pipeline, City Gas Distribution (CGD)

network, LNG Terminal, Petrochemical and Refinery.

v Thrust on developing gas based economy by connecting major cities with green

highways, which will have vehicles running on CNG and LNG with adequate re-

fuelling stations.

7

8

OIL AND GAS INDUSTRY

The oil and gas sector is among the eight core industries of India (crude oil, natural gas,

petroleum refinery products, coal, electricity, cement and finished steel, fertilizers) and

has an important contribution to make for the growth of al other industry segments in

India.

Source: Petroleum Planning and Analysis Cel , Ministry of Petroleum and Natural Gas,

Government of India accessed from http://ppac.org.in/WriteReadData/userfiles/file/

RefineriesMap.pdf

Keeping such contribution of Oil and Gas to other industrial sectors, the New Exploration

Licensing Policy (NELP) was envisaged in the year 1997–98 to fill the ever-increasing gap

between India’s gas demand and supply, followed by HELP and VISION 2030.

2.2 FACTS AND FIGURES

v The oil and gas industry ranks amongst India’s eight core industries.

v India was the third largest consumer of oil in the world in 2015, after the United

States & China.

v Oil imports constitute about 81% of India’s total domestic oil consumption in 2015-16.

v Oil and gas contributes about 34.4% to primary energy consumption in India.

v India had 54 Trillion cubic feet of proven natural gas reserves at the beginning of

2015. Approximately 34% of total reserves are located onshore, while 66% are

offshore.

SECTION 2 – BUSINESS SCENARIO

9

v India has 230.066 MMTPA of refining capacity with a surplus refining capacity of

about 15%, making it the second largest refiner in Asia after China. Private & joint

venture companies own about 41% of total capacity.

v India is the fourth-largest LNG (Liquified Natural Gas) importer in 2015 and

accounted for 6.4% of global imports

2.3 GROWTH DRIVERS

v As part of International Energy Outlook 2016, EIA projects that India and China

will account for about half of global energy demand growth through 2040, with

India’s energy demand growing at 3.2% per year. As per BP Energy Outlook 2016,

India’s energy consumption is projected to grow at 4.2% per annum upto 2035,

faster than all major economies in the world.

v Oil and gas sector plays a predominant role as over one third of the energy

required is met by the hydrocarbons.

v India has 16,240 km of operating Natural Gas Pipelines (June 2016). The

Government further intends to enhance India’s pipeline network by 15,000 km, to

complete the national gas grid, the plan for which is already underway.

v The Government is focused on providing access to affordable, reliable, sustainable

and modern energy to every citizen. In a bid to promote clean cooking fuel, the

Government has planned to increase LPG coverage by providing 100 million new

LPG connections in next 3 years till 2019.

v The government has planned to roll out BS-IV auto-fuels throughout the country

progressively by April 1, 2017 and leapfrog into BS-VI auto-fuels all over the

country w.e.f. April 1, 2020, which would facilitate major investment in refinery

upgradation, auto industry, related manufacturing and services sector.

2.4 IMPORT/EXPORT OF CRUDE OIL AND PETROLEUM PRODUCTS

India imports 82 per cent of its oil needs and the same is targeted to reduced to 67 per

cent by 2022 by resorting to measures such as local exploration, renewable energy and

indigenous ethanol fuel (The Economic Times, 18 Jan 2018).

10

OIL AND GAS INDUSTRY

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OIL AND GAS INDUSTRY

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13

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OIL AND GAS INDUSTRY

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SECTION 2 – BUSINESS SCENARIO

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SECTION 3

LEGAL FRAMEWORK

India has a quasi-federal constitution where both the federal and the state governments

have legislative powers. However, under the Indian constitution, only the federal

government is empowered to make laws relating to regulation and development of oil

fields and mineral oil resources, petroleum and petroleum products.

From time to time, the Government of India has framed many laws and policies to

develop and regulate Oil and Gas sector in India. Some sector specific laws pertaining to

Oil and Gas industry are:

3.1 SPECIFIC LAWS APPLICABLE TO OIL AND GAS SECTOR IN INDIA

Any E & P project in India is governed by various acts, rules, and regulations set by

Government at the national level and other regulatory agencies at the state and local

level. Some of the acts applicable specifical y to Oil and Gas sector are:

• Petroleum Act, 1934 (Act no. 30 of 1934) and the rules made there under: An

Act to consolidate and amend the law) relating to the import, transport, storage,

production, refining and blending of petroleum [16th September, 1934] Whereas

it is expedient to consolidate and amend the law relating to import, transport,

storage, production, refining and blending of petroleum . Therefore, this Act was

passed in 1934 to address operational issues covering the entire value chain of

oil production.

• The Oilfields (Regulation and Development) Act 1948 (53 of 1948): Fol owing

the Petroleum Act, the next major legislation was the Oilfields (Regulation and

Development) Act of 1948. Under this Act, the central government was granted

the power to make rules for regulating the authorization of mining leases (for

offshore blocks). Further, the Act also empowers the central government to

determine rates of royalty payable by the holder of the mining lease for onshore

as well as the offshore blocks

• The Petroleum pipelines (Acquisition of Right of User in land) Act, 1962 (50 of

1962): With regard to acquisition of user rights on a land where petroleum and/

16

SECTION 3 – LEGAL FRAMEWORK

17

or mineral pipelines were to be laid, the Petroleum and Minerals Pipeline Act got

passed in 1962. This Act has provisions relating to the acquisition and utilization of

land for laying pipelines. The Central Government has been given the authority to

acquire the land. Once the land has been acquired, the Central Government has

the option of either keeping the acquired land or transferring it to either the state

government or the corporation2 for which the land has been acquired. The Act

also provides for compensation in case of any damage, loss or injury is sustained

by any person interested in the land under which the pipeline is proposed to be, or

is being, or has been laid. Further, the liability of paying the compensation lies with

the concerned authority, i.e., the Central or State Governments or Corporation.

