1. R.P. SHARMA Reliance Industries Limited 11 th December, 2012 11 th Petro India Regional Cooperation in Accessing & Developing Resources Soft Infrastructure – Bridging the Gap

2. 2 www.ril.com Policy Initiative to Enhance Domestic Energy Resources Volatile International Prices of Energy, fluctuating dollar and ever increasing demand of energy in country makes it imperative to find new resources of energy to bring modicum of stability NELP framed in 1997 has been a Policy initiative in such direction to enhance oil / gas resources

3. 3 www.ril.com New Exploration Licensing Policy (NELP) 1997 Objective:- Step-up level of investment in exploration for higher level of domestic production by attracting large private investment in oil/gas sector Features :- No mandatory State participation ONGC/OIL also to compete on same terms that to private companies Freedom for marketing of crude oil and natural gas in domestic market Crude oil - import parity Natural gas - market related price Fiscal stability during entire period of contract. A move from Administrative Regime to Free Market Regime

4. 4 www.ril.com NELP – Offer Process NELP Blocks are carved and statutory clearances are obtained by MoP&NG before offer NELP round is launched with block data/ technical dockets/model PSC Offers evaluated by DGH and scrutinized by MoP&NG considered by ECS and recommendation made to CCEA CCEA approves award of blocks PSC signed by GoI based on model PSC Government commitments under PSC being at highest level, as such are sacrosanct Government commitments under PSC being at highest level, as such are sacrosanct

5. 5 www.ril.com Salient Features of Production Sharing Contract Government enters into a PSC with Contractor for a specified period Contractor takes exploration/development as per committed MWP Contractor finances exploration and development work Cost of unsuccessful exploration/development is borne by Contractor Successful exploration/development Government and Contractor share the value Government is absolved of all risks and expenses involved in highly risky business of Exploration and Development

6. 6 www.ril.com NELP Status *Out of Six producing fields three are in KG D6 Award of Blocks under NELP-1 in year 2000 Current Status

7. 7 www.ril.com NELP - Contribution Production from blocks other than KG D6 is less than 500 bpd of crude oil and around 0.05 MMSCMD of Natural Gas * Production Peaked at 3 Lakh SCMD

8. 8 www.ril.com Production During XI FYP Sector/ Source 2007-082008-092009-102010-112011-2012 Crude Oil(in TMT) Share of PSUs 2901928834282432800327559 Share of Private/JV 508746745262968210527 Total3410633508335053768538086 Natural Gas(in MMSCM) Share of PSUs 2467824757255232544725949 Share of Private/JV 77278090219852677421609 Total3240532847475085222147558 Crude oil & Natural gas production by NOC remained stagnant through XI FYP

9. 9 www.ril.com Projected Availability and Demand of Fertilizer / Power Sectors Source2012-132013-142014-152015-16 Domestic104105113118 RLNG73105115170 Total177210228288 Demand Price Sensitive Power/ Fertilizer 197263284302 Growth in Price sensitive demand* 662118 *While the domestic availability is projected to be stagnant growth in Fertilizer / Power sector through 2016 is projected at 105 MMSCMD In MMSCMD Affordability and sustainability of RLNG in Fertilizer / Power Sector?

10. 10 www.ril.com Gas Supplies in India Producer Suppliers:E & P Companies Merchant Suppliers:LNG Trans – National Pipelines Producer suppliers under NELP are regulated Merchant Suppliers enjoy absolute freedom and support Level playing field between producer suppliers and merchant suppliers is missing

11. 11 www.ril.com Gas Pricing and Marketing Provision Under NELP - Article 21.1 NELP-INELP-VNELP-VIII Subject to Article 21.2, the Indian market shall have the first call on the utilization of natural gas discovered and produced from Contract Area. Accordingly, any proposal by contractor relating to Discovery and production of natural gas from Contract Area shall be made in context of the Government’s policy on utilization of natural gas and shall take into account the objectives of the Government to develop its resources in the most efficient manner and to promote conservative measures Same as under NELP-IUntil such time as the total availability of natural gas from all petroleum production activities in India meets the total national demand as determined by Government, each company comprising the Contractor, shall sell in the domestic market in India all of the Company’s entitlement to Natural Gas from the Contract Area.

