PETROLEUM & NATURAL GAS RULES 1959

RAJKUMAR

UNIVERSITY OF PETROLEUM & ENERGY STUDIES

The Petroleum and Natural Gas Rules ,1959Government of India came out with the rules in

exercise of the powers conferred by section 5 and 6 of Oil fields regulation and development act 1948

Rules provide framework to regulate the grant of exploration licenses and mining leases and for conservation and development thereof,

Definitions Contract is defined as an agreement entered in to

between the government of India and any other party in relation to exploration and exploitation of hydro carbon and/or coal bed methane for relevant area

The Petroleum and Natural Gas Rules ,1959Salient features of the Rules:

Prohibition on prospecting and mining except under a license or lease granted under the rules [Rule 4]

Every holder of a license and every holder of a lease shall in these rules be referred to as the licensee and lessee respectively [Rule 4]

Distinguishes the right the companies get under license and lease

The Petroleum and Natural Gas Rules ,1959

GRANT OF LICENSE OR LEASE

Central Government has the power to grant licenses or leases in respect of any land vested with it or minerals underlying the ocean within the territorial waters or the continental shelf or exclusive economic zone[Rule 5(1)(i)]

State government has power to grant license or lease over lands vested with it [Rule 5(1)(ii)]

Every license and lease shall contain such of the terms covenants and conditions prescribed by the rules as are applicable and such additional terms covenants and conditions as may be provided in the agreement between the central government and the licensee or the lessee [Rule 5(2)]

The Petroleum and Natural Gas Rules ,1959GRANT OF LICENSE OR LEASEThe terms and conditions of a license or lease can

be seen in the petroleum and natural gas rules 1959 and also additional terms and conditions can be seen in production sharing contract between the investor and the government

The Petroleum and Natural Gas Rules ,1959FEEAs  Licensee, prospector required to pay initial

licence fee of Rs 25,000 [Rule 6 (i)] and Rs 100000/ as deposit [Rule 11(1)]

Apart from initial license fee the licensee shall pay yearly in advance license fee calculated for each square kilometre [Rule 11 (2)] Increases every year

As Lessee prospector required to pay initial lease fee of Rs 50,000.[Rule 6 (ii)] Rs 200000/ as deposit [Rule 13 (1) (a)] Also deposit Rs 30,000 for preliminary expenses [13(1)(b)

The Petroleum and Natural Gas Rules ,1959License fees increase every year in a pre-

determined mannerApart from security deposit after obtaining

the lease the lessee has to pay yearly dead rent or royalty whichever is higher in amount but not both [Rule 13(2)(a)]

Exemption can be given by the government in case of payment of fee, deposit etc…under rule 35

The Petroleum and Natural Gas Rules ,1959

Rights of the licensee and lesseePerson obtaining exploration license obtains the

exclusive right to carry out geological surveys, geophysical surveys, information drilling and test drilling operations for petroleum in the area covered in the license [Rule 7(i)]

The lessee have the exclusive right to conduct mining operations for petroleum and natural gas in the area of the contract and to construct buildings, dams, tanks, pumping stations, electric power lines etc... For full enjoyment of the lease. [Rule 7(ii)]

The Petroleum and Natural Gas Rules ,1959Area and term of licenseThe license is valid for four years and may be

extended for further periods of one year each till the expiry of the exploration period(s) provided under the agreement or otherwise specified by the central government in this regard [Rule 10] Refer article 3 in MPSC

Area covered in the license shall be specified therein

The Petroleum and Natural Gas Rules ,1959Area and Period of Lease The area covered by a lease is ordinarily 250

sqkm and the period of lease is 20 years [Rule 12]

RoyaltyNotwithstanding anything in any agreement,

a lessee shall,(i) Where the lease has been granted by the

central government pay to that Government(ii) Where a lease has been granted by the

state Government, pay to that Government

The Petroleum and Natural Gas Rules ,1959ROYALTYRoyalty as per the Oilfield (Regulation and

Development) Act 1948[Rule 14] and Production sharing contract.

Since production sharing contract is overriding contract royalty is collected only on the basis of Production sharing contract

The Petroleum and Natural Gas Rules ,1959AssignmentTransfer or AssignmentNot without approval from the central

government [Rule 17 (1)] if the license or lease is granted by the state government. (Refer article 28 of PSC)

The Petroleum and Natural Gas Rules ,1959Preemption RightIn case of national emergency in respect of

petroleum the central government shall at all times have the right of preemption over petroleum or petroleum products or natural gas produced under a lease provided that the fair market price is paid to the lessee [Rule 18]

The Petroleum and Natural Gas Rules ,1959Suspension of License or Lease (Rule 20)Up on written application from the licensee

or lessee operation of the work can be stopped for six months

While doing so the govt can impose conditions to protect the boreholes, equipment etc.. And the licensee or lessee is obligatory to comply with those conditions

The Petroleum and Natural Gas Rules ,1959Cancellation of License or Lease(Rule 21)Contravene the terms and conditionsFails to use the area for the purpose for

which it has been granted Area used for a purpose other than that for

which it has been granted

The Petroleum and Natural Gas Rules ,1959If the contravention cannot be remedied the

government will give 30 days notice and forfeit the whole or part of the security deposit made under rule 11(1) and 13(1)

If the breach or contravention can be remedied then the central government or state government as the case may be give notice to remedy the same within 60 days

Failure to remedy gives right to the governments to impose penalty

Penalty cannot be imposed if he fails to remedy because of force majeure situations

The Petroleum and Natural Gas Rules ,1959Cancellation of license or lease by the state

government can be done only after the approval by the central government

Cancellation shall be published in the official gazette and shall take effect from the date of publication

The governments also can cancel the license or lease if any part of the land covered by it is required for any public purpose by giving one month notice [Rule 21(3)]

The Petroleum and Natural Gas Rules ,1959PreservationA lessee is to preserve all core samples water

or petroleum discovered in any borehole for a period of 12 months and furnish to the government a report of all examinations made of such cores and samples [Rule 24]

The Petroleum and Natural Gas Rules ,1959Shutdown wellThe Central government may order the shut

down of a well if it is being operated in contravention to the rules or to prevent waste, damage to property or pollution [Rule 31 (1) (2)]

The Petroleum and Natural Gas Rules ,1959Delivery of PremisesDelivery of the block on relinquishment or

cancellation is to be done after restoring it in good order and conditions in accordance with international practices within six months from the date of relinquishment or cancellation [Rule 22]

The government has also come out with site restoration fund scheme 1999 for proper restoration of the site

The Petroleum and Natural Gas Rules ,1959Arbitration

Provides for arbitration of disputes which may arise between the Government and the licensee or lessee [Rule 33] [Refer Article 33] in MPSC

Dispute will be solved through arbitration and conciliation act 1996

The Petroleum and Natural Gas Rules ,1959PENALTIES If the licensee or lessee fails without

sufficient cause to furnish the information asked he shall be punishable with imprisonment for a term which may extent to six months or with fine which may extent to Rs one thousand or with both [Rule 32A]