• The Oil Industry (Development) Act, 1974 (47 of 1974) and Rules 1975: The

Oil Industry (Development) Act was passed in 1974 under which the Oil Industry

Development Board (OIDB) was created at a time when the need to promote

self-reliance in the oil and gas sector was realized. The mandate of the Board is to

facilitate development of the sector. The Board is responsible for collecting the oil

industry development cess on the blocks that have been awarded to upstream

oil companies on a nomination basis. It also extends financial assistance to

companies in the sector in the form of loans.

• Other Allied Acts regulating Oil and Gas Sector

v Kerosene (Restriction on use and fixation of price) Order, 1993

v Kerosene (Fixation of Ceiling prices) Order, 1970

v Paraffin Wax (supply, Distribution and Price Fixation) Order, 1972

v Light Diesel Oil (Fixation of Ceiling Price) Order, 1973

v The ESSO (Acquisition of Undertaking in India) Act, 1974 (4 of 1974)

v Furnace Oil (Fixation of Ceiling Price and Distribution) Order, 1974

v The Burmah-Shell (Acquisition of Undertaking in India) Act, 1976 (2 of 1976).

v The Caltex Acquisition of shares of Caltex Oil Refining (India) Limited and of

the Undertakings in India Caltex (India) Limited Act, 1977 (17 of 1977).

v Domestic Gas Pvt, Limited and parcel Investment private Limited takeover of

Management Act, 1979.

v Kosan Gas Acquisition Act. 1979.

v Lubricating Oils & Greases (Processing, Supply and Distribution) Regulation

Order 1987.

18

OIL AND GAS INDUSTRY

v Liquified Petroleum Gas (Regulation of supply and Distribution) Order, 1993.

v Motor Spirit and High Speed Diesel (Prevention of Malpractices in Supply and

Distribution) Order, 1990.

v Explosives Act, 1884

v The Mines Act, 1952

v Mines and Minerals (Regulations and Development) Act, 1957

v The territorial Waters, Continental Shelf, Exclusive Economic Zone And Other

Maritime Zones Act, 1976

v Offshore Areas Minerals (Development and Regulation) Act, 2002

3.2 SPECIFIC POLICIES APPLICABLE TO OIL AND GAS SECTOR IN INDIA

India is dependent on imports for about 80.2 per cent of its oil requirements and 40

per cent of its natural gas requirements. To reduce dependence on imported oil and

gas, the government has in past implemented different policies on conventional and

unconventional hydrocarbons. Besides this, Hydrocarbon Vision 2025 has also been

shel ed out to guide the policies relating to Hydrocarbon. A gist of all of these has been

given hereunder:

• Hydrocarbon Vision 2025

The Hydrocarbons Vision – 2025, presented in the year 2000, lays down the

framework to guide the policies relating to the hydrocarbons sector for the next 25

years. It was considered that the issues such as energy security, use of alternative

fuels, interchangeability of technology are vital to ensure a mix of optimal and

sustainable; green energy sources, which are economical as well as for use in

Indian economy. As per official vision 2025 document, its key objectives are:

v To assure energy security by achieving self-reliance through increased

indigenous production and investment in equity oil abroad.

v To enhance quality of life by progressively improving product standards to

ensure a cleaner and greener India.

v To develop hydrocarbon sector as a globally competitive industry which

could be benchmarked against the best in the world through technology

up-gradation and capacity-building in all facets of the industry.

v To have a free market and promote healthy competition among players

and improve the customer service.

SECTION 3 – LEGAL FRAMEWORK

19

v To ensure oil security for the country keeping in view strategic and defence

considerations.

• Hydrocarbon Vision 2030 for North-East

The potential of hydrocarbons in India’s North-East sector can be captured from

the fact that the very first oil wel in India was found in Digboi, Assam in British

era. In spite of that, there is a huge unexplored reservoir of oil and gas in North-

east. Keeping this in mind, this vision 2030 for North-East India was released in

the year 2016. This vision aimed at outlining the long-term broad and objectives

for the exploration, exploitation of hydrocarbons in North-east India and highlight

its potential in the economic and social development of the region. This vision

proposes investments of Rs 1,30,000 crore in 15 years to ramp up hydrocarbon

production in North-east India.

Objectives of Hydrocarbon Vision 2030

a) The objectives of the plan are to leverage the region’s hydrocarbon potential,

enhance access to clean fuels, improve availability of petroleum products,

and facilitate economic development and to link common people to the

economic activities in this sector.

b) It outlines the steps to leverage the hydrocarbon sector for development of

the region in Guwahati as well as in North-east region with involvement and

inputs of various stakeholders, industry players and state governments. It not

only includes the ambition for the region but also an actionable road map.

c) It rests on 5 pillars: People, Policy, Partnership, Projects and Production. It aims

at doubling Oil and Gas production by 2030, making clean fuels accessible,

fast tracking projects, generating employment opportunities and promoting

cooperation with neighbouring countries.

d) The vision also focuses on other areas including exploring hydrocarbon

linkages and trade opportunities with neighbouring countries like Bangladesh,

Myanmar, Nepal and Bhutan.

e) It also aims at doubling Oil and Gas production by 2030, fast tracking

projects, generating employment opportunities and promoting cooperation

with neighbouring countries.

