Draft Petroleum and Natural Gas Rules, 2025 Issued for Comments

The Draft Petroleum and Natural Gas Rules, 2025, has been published for stakeholder comments by the Ministry of Petroleum and Natural Gas pursuant to the enabling provisions introduced through the Oilfields (Regulation and Development) Amendment Act, 2024, passed in March this year. The rules intend to bring India’s hydrocarbon regulatory framework in line with current technological, environmental, and commercial realities. From simplifying contractual structure and compliance to improving transparency in royalty schemes, the rules propose a significant overhaul to the existing processes provided under the outdated Petroleum Concession Rules, 1949 and Petroleum and Natural Gas Rules, 1959. Alongside the draft rules, a revised Model Revenue Sharing Contract (MRSC) and the updated Petroleum Lease format have also been shared to provide operational certainty.

Significant changes include the replacement of dual Petroleum Exploration License (PEL) & Petroleum Mining Lease (PML) with a single Petroleum Lease (PL), an increase in security deposit to ₹25 lakhs, an investor-friendly stabilization clause, an escalatory model of annual lease rent, a dedicated chapter on greenhouse gas (GHG) emissions, sequestration, flaring, site restoration, an explicit regime for infrastructure capacity sharing, defined data ownership, submission, proprietary protections, provisions for adjudicating authorities, appeals and penalties, replacing the arbitration-only provision and field development plan submissions.

Apart from this, the rules provide for comprehensive energy projects integrating oil and gas with renewable/hydrogen projects. Decarbonisation rights have also been addressed where oilfields may be used for carbon storage and low-emission energy. Site restoration is a new concept that has been introduced, obligating post-closure reclamation measures. Specific provisions have been introduced to regulate blocks awarded on a nomination basis to NOCs

Once finalized, existing contractors will be required to review leases/contracts in light of transitional provisions and leverage the strategic clarity offered by the rules. New entrants may have to account for increased security deposits and lease rent while ensuring ESG frameworks and GHG compliance mechanisms are embedded into field planning.

While the draft rules permit carbon sequestration, they lack tax credits, tradable carbon credits, or subsidies that countries like Norway or Canada offer. India is the world’s third-largest carbon polluter after the US and China, according to the International Energy Agency, and has faced increasing pressure from abroad to move faster to reduce emissions. Further, although flaring measurement is required, there’s no detailed flare elimination plan or strict penalty regime provided. Additionally, environmental protection is mandated but does not explicitly require independent, third-party certification of environmental plans. Moreover, a structured decommissioning model is missing, although site restoration has been introduced.

On March 12, the Lok Sabha passed the Oilfield (Regulatory and Development) Amendment Bill, 2024, marking a significant overhaul of India’s oil and gas regulatory framework. Together, these two instruments represent a foundational shift in India’s regulatory framework governing upstream petroleum operations.