Geologically, Assam lies in a oil-rich belt. The ground below is rich in oil and natural gas housing over an estimated 1.3 billion tonnes of crude oil and 156 billion cubic meters of natural gas. Yet, around 58% of these hydrocarbon reserves are yet to be explored and extracted. Most of these areas lie in what is called a category I Basin.
Considering the availability of vast unexplored or poorly explored area with substantial yet to be established hydrocarbon resource base and widening gap of demand and supply, the Govt. of India has felt the need to accelerate the pace of exploration for hydrocarbons in the country. To this effect, the Government provided strategic decision towards exploration of the Indian sedimentary basins in a phased manner in keeping with technological advancement and environmental concerns. To achieve the set of objectives, the implementation schedule envisages continuance of exploration in producing basins, pursuits of extensive exploration in non –producing and frontier basins and a programme for appraisal of the Indian sedimentary basins. In view of the inherent risk of hydrocarbon exploration and huge financial investment associated with such risky exploration ventures, New Exploration Licensing Policy (NELP) was begun in 1998. The salient features of the new policy are open availability of exploration acreages to provide a continuous window of opportunities to oil companies, freedom to the contractors for marketing of crude oil and gas in the domestic market, royalty at half rate for exploration in deep water and frontier areas for first 7 years; no cess on crude production; no import duty on goods imported for petroleum operations ; seven years tax holiday.