• Key Areas for Development of Oil and Gas Sector in 12th Five Year Plan

Five-Year Plans (FYPs) are centralized and integrated national economic programs.

From 1947 to 2017, the Indian economy was premised on the concept of

20

OIL AND GAS INDUSTRY

planning. All Five Year Plans have given due emphasis on the development of

Energy sector in India, which itself is the pillar of Infrastructure growth. The latest

one, the 12th Five year plan lays emphasis on important areas of Oil and Gas

sector in India such as:

v Expanding Oil and Gas exploration coverage under NELP.

v Expanding pipeline network for natural gas and LNG.

v Developing policy for shale gas production

v Increasing clean cooking fuel coverage from current 55 per cent to 75 per

cent and to reduce the use of biomass.

v Developing new LNG import capacity.

v Promoting use of bio-fuels.

v Developing city gas network in 200 cities for supply of CNG, domestic

and commercial gas to reduce dependence on liquid fuels and reduce

emissions.

• NELP (New Exploration Licensing Policy)

Applicable for al contracts entered into by the Government for an extensive

period of 18 years (1997 to 2016), the New Exploration Licensing Policy (NELP) is a

policy indicating the new contractual and fiscal model for award of hydrocarbon

acreages towards exploration and production (E&P). Till the adoption of

liberalization policy in the year 1991, exploration and production (E&P) activities

in Oil and Gas sector were allowed to be carried out in India only by public

sector oil companies viz, Oil and Natural Gas Corporation Limited (ONGC) and

Oil India Limited (OIL). NELP was formulated during 1997 by the Government of

India, with Directorate General of Hydrocarbons (DGH) as the nodal agency, to

provide a level playing field for both the public and private sector companies

in exploration and production (E&P) of hydrocarbons. Since then, licenses for

exploration are being awarded only through a competitive bidding system and

National Oil Companies (NOCs) are required to compete on an equal footing with

Indian and foreign companies to secure Petroleum Exploration Licences (PELs). As a

result, the activities in E&P sector have been significantly boosted by this policy and

it has opened up E&P sector to private and foreign investment with 100% Foreign

Direct Investment (FDI).

Features of NELP

The salient features of NELP are as under:

SECTION 3 – LEGAL FRAMEWORK

21

v Permitting 100% Foreign Direct Investment (FDI) in Oil and Gas sector

v No mandatory state participation through ONGC/OIL by the Government.

v Awarding of blocks through open international competitive bidding

v Replacing grant of the petroleum exploration licenses (PEL) to ONGC and

OIL on a competitive basis rather than nomination basis as done in the past.

v Freedom to the contractors for marketing of crude oil and gas in domestic

market.

v Exemption of Cess for production from blocks offered under NELP.

v Exemption to companies from payments of import duty for petroleum

operations.

v Creation of a Model Production Sharing Contract and putting it under review

process for every NELP round. Also, contracts to be governed in accordance

with applicable Indian Laws.

• Hydrocarbon Exploration and Licensing Policy (HELP)

HELP replaces the policy regime initiated in era of LPG reforms for exploration

and production of oil and gas in the form of New Exploration Licensing Policy

(NELP), which existed for 18 years (from 1997-2016). Hydrocarbon Exploration

and Licensing Policy (HELP) is a new contractual and fiscal model for award

of hydrocarbon acreages towards exploration and production (E&P). HELP is

applicable for all future contracts to be awarded. The key objectives of HELP are:

v Enhance domestic oil and gas production

v Bring substantial investment

v Generate sizable employment

v Enhance transparency and

v Reduce administrative discretion

Features of HELP

The vital features due to which new policy regime HELP was adopted include:

v Uniform License: Providing for a uniform licensing system to cover all

hydrocarbons, such as oil, gas and coal bed methane under a single

licensing framework, instead of the system of issuing separate licenses for

each kind of hydrocarbons under NELP.

22

OIL AND GAS INDUSTRY

v Open Acreages: Providing an option to a hydrocarbon company to select

the exploration blocks ‘throughout the year’ without waiting for the formal

bid round from the Government.

v Revenue Sharing Model: Replacing present fiscal system of ‘Production

Sharing Contract’ (PSC) by an easy to administer “Revenue Sharing Model”

to protect government’s interest and minimize scrutiny and delays.

v Marketing and Pricing Freedom: This has been granted for new gas

production from Deepwater, Ultra Deepwater and High Pressure-High

Temperature Areas subject to a ceiling price limit to the gas production from

existing discoveries which are yet to commence commercial production as

on 1.1.2016 as well as for future discoveries.

3.3 REGULATORS

The regulatory structure of Oil and Gas sector in India has been divided into regulators for

upstream and downstream sector.

• Central Level: Ministry of Petroleum and Natural Gas

The Ministry of Petroleum and Natural Gas (MOP&NG) is a Government of India

Ministry which looks after regulatory concerns in exploration, production, refining,

distribution, marketing, import, export, and conservation of petroleum, natural

gas, petroleum products, and liquefied natural gas in India. It oversees the

planning, development and control of and assistance to all industries in Oil and

Gas sector. Besides this it is concerned with the administration of all acts and

orders to regulate of Oil and Gas sector.

