The Assam Cabinet on August 18 approved the Assam Hydrocarbon Exploration, Production and Upstream Ecosystem Development Policy, 2026, a five-year framework offering incentives for fresh oil and gas exploration in the state, as officials warned that output from Assam's century-old, aging oil fields is set to decline over the coming decade without new discoveries.
Background
Assam holds a singular place in global oil history: the Digboi oil field in the state's far east, discovered in 1889 by the Assam Railways and Trading Company, is the world's oldest continuously producing oilfield and the birthplace of the oil industry in Asia. Digboi's output peaked at close to 7,000 barrels a day during the Second World War, when the field was pushed hard with little regard for long-term reservoir management — a decision that meant production began dropping almost immediately once the war ended. More than eight decades later, Digboi's current output has fallen to around 240 barrels a day, a fraction of its wartime peak, though it continues producing to this day.
The state's modern upstream sector is now centred on Oil India Limited (OIL), headquartered at Duliajan in Upper Assam, which produces roughly 3 million tonnes of crude oil, 5 million standard cubic metres per day of gas, and 50,000 tonnes of LPG annually, alongside operations by ONGC and other players. But like Digboi before them, Assam's newer-generation fields have also matured, and officials briefing on the new policy pointed to a lack of significant new oil-field discoveries in the state in recent years, with exploration activity remaining concentrated around already-known fields rather than expanding into unproven territory.
Oil has also long been an outsized contributor to Assam's own state finances, not just a national energy asset. Under India's royalty framework, ONGC and OIL pay a 20 percent royalty on crude oil produced from onshore fields directly to the state government where extraction occurs, and Assam has historically leaned heavily on this revenue stream — royalties made up roughly a quarter of the state's own-source revenue as far back as 2005-06. In more recent state budgets, royalty income from crude oil and coal together has run into the thousands of crores of rupees annually, with non-tax revenue from oil and gas extraction alone totalling around Rs 6,677 crore in recent state budget figures — a scale that makes any sustained decline in production a direct fiscal concern for Dispur, not merely an industry or energy-security issue.
That exploration caution has a well-documented cause. In May 2020, an Oil India well at Baghjan in Tinsukia district suffered a blowout that escalated into a fire lasting more than five months, contaminating air, soil and water across a fragile wetland ecosystem near the Dibru-Saikhowa Biosphere Reserve, forcing the evacuation of more than 1,600 families, and causing a documented decline in bird populations at the ecologically sensitive Maguri-Motapung Beel. The disaster triggered sustained local protests and blockades that, by OIL's own account, cost the company thousands of tonnes of crude and millions of cubic metres of gas output over subsequent weeks, and left a lasting wariness among both regulators and nearby communities toward new drilling in ecologically sensitive zones. Any new exploration policy for Assam inevitably has to be read against that backdrop.
Key Details
- The Assam Hydrocarbon Exploration, Production and Upstream Ecosystem Development Policy, 2026 was approved by the state Cabinet on August 18, alongside other major decisions including land allotment for IIM Guwahati and Azim Premji University and the new Child Protection Policy.
- The policy is designed to encourage exploration specifically in areas where hydrocarbons have not yet been confirmed but geological indicators suggest potential reserves — targeting the state's less-explored frontier zones rather than simply supporting continued production from known, maturing fields.
- Incentives for companies venturing into these new and higher-risk exploration areas include support for new drilling rigs and modern exploration equipment, GST-related relief, and concessions on land.
- The policy will remain valid for five years from its date of notification, giving companies a defined window to make exploration investment decisions under the incentive framework.
- Officials linked the policy directly to concerns that Assam's overall oil output is set to decline over the next decade without new discoveries, given the age and maturity of the state's existing producing fields.
Assam's new policy operates alongside — rather than replacing — the central government's own national exploration framework. India moved away from the older, cyclical New Exploration Licensing Policy (NELP) in 2016, replacing it with the Hydrocarbon Exploration and Licensing Policy (HELP), which introduced the Open Acreage Licensing Policy (OALP). Under OALP, companies can approach the central government at any time of year — rather than waiting for periodic bidding rounds — to seek exploration rights over any block, using geological data made available through the government's National Data Repository to identify promising acreage. Four OALP bid rounds have been conducted nationally to date, awarding 94 blocks covering more than 136,000 square kilometres to exploration companies. Assam's state-level incentive policy is designed to work on top of this national framework, sweetening the economics of exploring specifically within Assam's borders relative to blocks companies might otherwise pursue in other Indian sedimentary basins, such as the Krishna-Godavari basin off the east coast or the Barmer basin in Rajasthan, both of which have attracted significant recent exploration interest and investment.
