Oil companies to gain more from extended drilling time

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An inter-ministerial committee led by the oil ministry is currently working on a policy on PSC extensions. An inter-ministerial committee led by the oil ministry is currently working on a policy on PSC extensions.
SummaryWith additional 10 years, explorers can now fully extract oil finds.

In a move that may enable oil and gas exploration companies like Cairn India, Reliance Industries (RIL) and Oil and Natural Gas Corporation (ONGC) to recover hydrocarbons from producing fields to the fullest extent, the Directorate General of Hydrocarbons (DGH) has recommended to the oil ministry that production-sharing contracts (PSCs) expiring in the next few years be extended by 10 years or till the economic life of the field is over.

There are about a dozen PSCs — of 25 years — that are slated to expire between 2019 and 2025, creating a lot of uncertainty for these operators and stymieing their investment plans, even as in most cases they are confident of the potential of the reserves and want to tap into them.

The extension, the regulator recommended, should come with a rider — that the companies contribute a 5 percentage points higher share of profit petroleum to the government from revenues earned on the fields for which the leases are extended beyond the original contract date. The profit to be shared with the government differs based on the investment multiple. If the multiple is less than 1.5, for instance, the government's share of profit petroleum is 15% at present, and the DGH has proposed that this be raised to 20%.

An inter-ministerial committee led by the oil ministry is currently working on a policy on PSC extensions.

Countries like Denmark, Egypt and Indonesia allow for PSC extensions of greater than 10 years. Others like Turkmenistan and Azerbaijan offer up to 10-year extensions, while the Philippines and Poland offer up to five-year extensions.

The DGH on December 12 wrote to SC Khuntia, additional secretary and financial adviser in the oil ministry, who is heading the panel looking to draft a policy on PSC extension, on the matter.

The committee, which has representation from the law ministry, DGH and Planning Commission, was set up after oil and gas producers, worried about the prospect of their lease agreements expiring prematurely, lined up before the government seeking an extension of PSCs.

In all, over 10 PSCs are set to expire between 2019 and 2025, including Cairn India's prolific Barmer fields in Rajasthan and the Panna Mukta Tapti (PMT) fields held by ONGC, BG and RIL, expiring in 2020 and 2019, respectively. Some of the other operators seeking extension include HOEC's Asjol field expiring on 2021, Oilex's Cambay field expiring in 2020, Selan's Indora and Lohar fields

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