§ Key Bodies under Ministry of Petroleum and Natural Gas

The Ministry of Petroleum and Natural Gas has a host of other bodies working

under its umbrella to exercise an administrative control over this key sector.

These include :

v The Directorate General of Hydrocarbons (Upstream)

Established in the year 1993, under the administrative control of Ministry

of Petroleum & Natural Gas through Government of India Resolution,

the objectives of DGH are to promote sound management of the oil

and natural gas resources having a balanced regard for environment,

safety, technological and economic aspects of the petroleum

activities.

SECTION 3 – LEGAL FRAMEWORK

23

DGH has been entrusted with several responsibilities, like implementation

of NELP and HELP, matters concerning the Production Sharing Contracts

for discovered fields and exploration blocks, promotion of investment in

E&P Sector and monitoring of E&P activities including review of reservoir

performance of producing fields.

In addition, DGH is also engaged in opening up of new unexplored

areas for future exploration and development of non-conventional

hydrocarbon energy sources like Coal Bed Methane (CBM) as also

futuristic hydrocarbon energy resources like Gas Hydrates and Oil

Shales.

Broad Activities

§ Issue of EC (Essentiality Certificate).

§ Issue of NOC (No Objection Certificate) for transfer of goods.

§ Extensions and amendments of Essentiality Certificate.

§ Customs Confirmation.

§ Audit on utilization of Essentiality Certificate.

v PNGRB (Downstream)

The Petroleum and Natural Gas Regulatory Board (PNGRB) was

constituted under The Petroleum and Natural Gas Regulatory Board

Act, 2006 (NO. 19 OF 2006) notified via Gazette Notification dated 31st

March, 2006.

The Act provides for the establishment of Petroleum and Natural Gas

Regulatory Board to protect the interests of consumers and entities

engaged in specified activities relating to petroleum, petroleum

products and natural gas and to promote competitive markets and

for matters connected therewith or incidental thereto.

Further as enshrined in the act, the board has also been mandated 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 so as to ensure

uninterrupted and adequate supply of petroleum, petroleum products

and natural gas in al parts of the country.

• Linkages between the MoPNG and Other Central Ministries

The activities involved in upstream sector require clearances from certain other

ministries; therefore, a liaison is required for development of this sector. Some

24

OIL AND GAS INDUSTRY

linked Ministries and nature of regulations came in their purview are:

v Ministry of Environment, Forests and Climate Change (MoEF&CC)

The activities involved in oil and gas sector has a bearing affects on

sustainability, therefore certain environmental clearances are required for

various activities in upstream sector. These are :

§ Environmental Impact Assessment (EIA) Study: Like all sectors listed in

the Schedule to the Environmental Impact Assessment (EIA) Notification,

2006, Oil and gas sector is also supposed to carry out the Environmental

Impact Assessment (EIA) under the provisions of the Environment

(Protection) Act, 1986 under Article 14 of the Model Production Sharing

Contract (MPSC). The offshore and onshore oil and gas exploration,

development and production activities are covered under item 1(b)

of the Schedule to the said notification and being category ‘A’ project

is appraised in MoEF&CC. As per Article 14 of the MPSC, there are two

such studies required to be carried out. The first study aims to determine

the prevailing situation relating to the environment, human beings, flora,

and fauna in the contract area and its adjoining regions. The first study

is required to be carried out in two parts, namely, a preliminary part

which must be concluded before commencement of any field work

relating to a seismographic or other survey, and a final part relating to

drilling in the Exploration Period. The second part of the study requires

approval from the government before commencement of any drilling

operations. The second Environmental Impact Assessment (EIA) study

needs to be completed before the commencement of Development

Operations with approval from the government. The government, on

its part, will grant environmental clearances in accordance with the

relevant notifications, rules, regulations, and orders concerning EIA

issued by the MoEF from time to time.

§ Clearance under Coastal Regulation Zone (CRZ): Procedure for

clearance under Coastal Regulation Zone (CRZ) notification 2011 also

needs to be fol owed under Coastal Regulation Zone (CRZ) notification

under the Environment (Protection) Act, 1986 as there apply restrictions

on certain areas on setting up and expansion of new industries,

operations or processes.

§ Color Codes of Industries for Environment Clearances

The Ministry of Environment, Forest and Climate Change (MoEFCC)

has developed the Pol ution Index ‘for the purpose of categorization of

industrial sectors’. These are :

SECTION 3 – LEGAL FRAMEWORK

25

1. Red Category: Industrial Sectors having Pollution Index score of

60 and above.

2. Orange category: Industrial Sectors having Pol ution Index score

of 41 to 59.

3. Green Category: Industrial Sectors having Pol ution Index score of

21 to 40.

4. White Category: Industrial Sectors having Pollution Index score

incl. & upto 20.

The Oil and Gas sector has been kept in ‘Red Category’ as per this

color classification, which implies that sustainability aspects need to

be given more priority for the companies operating in this sector.

v Ministry of Defence

There are certain security clearances that are required for vessals in Indian

waters. Therefore, such clearances may be taken up from Ministry of

Defence for matters listed hereunder :

§ Naval Clearance - As per the existing procedure of al vessels, drilling

rigs, barges, plateforms, supply vessels, etc. engaged in E&P activities

in India are required to obtain security clearance from the Ministry of

Defence (Integrated Headquarters of Ministry of Defence–Navy) and

the applications are submitted to the DGH to obtain approval from

Ministry of Defence on behalf of the operator.