At a Glance
| Era | Assam Oil Milestone | Output / Status |
|---|---|---|
| 1889 | Oil discovered at Digboi | Birth of India and Asia's oil industry |
| World War II (peak) | Digboi field at maximum output | ~7,000 barrels/day |
| Present day | Digboi field, still producing | ~240 barrels/day |
| Present day | Oil India Ltd (Duliajan HQ) | ~3 MTPA crude, ~5 MMSCMD gas, 50,000 tonnes LPG/year |
| 2020 | Baghjan well blowout, Tinsukia | 5+ month fire, 1,600+ families evacuated, major ecological damage |
| 2026-2031 | New Hydrocarbon Policy in force | Incentives for exploration in unproven, high-potential zones |
Local Impact
For Assam's upstream oil and gas economy — a sector that has directly and indirectly supported employment across Upper Assam districts like Tinsukia, Dibrugarh and Sivasagar for well over a century — the new policy represents an attempt to reverse a long, slow decline rather than simply manage it. If new discoveries materialise in previously unexplored zones, the areas most likely to benefit first are the exploration frontiers rather than the already-mature fields around Digboi and Duliajan, potentially shifting economic activity toward new districts rather than reinforcing the historic oil towns.
For communities near any new exploration sites, the Baghjan disaster remains the reference point against which new drilling proposals will inevitably be judged. Local wariness toward exploration in ecologically sensitive or densely populated zones is likely to shape how quickly companies can secure the local cooperation needed to actually act on the policy's incentives — land concessions and equipment support address the economics of exploration, but they do not by themselves resolve the trust deficit left by Baghjan, particularly in areas near wetlands, biosphere reserves, or existing agricultural land.
For the state's tea, agriculture and fishing communities in Upper Assam, any expansion of exploration into new zones will raise familiar questions about environmental clearances, compensation frameworks, and disaster-preparedness commitments — questions Baghjan's aftermath showed can quickly become a source of sustained local protest if not addressed transparently and in advance of drilling.
For the state exchequer, the fiscal stakes of reversing Assam's output decline are considerable given how central oil royalty has historically been to the state's own-source revenue base. A sustained production decline would not just be an energy-sector story but a budget one, potentially forcing Dispur to lean more heavily on central transfers or other revenue sources if royalty income continues shrinking alongside falling output — a dynamic that gives the state government's own direct interest in reversing the decline as much weight in explaining the policy's introduction as any broader national energy-security argument.
What Happens Next
Companies operating in Assam's hydrocarbon sector — principally Oil India Limited and ONGC, alongside any private or joint-venture players — are expected to evaluate the new incentive structure against their exploration budgets and risk appetite for frontier zones over the coming months. Because the policy specifically targets areas without confirmed discoveries, any resulting exploration activity is likely to take considerably longer to translate into actual production than incentives aimed at expanding output from already-producing fields.
Environmental clearances for any new exploration in ecologically sensitive areas will remain a separate, and likely lengthier, regulatory process from the incentive framework itself, with state and central environmental authorities expected to apply additional scrutiny to proposals near wetlands, forests, or biosphere reserves given the Baghjan precedent. Assam's forest cover has itself become an area of active government attention in recent months — with the state separately expanding its protected forest estate in other districts — and any new hydrocarbon exploration that overlaps with forest or wetland zones will need to navigate both the state's environmental clearance apparatus and the central Ministry of Environment, Forest and Climate Change's forest-clearance requirements, a dual process that has historically added years to project timelines for extractive projects located near protected areas anywhere in India. Civil society groups and local community organisations in Upper Assam's oil belt are likely to press for clear, binding disaster-preparedness and compensation commitments to be attached to any new drilling permits issued under the policy's incentive framework, rather than relying solely on the safety assurances offered after the fact following Baghjan.
Industry watchers will also be looking for the state to publish more granular detail on which specific frontier zones are being targeted, since the broad description of incentivising exploration "where geological indications suggest possibility" leaves considerable room for interpretation until actual blocks are identified and offered under the policy. Companies will need concrete acreage information — not just an incentive framework — before making the kind of capital-intensive exploration commitments the policy is designed to attract, meaning the practical test of the policy's effectiveness will likely come only once specific blocks are opened for bidding under its terms.
