Government policies concerning the discovery and development of new offshore oil provinces, with focus on India and the North Sea

Abstract

The emergence of petroleum as a key factor in the world economy in the wake of the 1973 OPEC cartel led to a surge of offshore petroleum activities the world over. The dominant element in offshore oil exploration and exploitation is usually provided by the international oil companies, except in the case of the centrally administered economies. Government policies on the questions of the extent of involvement of and government control over the foreign oil companies are determined by various national and international factors. National policies inevitably keep changing in accordance with the magnitude of discoveries of oil through the different phases of development of offshore prospects. Nevertheless, care should be taken to maintain the delicate balance between ensuring major benefits to the nation and sustaining the interests of the oil companies. Although governments may initially allow the entire running of offshore operations by the foreign firms on their own terms, the former may hold back the “golden blocks”, if any, for a later round of licensing, and indicate in the licence terms the relinquishment provisions and a minimum work programme, say, to drill the equivalent of one well per block. The concept of treating both exploration and development in a single licence would ensure the continued involmement of the exploring firms in the development programmes and production without delays. If fairly good prospects are indicated during the intermediate phase of development, governments may proceed to secure a fair share of the profits by asserting greater control over the foreign companies through appropriate tax regimes and sound marketing systems, and also by considerably expanding the capabilities of national oil companies. If ultimately petroleum reserves prove to be very substantial, it is imperative that governments exercise a much greater control over the international companies through administrative and legislative means and taxation or its alternative of production sharing or service risk contracts. It is equally important that the enthusiasm of the industry and capital market is sustained by creating a proper investment climate. Participation of national oil companies in the development programmes together with the foreign firms and promoting national offshore capabilities through R & D progrmmmes would facilitate technology transfer and prevent “Venezuelisation”.