§ Airforce Clearance – As per the existing procedure, clearance of

Aircrafts and all equipments on board the aircraft for al airborne

26

OIL AND GAS INDUSTRY

survey, etc., engaged in E&P activities in India are required to obtain

security clearance from Ministry of Defence (Integrated Headquarters

of Ministry of Defence – Air) and the applications are submitted to

DGH for obtaining approval from Ministry of Defence on the behalf of

operator.

§ Army Clearance – As per the existing procedure, for land based

activities in restricted or protected area etc., an E&P operator is required

to obtain security clearance from Ministry of Defence (Integrated

Headquarters of Ministry of Defence – Army) and the applications

are submitted to the DGH for obtaining approval from the Ministry of

Defence on behalf of operator.

v Ministry of Home Affairs (MHA)

Permission of this Ministry is required prior to employing al foreign nationals

working with an operator in India. An E&P operator is required to obtain

security clearance from the Ministry of Home Affairs and the applications

are submitted to the DGH for obtaining approval from the Ministry of Home

Affairs on behalf of the operator.

3.4 MISCELLANEOUS BODIES

v The Oil Industry Safety Directorate (OISD)

This is a technical directorate under the Ministry of Petroleum and Natural Gas, the

Govt. of India to formulate and coordinate the implementation of a series of self

regulatory measures aimed at enhancing the safety in the oil & gas industry in

India. Main functions & responsibilities of OISD are:

§ To oversee the implementation of all the decisions of the Safety Council

§ To keep abreast of the latest design and operating practices in the area

of safety and fire fighting in the hydrocarbon processing industry in the

developed countries, so as to develop standards and codes that would be

suitable for the conditions in India;

§ To liaise with the statutory organizations on current views and developments

and help evolve a concerted effort for the industry;

§ To carry out periodic safety audits, review, suggest procedures for

improvements and report on the implementation of the suggestions to

Safety Council;

§ To review practices in the storage and handling of dangerous chemicals

SECTION 3 – LEGAL FRAMEWORK

27

and ensure compliance with latest standards;

§ To specify critical drawings / layouts that need to be vetted by Safety

Specialists at the design stage and carryout spot checks of design

standards based on site audit findings to serve as feed-back for

establishing new standards at the design stage.

v Petroleum Planning and Analysis Cell

Subsequent to the dismantling of the Administered Pricing Mechanism (APM) in

the petroleum sector, Oil Coordination Committee (OCC) was abolished and a

new cell called Petroleum Planning & Analysis Cell (PPAC), attached to the Ministry

of Petroleum and Natural Gas, was created effective 1st April 2002. PPAC is to

assist the Government in discharge of some of the functions earlier performed by

OCC. The objectives of PPAC are:

§ To ensure effective administration of the subsidy schemes notified by the

Government.

§ To monitor and analyse trends in prices of crude oil, petroleum products and

natural gas and their impact on the oil companies and consumers, and

prepare appropriate technical inputs for policy making.

§ To monitor developments in the domestic market and analyse options for

policy changes in pricing, transportation distribution of petroleum products.

§ To collect, compile and disseminate data on the domestic oil and gas

sector in a continuous manner and maintain the data bank.

§ To ensure quality of data in terms of prescribed parameters such as

accuracy, completeness and timeliness.

§ To prepare periodic reports on various aspects of oil and gas sector.

v The Oil Industry Development Board

The Oil Industry Development Board was established on 13th January, 1975

under the Oil Industry (Development) Act, 1974 to provide financial assistance

for development of Oil Industry. The Oil Industry (Development) Act, 1974 was

enacted fol owing successive and steep increase in the international prices

of crude oil and petroleum products since early 1973, when the need of

progressive self-reliance in petroleum and petroleum based industrial raw

materials assumed more importance. The Oil Industry Development Board is

functioning under the administrative control of Ministry of Petroleum & Natural

Gas.

28

OIL AND GAS INDUSTRY

Table 7: A Summary of Ministries and Agencies Concerned with Functioning of Oil

and Gas Sector

Body

Website

Issues

Ministry of

envfor.nic.in

Environment Clearance

Environment &

Forest Clearance

Forests

Ministry of

mod.nic.in

Security Clearance For

Defence

Vessels In Indian Waters

Directorate

dghindia.org

All Technical And Psc

General of

Issues.

Hydrocarbons

Ministry of

petroleum.nic.in

For Approvals As Required

Petroleum And

Under Psc.

Natural Gas

Oil Industry Safety oisd.nic.in

Oil Safety.

Directorate

Ministry Of

finmin.nic.in

Only If There Are Issues On

Finance

Tax, customs, excise

Chief Conservator wii.gov.in/envis/envis_pa_ Forest Clearance

Of Forests

network/page_pccf.html

Director General

dgshipping.com

Approval

For

Hiring

Shipping

Foreign Vessels

Director of

dipp.nic.in

Importing

/

Stocking

Explosives

Explosives

Coast Guard

dipp.nic.in/explosive/dept_ Security

And

Hazard

expl.htm

Issues

For

Offshore

Installations

State Pollution

cpcb.nic.in

Pollution

Control

Control Board

Clearance

District

Land

Use

Permission

Commissioner

Public Hearing For Env.

