What is DGH (Directorate General of Hydrocarbons)?
The Directorate General of Hydrocarbons (DGH) serves as India’s governmental regulatory body under the Ministry of Petroleum and Natural Gas. This 1993-established organization functions as the main technical advisor for the petroleum sector.
India adopted a liberalized economic policy in July 1991 that led to DGH’s creation. This policy aimed to deregulate core sectors including petroleum. Public sector companies had monopolized the upstream petroleum sector before this change. The sector’s opening to private and joint companies created the need for a regulatory body to protect national interests.
Two important committees played a crucial role in DGH’s formation. Dr. A.B. Dasgupta’s committee reviewed Bombay High reservoir management and suggested creating an autonomous conservation board. This board would ensure oilfield development programs followed sound reservoir engineering practices. P.K. Kaul, former Cabinet Secretary, led another committee in 1992 that recommended an independent regulatory body for hydrocarbon resources management. The government officially established DGH on April 8, 1993, through Resolution No. O-20013/2/92/ONG-III.
DGH’s main goal focuses on promoting effective oil and natural gas resource management. The organization balances environmental, safety, technological, and economic aspects of petroleum activities.
The core team’s responsibilities cover:
- Implementation of New Exploration Licensing Policy (NELP) and Coal Bed Methane (CBM) policy
- Advising on exploration strategies and production policies
- Reviewing exploration programs of companies operating under Petroleum Exploration Licenses
- Evaluating hydrocarbon reserves discovered and estimated by operating companies
- Reviewing development plans for commercial discoveries
- Auditing management of petroleum reservoirs by operating companies
- Regulating preservation and storage of petroleum exploration data
- Assisting government in contract management functions
- Developing unconventional hydrocarbon resources like Gas Hydrates and Shale Gas/Oil
DGH manages Production Sharing Contracts for discovered fields and exploration blocks. The organization promotes investment in the Exploration and Production sector and monitors E&P activities, including field production performance reviews. On top of that, it works to open unexplored areas and develop non-conventional hydrocarbon energy sources.
The Standing Committee on Petroleum and Natural Gas’s 2016 report highlighted a problem. The upstream sector still needed a dedicated regulator, and DGH’s post remained vacant since July 2015 because of undeveloped recruitment rules.
Key Functions of DGH in the Oil and Gas Sector
DGH works as India’s Ministry of Petroleum and Natural Gas’s technical arm. The organization manages hydrocarbon resources and handles technical evaluation and monitoring throughout the exploration and production lifecycle.
DGH leads the implementation of the New Exploration Licensing Policy (NELP) and Coal Bed Methane (CBM) policy. The organization gives detailed technical advice to the Ministry about exploration and best use of the country’s hydrocarbons. This advice covers exploration strategies, production policies, and the sector’s five-year plans.
DGH reviews exploration programs of companies that operate under Petroleum Exploration Licenses. These licenses fall under the Oilfields (Regulation and Development) Act, 1948 and the Petroleum and Natural Gas Rules, 1959. The organization reviews work programs twice a year in Petroleum Exploration License areas of ONGC and OIL that were awarded on nomination basis.
The technical activities of DGH are specialized. These include seismic processing, data interpretation and visualization, petrophysical analysis, reservoir monitoring, and evaluation of Declaration of Commerciality (DoC) and Field Development Plans (FDP). They also monitor geophysical data acquisition, drilling, and oil and gas production.
DGH evaluates hydrocarbon reserves that operating companies discover and estimate. The organization reviews development plans for commercial discoveries and advises the government about their adequacy and proposed exploitation rates. They audit how operating companies manage petroleum reservoirs and suggest improvements to ensure sound practices that line up with optimal reserve exploitation.
The organization regulates how data and samples related to petroleum exploration, drilling, and production are preserved, maintained and stored. This work involves creating and maintaining the National E&P Data Base and Archive System.
DGH coordinates technical activities for all National Gas Hydrate Program (NGHP) projects. They also issue Essentiality Certificates for indigenous procurement of E&P sector goods to get GST concessions.
The Standing Committee on Petroleum and Natural Gas noted in 2016 that the upstream sector needed a dedicated regulator with statutory powers. They suggested that the Petroleum and Natural Gas Board (PNGRB) should take over DGH’s regulatory functions.
How DGH Regulates Exploration and Production
DGH serves as the technical wing of the Ministry of Petroleum & Natural Gas. The organization oversees regulatory compliance through multiple channels to optimize India’s hydrocarbon resource usage. A well-laid-out system helps regulate exploration and production activities in petroleum sectors of all sizes.
Approval of Work Programs
DGH has simplified the approval process for work programs with a categorized system. The regulatory framework divides processes into three categories: Category A (self-certification with no approval needed), Category B (deemed approval after 30 days), and Category C (mandatory approval). This reform has cut down required processes from 37 to 18 [link_1], and half of these now qualify for self-certification. The team reviews exploration programs, assesses development plans for commercial discoveries, and tracks performance of all major fields. DGH verifies budgets for Annual Work Programs and reviews Declaration of Commerciality and Field Development Plans for Production Sharing Contracts (PSCs).
Monitoring of National Oil Companies
DGH keeps a close watch on National Oil Companies (NOCs) through several monitoring systems. The organization tracks ONGC and OIL’s production performance monthly, quarterly, and annually for each field. The core team focuses on four areas: faster exploration activities, monetization of undeveloped discoveries, improved recovery factors, and rehabilitation of sick wells. They also handle PEL/PML examination, verification, and extension requests for nomination blocks. These requests undergo assessment based on administrative and geological data before recommendations go to the Ministry.
