Govt. to fund half the cost of deepwater wells, recover money from winners

Samudra Manthan is a government programme designed to encourage offshore oil and gas exploration. Its central idea is to share the early geological risk. The government pays eligible costs upfront, but seeks repayment if a supported well later produces commercially. If the well fails, the State absorbs the loss.

The main support covers 56 exploratory wells, with up to 50% of actual cost and a ceiling of ₹675 crore per well. Four stratigraphic wells can receive up to 100%, capped at ₹1,350 crore each. A separate track offers viability gap funding for shared subsea manifolds, pipelines, processing platforms, and floating production units.

The programme also proposes oil and gas manufacturing and services zones. Support is limited to eligible state-run applicants or consortia they lead. It runs through FY2030-31, with spending during FY2027-28 to FY2030-31 in Phase I.

Samudra Manthan will support 60 wells in deepwater and ultra-deepwater areas. Deepwater means more than 400 metres deep, while ultra-deepwater means more than 1,500 metres. The scale reflects the government’s effort to encourage exploration where drilling is technically difficult and financially risky.

Of the total, 56 are exploratory wells. Each can receive up to 50% of actual cost, subject to a ₹675 crore cap. The remaining four are stratigraphic wells, which study underground rock layers. They can receive up to 100% of cost, capped at ₹1,350 crore each. The support is paid in two milestones: 40% at 40% of approved depth and 60% after completion and report approval.

At the stated caps, well support alone could reach ₹43,200 crore. That is about half the scheme’s ₹84,084 crore total outlay, although the guidelines do not provide a full budget breakdown.

Eligibility is tightly restricted. Applicants must be state-run firms or consortia led by them. Their blocks or areas must have been awarded under the Revenue Sharing Contract regime, through bid rounds held since 2016. Earlier production-sharing and coal-bed methane blocks are excluded unless the government later says otherwise.

The grant targets exploration wells. These are drilled to search for new oil or gas resources. Development wells are drilled after a discovery, to bring that known resource into production. Sidetrack wells are also excluded. The guidelines therefore direct public money toward finding additional resources rather than expanding production from discoveries already made.

This distinction limits the scheme’s exposure and keeps its purpose focused. Operators still pay costs above the support caps. They can also lose eligibility or face penalties if they fail to complete committed drilling. The support is meant to reduce discovery risk, not replace operators’ wider obligations.

A successful supported well does not receive a free government contribution. The operator must repay the government after the project starts producing commercially. Recovery begins seven years after commercial production starts, or when the operator has recovered 50% of its exploration and development costs, whichever comes first.

Repayment is made through annual instalments. The guidelines do not index those instalments for inflation. This creates a clear bargain: the State carries much of the early geological risk, but retains a financial claim when the project generates revenue. The operator remains responsible for costs above the approved support cap.

If the well finds nothing, the State absorbs the loss. The recovery clause therefore links repayment to success rather than requiring reimbursement in every case. Other scheme payments also depend on milestones, and funds may be suspended or recovered when commitments are persistently missed or money is misused.

Sharing the upfront risk can encourage drilling in deepwater areas that operators might otherwise avoid. The government pays part of an eligible well’s cost, while accepting the loss if the well finds no oil or gas. That lowers the initial financial burden without guaranteeing a commercial discovery.

For example, an exploratory well can receive up to half its actual cost, capped at ₹675 crore. Payment is tied to drilling progress and report approval. If the well succeeds, the operator repays the support after commercial production begins, under the seven-year or 50%-cost-recovery rule. If it fails, the State absorbs the loss.

The stated goal is to add domestic hydrocarbon resources and cut India’s heavy reliance on imports. The guidelines cite a possible addition of more than 600 million tonnes of oil equivalent to reserves. Actual results will depend on drilling success, commercial production, and operators meeting their commitments.

Small or stranded offshore discoveries may not justify separate pipelines, processing facilities, or floating production systems. A shared system combines demand from two or more field developments. That spreads large infrastructure costs across participating operators and can make otherwise uneconomic discoveries workable.

The scheme’s second track offers viability gap funding for subsea manifolds, trunk pipelines, central processing platforms, and shared floating production units. A joint venture or special-purpose vehicle owned by participating operators builds and owns the hub. Before construction, rivals must agree on equity, ownership, and capacity commitments.

Funding is released in four equal 25% tranches, tied to construction progress and commissioning. The hub must offer fair, non-discriminatory access, including unused capacity to other operators. Initial support is planned for the Mahanadi basin, with token funding for Kutch. Payments can be suspended or recovered if milestones are persistently missed.

Exploration is the search for a previously unknown oil or gas resource. An exploration well tests underground geology and may find nothing. Development begins after a discovery. Development wells are drilled to bring that known resource into production. Samudra Manthan supports the first activity, not the second.

Offshore exploration is costly because the scheme targets deepwater areas, including depths beyond 400 metres and ultra-deepwater beyond 1,500 metres. The programme’s support covers only part of most exploratory well costs. Offshore development also needs major systems, such as subsea manifolds, trunk pipelines, central processing platforms, and floating production units.

Those costs can overwhelm a small discovery operating alone. The scheme therefore proposes shared hubs for two or more fields. Exploration support reduces the risk of finding nothing, while shared infrastructure funding addresses the cost of producing discoveries. Operators still retain costs above caps and their safety, environmental, and decommissioning duties.