Clearance Law & Order

Issues

Land Revenue

Purchase / Use Of Land

Officer

Commissioner of

cbec.gov.in

Imports / Exports

Customs & Excise

SECTION 3 – LEGAL FRAMEWORK

29

Commissioner of

incometaxindia.gov.in

Income Taxation

Income Tax

Registrar of

mca.gov.in/ministrywebsite/

Registration Of Company

Companies

dca/mcaoffi ces/roc.html

Statutory Returns

Reserve Bank of

reservebank.com

Payments

In

Foreign

India

Currency

SECTION 4

CONTRIBUTION OF COMPANY SECRETARY

The Company Secretary is a key managerial person in a company, responsible to ensure

the effective and efficient administration of the company and certifying the company’s

compliance with the provision of the Act. His role as perceived in the past, is not just limited

to compliance aspect, he has become a key functionary in Board affairs as well.

4.1 POSITION IN THE VALUE CHAIN

As per ICSA, “It is vital that Company Secretaries have both direct and informal access to

board members – executive and non-executive directors (NEDs), CEOs and chairmen...

Maximizing effectiveness requires that the Company Secretary’s direct reporting line

should be to the chairman, and there should be parity of esteem and good team

working between the ‘triumvirate at the top’ – the chairman, the Company Secretary

and the CEO....... The role is changing: it is increasingly outward-focused (incorporating

investor engagement and corporate communications), and not just about internal

administration.”

The above quotation taken from ICSA publication highlights the significance of a CS’s

position in the entire value chain.

The other is that the Company Secretary is often the only person to know first-hand how

holistic decision-making outcomes are arrived at. They are closest to the Chairman and

are present throughout the range of board and committee meetings. This makes them a

central repository of knowledge, although often without their own voice at board meetings.

4.2 VERTICAL AND HORIZONTAL REPORTING

ICSA says, “The breadth of the Company Secretarial role includes additional responsibilities

such as being an officer of the company, chief of staff to the chairman and adviser to the

board on governance. Consequently, the secretariat needs to retain independence to

rebalance power as required and demonstrate accountability.”

The Company Secretary should assist and guide the directors in their pursuit of the

company’s aims but should also act with integrity and independence to protect

30

SECTION 4 – CONTRIBUTION OF COMPANY SECRETARY

31

the interests of the company, and through its shareholders, its employees and other

stakeholders. The Company Secretary should play a proactive and central role in the

governance of the company.

As per ICSA, “The role of the Company Secretary is much more than just administrative.

At its best, it delivers strategic leadership, acting as a vital bridge between the executive

management and the board and facilitating the delivery of organisational objectives.”

4.3 OPPORTUNITIES FOR COMPANY SECRETARY

Much beyond the ambit of compliances, The Oil and Gas Sector offers tremendous

opportunities for a Company Secretary after liberalization and privatization reforms

in the year 1992 and after the introduction of various policies and liberal regulations

allowing the entry of foreign players in the sector. A Company Secretary being a

Key Managerial Person can advice the Board on various technical and legal areas

where company has to take a make strategic decision. The legal intricacies and

huge volume of investment involved in Oil and gas contracts bring out the scope of a

Company Secretary to provide his clients with the advice, representation, negotiation,

and drafting concerning a wide variety of agreements for oil and gas exploration,

acquisition, and production.

A key part of oil and gas contracts is identifying the matters that are of the most importance

to clients. In addition to price issues, often there are many critical matters that must be

understood, such as:

§ On-time performance and allocation of risk for unknown matters (usual y bitterly

negotiated)

§ Risk al ocation

§ Defining the rights and obligations of parties to ongoing contractual matters (such

as joint ventures)

§ identifying special rights that may arise in certain circumstances (such as a failure

to make capital contributions or achieving earn-in)

§ Matters that require precise definition (such as the acceptable deductions in a

net profits interest calculation)

Many oil and gas contracts include ongoing relationships between parties, such as joint

ventures, earn-in agreements, and master service agreements. The role of a Company

Secretary as oil and gas contract expert in these situations will be to identify potential legal

risks and to neutralize them. Moreover, there might be a further role to play in full blown

32

OIL AND GAS INDUSTRY

disputes over such contracts. This is where good negotiation skills, experience in past

deal, knowledge of the industry and regulations come real handy, which are all a part of

Company Secretary’s expertise.

Apart from drafting oil and gas contracts, another major area of work for Company

Secretary is oil and gas projects which require some special knowledge and skills.

These Company Secretaries have to handle oil and gas transactions from upstream to

downstream, including pipelines, liquefied natural gas (LNG), distribution networks, trading

and petrochemicals.

4.3.1 Type of Contracts in Oil and Gas Sector

v Oil and Gas leases

v Joint Ventures

v Mergers and acquisitions

v Consortium Agreements1

v Technology Transfer Agreements

v Royalty/Profit sharing Agreements

v Exploration and Production Sharing Agreements,

v Gas Transmission Agreements

v Farm-in/ farm-out Agreements

v LNG Supply Agreement

v Pipeline Transportation Contracts

v Operating agreements

v Gas balancing agreements2

v Power Purchase Contracts

v Fuel Supply Agreements

v Shipping and Bulk Carriage Contracts

v Contracts for the Purchase and Leasing of Rigs and other drilling equipments,

1. A consortium agreement was signed between IOCL as Lead Member having 50 per cent stakes,

BPCL and HPCL sharing 25 per cent each as partners, for setting up India’s biggest oil refinery cum petrochemical complex with a ~60 MMTPA capacity and a cost of $30 billion along the western Coast of

India in the State of Maharashtra in the year 2016.