Issuing Clearances to E&P Operators
DGH aids E&P operators in getting crucial clearances, especially when issuing Essentiality Certificates for indigenous goods. The team processes Ministry of Home Affairs permissions and coordinates with the Ministry of Defense for clearances. Operators must submit vessel deployment applications to DGH 2½ months before operations for MoD processing. On top of that, operators need to notify DGH two months before starting exploration work to avoid conflicts with defense exercises.
Managing Seismic and Geophysical Surveys
DGH coordinates geophysical surveys to improve understanding of unexplored and poorly explored areas. They have completed surveys covering 2 million square kilometers – 84% offshore and 16% onland. These surveys give valuable insights about structure, tectonics, sedimentary thickness, and play recognition, especially in deep waters. The organization also oversees Non-exclusive Multi-Client Geo-Scientific Surveys by inviting service providers to generate new data and upgrade existing information about India’s hydrocarbon potential. The team has started upgrading its National Data Repository to improve data mining capabilities and accessibility.
Important Terms Defined by DGH
The DGH (Directorate General of Hydrocarbons) sets precise technical terms that govern India’s petroleum exploration and production activities. These standard definitions are the foundations of contracts and regulations in the oil and gas sector.
Appraisal Program
An Appraisal Program has activities that follow a petroleum discovery to review its commercial viability. The program aims to outline petroleum reservoirs’ thickness and lateral extent, determine reservoir characteristics, and measure recoverable petroleum. Companies drill appraisal wells to check if they can develop a hydrocarbon discovery commercially. DGH’s regulatory function involves reviewing these appraisal plans to ensure proper reservoir evaluation.
Cost Petroleum
Cost Petroleum represents the share of total petroleum that contractors can take from a contract area to recover their exploration, development, and production costs. Contractors bid on the Cost Recovery Factor, which could reach 100 percent. A higher recovery factor speeds up cost recovery but might make the fiscal package less attractive during bid evaluation.
Commercial Discovery
A Commercial Discovery happens when petroleum reserves meet the Production Sharing Contract’s commercial criteria. The discovery should be large enough to justify investment for production. Contractors must review their discovery’s commercial viability and submit a Declaration of Commerciality (DoC) to the Management Committee.
Development Plan
The Development Plan is a complete document that contractors submit to develop a Commercial Discovery. The Management Committee or Government must approve this plan as specified in the Production Sharing Contract. The document shows how a company plans to develop a petroleum field and manage environmental and social effects. It also has production and cost forecasts. Companies must submit Field Development Plans within 200 days after DoC review for oil discoveries and 365 days for gas discoveries.
Profit Petroleum
Profit Petroleum is the total value of petroleum produced and saved from the contract area in a specific period after removing Cost Petroleum. This amount represents the government’s share under the Production Sharing Contract model. The government’s percentage of Profit Petroleum is crucial in the bidding process for hydrocarbon blocks.
DGH vs Other Regulatory Bodies in India
The Indian oil and gas sector operates under multiple regulatory layers. DGH plays a unique role that differs from other regulatory bodies. PNGRB regulates downstream activities like transportation, marketing, and natural gas distribution along with petroleum products. However, DGH lacks the statutory powers and independent regulatory status.
The Standing Committee on Petroleum and Natural Gas highlighted that the upstream sector does not have a dedicated regulator. They suggested that PNGRB should take over DGH’s regulatory functions. This would create a single regulatory authority for both upstream and downstream sectors.
DGH’s effectiveness suffers due to its non-statutory status. Companies must directly approach courts during disputes with DGH over production sharing contracts. The system lacks an appellate authority to challenge DGH’s decisions.
Regulatory responsibilities for upstream oil and gas development rest with several ministries and agencies. This scattered approach leads to complications and redundant efforts. Decisions and conditions for upstream oil and gas development activities become inconsistent because these agencies do not line up their policies.
The regulatory frameworks in telecom and electricity sectors show a better model. These sectors follow the separation of powers doctrine. Their regulators work as quasi-judicial bodies, and Appellate Tribunals hear appeals.
FAQs
1. What is the primary role of the Directorate General of Hydrocarbons (DGH) in India?
The DGH is the principal technical advisory organization for India’s petroleum sector, operating under the Ministry of Petroleum and Natural Gas. It oversees the implementation of exploration and production policies, reviews work programs, evaluates hydrocarbon reserves, and promotes investment in the sector.
2. How does DGH regulate oil and gas exploration and production activities?
DGH regulates exploration and production through various mechanisms, including approving work programs, monitoring national oil companies, issuing clearances to operators, and managing seismic and geophysical surveys. It has streamlined approval processes and conducts rigorous oversight of field performance and production.
3. What is Cost Petroleum and how does it relate to oil and gas contracts?
Cost Petroleum refers to the portion of petroleum production that contractors can use to recover their exploration, development, and production costs. The Cost Recovery Factor, which can be up to 100 percent, is bid on by contractors and affects the attractiveness of the fiscal package during bid evaluation.
4. What is the significance of a Development Plan in the oil and gas sector?
A Development Plan is a comprehensive document submitted by contractors for developing a Commercial Discovery. It outlines how a company intends to develop a petroleum field, manage environmental and social impacts, and includes production and cost forecasts. This plan requires approval from either the Management Committee or Government as specified in the Production Sharing Contract.
5. How does DGH differ from other regulatory bodies in India’s oil and gas sector?
Unlike the Petroleum and Natural Gas Regulatory Board (PNGRB) which regulates downstream activities, DGH lacks independent regulatory status with statutory powers. It focuses on upstream activities but doesn’t have the authority to adjudicate disputes, leading to calls for a more unified regulatory structure in the sector.