Whether the five-year policy window is sufficient to reverse Assam's projected production decline will likely not be clear for several years, since oil and gas exploration — from initial geological survey through drilling, well testing and eventual production — typically spans a multi-year timeline even under favourable conditions.
The state's revenue authorities will also be watching how the policy's land concessions and GST-related relief interact with Assam's existing budget projections. If exploration incentives reduce near-term tax and revenue collection from participating companies in exchange for a longer-term bet on new discoveries eventually offsetting the decline in mature-field output, the net fiscal effect over the policy's five-year window will depend heavily on how many of the incentivised exploration projects actually result in commercially viable finds — historically a minority of exploratory wells drilled in any sedimentary basin, onshore or offshore, given the inherent geological uncertainty of frontier exploration.
A Region With a Complicated Oil Legacy
Assam's relationship with its oil wealth has never been purely a technical or economic one. The state's oil fields fuelled India's war effort in the 1940s and later became a symbol, in the eyes of many Assamese, of resource extraction that enriched the national exchequer and outside companies more than it visibly benefited local communities — a grievance that fed into the Assam Movement of the 1980s and has periodically resurfaced in debates over royalty rates, local employment quotas at oil installations, and the pace of downstream investment (such as refining capacity) within the state itself, rather than crude being piped out for refining elsewhere.
That history is part of why the framing around the new hydrocarbon policy — emphasising incentives, ecosystem development, and a defined five-year runway rather than open-ended concessions — matters politically as well as economically. State officials describing the policy have been careful to position it as protecting Assam's long-term hydrocarbon revenue base for the state itself, rather than as a purely extraction-focused giveaway to national or multinational oil companies, a framing likely intended to pre-empt the kind of local resentment that has shadowed the industry's presence in Assam for much of the past century.
Whether that framing holds up in practice will depend heavily on the specifics of how incentivised exploration blocks are awarded, what local employment or procurement commitments, if any, are attached to projects benefiting from the new policy's concessions, and how transparently the state communicates progress on both the fiscal and environmental fronts as exploration activity — if it materialises — gets underway in the coming years.
Frequently Asked Questions
What is the Assam Hydrocarbon Exploration, Production and Upstream Ecosystem Development Policy, 2026?
It is a new five-year state policy, approved by the Assam Cabinet on August 18, 2026, that offers incentives — including support for drilling rigs and equipment, GST relief, and land concessions — to encourage oil and gas exploration in Assam areas where reserves are suspected but not yet confirmed.
Why did Assam introduce this policy now?
Officials cited concerns that the state's overall oil output is set to decline over the next decade because existing fields are ageing and there have been few significant new discoveries in recent years, with exploration largely concentrated around already-known fields.
What is the world's oldest continuously producing oilfield?
Digboi, in Assam's Tinsukia district, discovered in 1889, holds this distinction. Its output has fallen from a wartime peak of roughly 7,000 barrels a day to around 240 barrels a day today, but it remains in production.
What was the Baghjan blowout?
A May 2020 blowout at an Oil India well in Baghjan, Tinsukia district, escalated into a fire lasting more than five months, contaminating air, soil and water near the ecologically sensitive Dibru-Saikhowa Biosphere Reserve and forcing the evacuation of over 1,600 families.
Which companies operate Assam's main oil and gas fields today?
Oil India Limited, headquartered at Duliajan, is the major upstream player in the state, producing roughly 3 million tonnes of crude and 5 million standard cubic metres per day of gas annually, alongside operations by ONGC and other companies.
How long will the new hydrocarbon policy remain in force?
The policy is valid for five years from its date of notification.
Does the policy address environmental safety concerns after Baghjan?
The policy's published details focus on exploration incentives — equipment support, tax relief and land concessions — rather than new safety regulations; environmental clearances and disaster-preparedness requirements for any new drilling remain governed by separate regulatory processes.
Where is new exploration under the policy likely to be concentrated?
The policy specifically targets areas where hydrocarbons have not yet been confirmed but geological indicators suggest potential, meaning any resulting activity is likely to be in frontier zones rather than expansion of Assam's already-producing fields around Digboi and Duliajan.
Sources
The Assam Tribune, The Sentinel (Assam), Pratidin Time, Northeast Today, Springer Nature (Environmental Monitoring and Assessment), Mongabay India