12. 12 www.ril.com Gas Pricing and Marketing Provision Under NELP - Article 21.3 & 21.6 NELP-INELP-VNELP-VIII 21.3 For the purpose of sale in domestic market in India, Contractor shall have freedom to market gas 21.6.1 The Contractor shall endeavour to sell all natural gas produced and saved from Contract Area at arms-length prices to the benefit of the parties to the contract 21.3 For the purpose of sale in the domestic market, the Contractor shall have freedom to market gas and sell its entitlement 21.6.1 Same as NELP-I 21.3 For the purpose of domestic sale obligation, the Contractor shall have freedom to market gas and sell its entitlement as per Government Policy for utilization of gas among different sectors 21.3.1 For purpose of Article 21, Government may from time to time frame policy for utilization of gas among different sectors, both for ANG as well as NANG which would cover issues relating to different consumer sectors. 21.6.1 Same as NELP-I Modification amounts to restricting marketing freedom

13. 13 www.ril.com Whether NELP Achieved its Objective? Award of E&P blocks under NELP since year 2000 was step in right direction to enhance domestic resources During its 12 years of operation 254 blocks have been awarded but only one block worth reporting resulted in addition of resource Reasons - attributable 1. Changes in various rounds of NELP and to make them applicable to earlier rounds creating uncertainty 2. As NELP provided marketing freedom to contractor, Gas Linkage Committee was abolished in year 2005 but all gas is allocated by Government for specific - Plant location - Purpose - Quantity Contd ….

14. 14 www.ril.com Continued 3. Specific allocations by Government amounts to going back to administrative pricing mechanism 4. Allocation and price discovery are mutually exclusive 5. Current pricing mechanism shows a shift from arms length price to focus on sharing of Government subsidy 1-5: Creates economic climate which discourages investment in E & P sector. Dr. Rangarajan Committee has been formed to go into PSC related issues 1-5: Creates economic climate which discourages investment in E & P sector. Dr. Rangarajan Committee has been formed to go into PSC related issues

15. 15 www.ril.com Dr. Rangarajan Committee on Designing Future PSCs Main issues under reference - Review of existing PSC - Minimize monitoring - Suitable mechanism for managing contract implementation - Guidelines for determining basis/formula for price of domestically produced gas Committee report likely to be submitted in December 2012

16. 16 www.ril.com Pricing Presented by Industries to Committee Crude oil* - Import parity Petroleum Products** - Import parity - Trade Parity @ Natural Gas* (NELP)- Arms Length pricing (Market price) Long Term LNG- Indexed to JCC @ Trade Parity – 80% Import parity + 20% Export parity *NELP / PSC ** Rangarajan Committee (2006) Mechanism of gas price fixation to be same that of oil/oil products

17. 17 www.ril.com Ex Terminal Prices of Gas (NHV) Domestic2007Current APM2.04.2 Non APM-Nominated Blocks-4.5 to 5.25 *NELP-KG-D64.24.2 Imported LNG Qatar 3.8612.96 LNG Australia( $100/bbl) @ -17.63 TAPI P/L($100/bbl) @ -14.29 @ Supply yet to start In $/MMBtu *NELP (KG D6) Price was highest in 2007 but today it is the lowest– a deterrent for investment in high risk exploration in Deep / Ultra deep water

18. 18 www.ril.com Conclusion Need to Incentivize domestic resources Sanctity of PSC Separation of regulated and regulating agencies Independent agency for monitoring obligations under PSC - Contractor - Government Dr. Rangarajan Committee may address these concerns

19. Thank You