2. Gas balancing dictates how production imbalances will be reconciled between owners.

SECTION 4 – CONTRIBUTION OF COMPANY SECRETARY

33

v Natural Gas Gathering and Processing Agreements

v Leasing agreements for mines etc.

v Communitization agreement1

v Storage agreements

v Pooling and Unitization agreements

v Due Diligence and legal

v Master service agreements and other agreements between oil and gas producers

and oilfield service companies

4.3.2 Areas of Expertise

1. Production Sharing Contracts (PSC) Audit

Under a Production Sharing Contract, the contractor bears the mineral and financial

risk of exploration, yet, the Government is retains ownership (participation interest) for

exploration and production of hydrocarbons. The main aim of Production Sharing Audit is

to provide assurance to the State’s representatives that the Contractor Company/group

has conducted all PSC operations in compliance with the terms and conditions of the

Production Sharing Contract. It specifically includes:

v The Contractor company/group has satisfied its operational, commercial,

financial, tax, and reporting obligations, to all regulatory authorities, as stipulated

in Production Sharing Contract.

v All Cost recovery expenditures, as reported, have met all terms and conditions in

PSC as “al owable cost recovery expenditures, and claimed values are supported

by adequate, auditable, empirical evidence.

v The contractor group has maintained adequate accounting records in

accordance with the terms and conditions of PSC, and such records are in

compliance with general y accepted accounting practices.

v All export sales as well as internal sales have been conducted in accordance with

the terms and conditions of PSC.

v All hydrocarbon production records and sale proceeds have been accurately

calculated and recorded in Cost Recovery records, have been apportioned

1. Communitization is the agreement to combine small tracts, of which one or more is piece of land, for

the purpose of committing enough acreage to form the spacing/proration unit necessary to comply with

the applicable state conservation requirement and to provide for the development of these separate

tracts which cannot be independently developed in conformity with said conservation requirements.

34

OIL AND GAS INDUSTRY

properly in Government and Contractor company/group and have been properly

reflected in all Cost recovery statements and reports.

2. Land Acquisition and Project Development

v Assistance for reserves & resources evaluation and valuation (after fiscal modeling

& economic simulation)

v Resources & reserves audit – certification

v Estimate exploration success probabilities

v Examination of titles and title abstracts

v Strategic Acquisition and divestiture, joint operating agreements

v Legal & tax considerations of exploration/development of natural resources (tax

credits/other incentives)

v Energy project, real estate, oil & gas and venture capital partnerships

v Land use

v Sustainable development

v Drafting and negotiation of contractual agreements attendant to project

development

v Analysis of the possible areas of disputes at various stages i.e. during the stage

of floating tender, evaluation of bids, NOA stage, execution of contract and post

contract issues.

v Acquisition and disposition of upstream, midstream and downstream oil and gas

properties, licenses and concessions

v Advising in commercial transactions in offshore and onshore operations.

v Litigation concerning surface and subsurface title, payment of bonus monies,

access to leased property

v Representation of lessors’ interests in bankruptcy proceedings

v Preparation, negotiation and review of Leases,

v Preparation of Surface Use Agreements,

v Pipeline Right-of-Way and Easement Agreements, temporary and permanent

easements,

SECTION 4 – CONTRIBUTION OF COMPANY SECRETARY

35

v Transmission line, water, sewage and cut agreements and,

v Preparation of Special Conditions.

3. Facility Design/Build and Operations

v Structuring of commercial agreements and drafting and negotiation of contractual

arrangements for oil and gas exploration, production, and gathering, as well as

transmission pipeline transactions, and for fossil and alternative/renewable energy

facilities

v Services for operating power plants (fossil, nuclear and renewable energy)

v Transactional due diligence

v Production and storage facilities, pipelines, LNG projects

v Drilling and other offshore contracts, pipeline construction and transportation

v purchase, sale and development of LNG terminals and related pipeline facilities

v Development of crude oil terminals

v Development and financing of LPG infrastructure

v Gathering processing, treatment and storage arrangements and related

contracts

v Transportation agreements for crude oil, NGLs and other liquids, by pipeline, truck,

rail or barge

v Gas sale and purchase agreements

v Gas supply agreements

v Crude oil and petrochemical products sale and purchase agreements

4. Financial Management and Restructuring

v Project financing, drilling program capitalization, and tax equity and debt

financing

v Representing clients in the sale and acquisition of numerous strategic equity

stakes in projects at various stages of development, construction and operation.

v Assistance to optimize the asset portfolio

v Mergers and acquisitions

v Acquisitions and disposals for dealing in Oil and Gas company’s shares and

36

OIL AND GAS INDUSTRY

assets.

v Construction and financing of FPSO (Floating Production Storage and Offloading),

v Assisting upstream clients with their initial public offerings and follow-on debt and

equity offerings,

v Structuring new developments and refinancing existing properties

5. Matters Concerning Financial Markets

v Banking and raising funds services

v Loan documentation, registration of charges, status and search reports

v Raising of funds from international markets ADR/GDR/FCCBs/FCEBs/ECB

v Due diligence

v Diligence Report and Certification in respect of Consortium/Multiple-banking

arrangement made by Scheduled Commercial Banks/Urban Cooperative Banks.

v Loan Syndication

v Loan Documentation

v Representing developers, equity sponsors, international and domestic commercial

banks and financial institutions, multilateral development agencies, export credit

agencies, contractors and other participants in projects.

v Drafting and vetting of MOA, MOU, bank guarantees, indemnity bonds,

undertakings and authority letters, vendor contracts, etc.

