Recasting India’s Upstream Petroleum Governance

India’s upstream petroleum regulatory framework has historically evolved through executive contracts rather than comprehensive statutory instruments.

Analysis of the Oilfields (Regulation and Development) Act, 1948 (ORD Act) and the Petroleum and Natural Gas Rules, 2025 (New PNG Rules)¹.

Background

The ORD Act, has served as the basic sstatute governing India’s upstream petroleum sector for over seven decades. The Petroleum and Natural Gas Rules, 1959 (Old PNG Rules)², framed under the Act, provided the operational framework for exploration and production activities, mainly for government companies with limited private participation. In 2025, the Central Government introduced significant amendments to the Act and replaced the Old PNG Rules with the New PNG Rules. This article examines the transition from the old regime to the new framework, highlighting key structural, procedural, and substantive reforms and makes a comprehensive and critical analysis of the Rules.

Introduction

India’s upstream petroleum regulatory framework has historically evolved through executive contracts rather than comprehensive statutory instruments. The ORD Act provided broad enabling powers, while detailed governance was left to contractual arrangements such as Production Sharing Contracts (PSCs) and, later, Revenue Sharing Contracts (RSCs).

The Old PNG Rules was based on the regulatory philosophy of their time, with limited private participation, rudimentary environmental safeguards, and minimal procedural codification. The enactment of the New PNG Rules, alongside amendments to the ORD Act, marks a decisive shift towards a modern era philosophy of procedural clarity, regulatory certainty, sustainability, and operational flexibility.

Structural expansion and legislative maturity

A notable feature of New PNG Rules is the substantial expansion and precise regulatory framework. While the Old PNG Rules comprised only 35 rules arranged across 7 chapters with a single schedule, the New PNG Rules contain 65 rules structured into 12 chapters supported by 8 schedules. This expansion is not merely quantitative in nature; rather, it reflects a clear legislative intent to move from a skeletal, contract-driven regime to a comprehensive rule-based framework. The new structure introduces detailed procedural prescriptions, clearly defined timelines for regulatory decision-making, standardised application formats, and statutory recognition and resolution of operational and commercial realities that earlier remained unaddressed or only addressed through executive contracts, policies or office orders. Accordingly, enhancing transparency, certainty, and regulatory robustness in the upstream petroleum sector.

Conceptual shift: Departure from mining law paradigms

The Old PNG Rules were heavily influenced by mining law terminology, leading to conceptual ambiguity between mining and petroleum operations. The New PNG Rules consciously abandon this legacy. By clearly distinguishing, exploration, appraisal, development, and production of mineral oils, the 2025 framework aligns petroleum governance with industry-specific technical and commercial realities. This clarity will reduce unnecessary regulatory hurdles for the exploration sector.

Unified petroleum lease and ease of doing business

Under the 1959 regime, separate exploration licences and mining leases were required, resulting in multiple regulatory approvals and clearances during the project lifecycle. The New PNG Rules replace this fragmented structure with a single unified petroleum lease covering all mineral oil operations. This reform shall reduce procedural complexity, approvals, and advances the government’s ease of doing business agenda.

Codified procedures, timelines, and deemed approvals

A major deficiency of the Old PNG Rules was the absence of clear procedures for grant, renewal, extension, and modification of leases. The New PNG Rules address this through prescribed application formats, defined timelines for governmental decisions and deemed approval mechanisms where timelines are not adhered to.

The lease tenure framework has also been rationalised, initial term: 4 to 30 years and further extensions are provided till the economic life of the field, in instalments of up to 30 years (Rules 7 and 10)³.

Area management and operational flexibility

The New PNG Rules introduce flexibility in area management through freedom to select lease areas at the application stage, structured relinquishment procedures with notice periods and timelines (Rule 11)⁴, introduction of a special petroleum lease for surveys and data acquisition, with a maximum term of four years, and permission to merge multiple leases for operational efficiency. Such provisions align Indian regulation with global upstream best practices.

Financial regime: Rent, royalty, and security deposits

The Old PNG Rules required payment of dead rent or royalty, whichever was higher. The New PNG Rules adopt a clearer financial structure: lease rent payable at revised rates for the full lease term (Rule 9)⁵, and royalty payable strictly as per the ORD Act upon commencement of production.

Security deposits have been revised to Rs 25 lakh from the nominal amounts prescribed in 1959, a revision justified by inflation and the contemporary scale of operations.

Reservoir extension and statutory recognition of subsurface reality

Earlier the issues were addressed through contractual provision is in PSC/RSC, wherein powers are with a Management Committee, are now statutorily recognised (Rule 12)⁶. Now, lessees are required to notify the Central Government upon discovering reservoir extensions beyond lease boundaries, ascertain the reservoir extent and apply for lease area extension up to reservoir limits. This provision strengthens legal certainty while recognising geological realities.

