New Delhi: The Petroleum Ministry has finalised changes to Petroleum & Natural Gas Rules, 1959 that would be now notified as Mineral Oil Rules, 2025 to permit all types of hydrocarbon operations following the Oilfields (Regulation & Development) Amendment Act of 2025.
The reforms, aimed at streamlining India’s oil and gas exploration, include key change in rent and royalty whereby rent would be payable throughout the lease term in addition to the royalty, thereby substituting the prevalent ‘higher of the two’ fee mechanism.
It does away with the necessity to submit a field development plan for license term extension. All extensions would require fresh application for a petroleum lease and an interim permission to continue operations up to two years would be allowed pending government decision. The state would not withhold approval of extension unreasonably.
On reservoir extending beyond the lease boundary, it would be the duty of the lessee to inform the government, failing which penalties would be levied. In case the reservoir extends into open area; the lessee must provide satisfactory ‘Evidence’ instead of ‘Proof’ thereby allowing documents suggesting extension rather than those which conclusively establish it.
Where the reservoir extends into an adjoining contract area, the rules put the onus on the lessee to inform, continue operations, and voluntarily attempt unitization. Initial proposal provided for voluntary relinquishment followed by government intervention and recommendations. But this led investors concerned as to the nature of recommendations being recommendatory or mandatory.
A key reform is the introduction of fiscal stabilisation to protect investors from sudden fiscal or regulatory shifts. These would be through a hybrid approach where change in law means change of any ‘fiscal law’ with no threshold for claiming reliefs.
But changes in specified laws — environment, health, safety, employment, site restoration and decommissioning — the relief would be available only if the adverse effect resulting from it meets the threshold value of $5 million.
Environment and site restoration provisions have been simplified with liability for environmental damage, hazard, loss of person, property to be borne by lessee. The government, if forced, could take remedial measures at the cost of lessee. Use of restoration fund would be limited to site restoration only.
Provisions have been simplified for infrastructure sharing with all lessees declaring installed, used and excess capacity. If a lessee does not voluntarily share excess capacity, application may be filed seeking government intervention.
Dispute resolution would be simplified and driven by contractual agreement. A foreign seat of arbitration would be agreed upon only when there is a foreign firm or party with foreign parent company, holding more than 10 percent participating interest.