6. Matters Concerning Taxation

A Company Secretary may act as an expert for taxation aspects of offshore and onshore

transactions in India. There are numerous matters wherein clients may require an expert

advice on sector specific taxation intricacies such as:

• Direct Tax related matters

v Advice on choice of business entity

v Corporate Income Tax: Advising domestic companies on foreign tax credit

to provide relief against double taxation

v Advising upstream clients engaged in exploration, extraction and production

activities, for claiming deduction and allowances available under ‘Production

Sharing Contract (PSC)’

SECTION 4 – CONTRIBUTION OF COMPANY SECRETARY

37

v Advising on tax saving aspects

v Advising on transfer pricing regulations applicable to specified domestic

transactions

v Advising on capital gains taxation

v Taxation aspects of ‘farm outs’ and sharing arrangements

v Advising on withholding tax payable on royalties to residents and non-

residents

• Indirect tax related matters

v Advising on Service tax

v Advising on Custom duties on exports and imports

v Advising on Excise tax

v Advising on VAT matters

v Advising on general Anti-avoidance rules

v Advising on ‘Profit Petroleum’ and ‘Cost Petroleum’ provisions

7. International Litigation and Arbitration

Arbitration is widely used in the oil and gas industry, and in particular, the UNCITRAL Rules

are adopted more often in oil industry arbitrations. Therefore, Company Secretaries may

have potential in this area. Several factors contribute to the use of arbitration for dispute

resolution in international agreements in the petroleum industry including:

v The technical nature of the industry which requires an arbitrator with specialist

knowledge.

v The high degree of use of sophisticated contracts drafted by professional advisers

means that dispute are anticipated and resolution procedures put in place.

v The international nature of the operations of multinational oil and gas companies

and cross border oil and gas fields, favour arbitration as a mode of dispute

resolution.

v Overlapping commercial interests and long-term contractual relationships

between oil and gas companies militate against litigation which is often expensive,

time consuming, adversarial and destructive of good relationships.

38

OIL AND GAS INDUSTRY

8. Energy Audit and Sustainability

The upstream sector has various energy-intensive activities from driving pumps to extract

hydrocarbons and to re-inject water, to drive turbines to generate electricity and heat

needed for on-site operations and living quarters. A study by ONGC shows that CO (88%)

2

and methane (11%) are the most significant emissions for oil and gas companies. Besides,

despite heavy investments to improve efficiency, energy-intensity of the extraction process

has been increasing over the years. The advisory services of a Company Secretary may

include advising company on :

v Assessing and mitigating environmental risks

v Reduction in Green House Gas Emissions

v Advising on Clean Development Mechanism (CDM) projects

v Developing models to increase energy efficiency by energy saving measures,

improved/enhanced oil recovery measures and reduction measures in gas flaring

v Use of bio-fuel technology

v Adoption of renewable energy such as solar energy, wind energy.

Carbon Credits: Identifying Emission Reduction Projects

Approved Methodologies

UNFCCC-Approved

Upstream:

v AM0009 - “Recovery and utilization of gas from oil wells that would otherwise be flared”

Midstream:

v AM0023 - “Leak reduction from natural gas pipeline compressor or gate stations”

v AM0037 - “Flare reduction and gas utilization at oil and gas processing facilities”

v 5 projects (India & UAE), 2 registered

Downstream:

v AM0055 - “Recovery and utilization of waste gas in refinery facilities”

v Water management strategies

v Energy conservation projects

v Developing measures to shorten time required to transport Oil and gas products,

thereby cutting CO2 emissions in midstream sector

SECTION 4 – CONTRIBUTION OF COMPANY SECRETARY

39

v Advising on energy and emission trading

9. Labour Audit

India has a robust legislative framework for health and safety irrespective of the industry

involved. The Factories Act 1948 (Factories Act) and its rules serve as the primary legislation

to ensure health and safety at work. The Factories Act imposes criminal liability on both

companies and individuals who breach its provisions. The penalties include monetary

fines and imprisonment.

In addition, there are specific laws and regulations on safety in the oil and gas sector,

such as:

v Petroleum and Natural Gas (Safety in Offshore Operations) Rules 2008.

v PNGRB (Technical Standards and Specifications including Safety Standards for

City or Local Natural Gas Distribution Networks) Regulations 2008.

4.4 CONCLUSION

Oil and Gas Industry, the role of Company Secretary in Oil and Gas Industry goes beyond

contemporary boundaries of compliance and other roles, there are plenty of other

strategist’s roles that can be mastered by a Company Secretary. The opportunities in

this sector have also increased manifold as the sector has been thrown open after LPG

reforms for Private and foreign entities. Therefore, Company Secretaries must reap the fruit.

40

OIL AND GAS INDUSTRY

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Faroogi, I. A. (2000). The Story of Oil and Natural Gas Commission. Second edition. Sahar

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Guru, D. D. and Ahsan Qamar (1987). Energy and Economic Development. Amar

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OIL AND GAS INDUSTRY

Document Outline

Contents

Oil and Gas Report