Lease cancellation and regulatory balance

While the power to cancel leases for default is retained, the New PNG Rules introduce a 90-day cure period (Rule 18)⁷, reflecting a more rational and investor-friendly approach.

Unitisation: Statutory recognition with diluted authority

The New PNG Rules introduce statutory unitisation provisions (Rule 13)⁸, requiring cooperation among lessees where reservoirs extend across adjoining areas. Production continuity is prioritised in public interest.

However, the earlier provisions in the contract were more stringent than the provisions in the New PNG Rules. Under the contract, the Government is empowered to call for a joint development plan from an independent agency and despite disagreement between the parties if such joint development plan is approved by the Government, it is binding on the parties. This mechanism provides a first-tier resolution of dispute. The contractual provision is diluted in the statute, and such dilution may lead to unnecessary litigations.

Stabilisation and expropriation safeguards

The inclusion of a stabilisation clause (Rule 15)⁹ provides assurance against adverse economic impacts of legal changes by restoring economic equilibrium. Additionally, expropriation for public purposes is accompanied by compensation based on fair market value, which surely will enhance the investor confidence, particularly foreign investor.

ESG integration and decarbonisation mandates

For the first time, environmental, social, and governance (ESG) principles have been comprehensively embedded in subordinate petroleum legislation through Rules 37—42¹⁰, introducing a structured regulatory framework for environmental accountability in upstream operations. These provisions mandate monitoring and reporting of greenhouse gas emissions, measurement and disclosure of gas flaring, planned reduction of emissions, the imposition of a flaring cap of 0.5 per cent of monthly production, and the requirement of permits for greenhouse gas injection and sequestration. Collectively, these measures align India’s upstream petroleum regulations with global climate commitments and international best practices.

Integrated energy projects and post-lease continuity

The New PNG Rules permit integration of renewable and alternative energy projects such as solar, wind, hydrogen, and geothermal, within oilfield areas, even beyond the term of petroleum lease term. This marks a significant step towards integrated energy planning, though the absence of single-window clearances may limit practical ease of implementation.

Infrastructure sharing

Shared infrastructure is permitted, allowing lessees to jointly develop facilities or seek access to excess capacity of another lessee’s infrastructure. Where mutual agreement on such use cannot be reached, a lessee may apply to the Central Government for determination of excess capacity and permission for its use. The Central Government, either on such application or suo motu in public interest, may call for information, determine the existence of excess capacity, and after hearing both parties, prescribe the terms and conditions for its use, having due regard to the operational requirements of the owner or developer. The measures taken are really workable and will certainly be helpful in optimal utilisation of infrastructure and resources.

Strengthened enforcement and dispute resolution

Enforcement mechanisms have been significantly and rationally strengthened through decriminalisation and enhanced penalties of up to Rs 25 lakh, along with daily penalties for continuing contraventions, the establishment of an adjudicating authority vested with powers akin to those of a civil court. New rules provide a detailed procedure for imposition and adjudication of penalty.

Earlier arbitration was provided in the contract. Now in accordance with the provisions of the Act, New PNG Rules are drafted incorporating arbitration in the rules. Precise guidelines for arbitration are provided, including specifying New Delhi (or a neutral jurisdiction for foreign companies) as the seat of arbitration. Provisions will certainly be helpful in attracting investment in India.

Transitional provisions

One of the established touchstones for assessing the quality of legislation is how it manages the shift from the earlier regime to the new framework for existing stakeholders. Judged on this criterion, the transitional provisions provide a smooth and orderly transition. Existing lessees are permitted to continue operations under their prevailing contractual arrangements until the expiry of their respective leases, with an option to migrate to the new regime during the subsistence of the lease. Upon expiry of the lease, transition to the framework under New PNG Rules is mandatory.

Relinquishment of idle nomination blocks

New PNG Rules provide for relinquishment of long-idle nomination blocks with no production activity. Such areas, once relinquished, may be offered under the open acreage licensing system, potentially attracting new investment and enhancing hydrocarbon production in national interest.

Conclusion

The New PNG Rules represent a substantive evolution in India’s upstream petroleum governance, shifting from contract-centric regulation to a rule-based statutory framework. While certain areas may require further strengthening but still reforms largely succeed in aligning regulatory certainty, investor confidence, environmental responsibility, and national interest. Considerable effort is evident in the framing of the Rules, and it is hoped that their implementation will augur well for the future of the exploration and production sector in India.