India’s rapid development is driving a growing demand for energy. This has made Hydrocarbon Exploration and Production (E&P) a high priority for the Government of India. With 90% of the nation’s crude oil requirements currently met through imports, advancing domestic efforts has become crucial for achieving energy self-reliance.
To accelerate these efforts, the Ministry of Petroleum and Natural Gas has recently released the Draft Petroleum and Natural Gas Rules, 2025, which is intended to replace the Oilfields (Regulation and Development), Act 1948 and the Petroleum and Natural Gas Rules, 1959.
Sharing his insight on the Draft PNG Rules, Advocate Madhur Baya, the Founder of the Mumbai-based LexArbitri, a boutique dispute resolution law firm, said, “While it is indeed heartening to note that rather than tweaking the Rules yet again to reflect the changed energy sector landscape, the Government has chosen to bring in a grounds-up fresh set of Rules, in my view, there have been as many misses as hits in the Draft.”
The draft suggests an authorization for production from all parts of a reservoir, including those extending beyond the geographical boundary of the contract area. This may involve extending or merging lease areas and expanding lease rights to conduct all mineral oil operations across the spectrum of energy hydrocarbons, which is potentially positive.
Another welcome step is the push for transparency by making it mandatory for the Government to now provide written reasons for rejecting applications or issuing directions, aligning with international best practices. The draft also promotes environmental safeguards by encouraging in-reservoir sequestration over atmospheric release.
On the downside, a key concern is the Government’s overreach in redefining contractual terms to align contracts, which risks undermining the objective of improving ease of business in the hydrocarbons sector.
“As well-intentioned as this may be, it could be construed as a veiled attempt to rewrite contracts in a manner that suits the Government,” he added.
Another major concern is the mandatory relinquishment of lease areas if a contractor disagrees with the Government-formulated unitization plan.
Reflecting on these weak points, he added, “These misses, in our view, will disincentivize foreign and domestic investments in the sector, as every investor will want certainty that the agreed bargain will not be altered ex post facto, against its interests, and on amorphous grounds.”
These concerns are particularly significant considering the capital-intensive nature of the energy sector and the fact that, in India, E&P is largely driven by public players. Increasing production would require greater participation from foreign players to leverage advanced technology and extensive expertise in deepwater and unconventional sources of hydrocarbons. For that, industry-friendly regulations are a must.