The government will seek a higher share of revenue from Cairn India’s Barmer hydrocarbon block as a precondition for extending the production-sharing contract (PSC)for the same by 10 years to 2030. For this, the way the profit petroleum or the government’s share is calculated will be tweaked.
Cairn India, which has seen a drop in production from the Barmer asset since FY15, had shared 40% of the revenue with the government in the first quarter of this fiscal compared with 30% in the previous quarter. Profit petroleum is the main source of revenue for the government from a hydrocarbon block, the others being receipts from royalty and oil cess. It is calculated using what is called an investment multiple that denotes how many times the earnings are to the investment.
The Barmer asset in Rajasthan is the country’s largest onshore oilfield.
The contours of the new fiscal regime for the Barmer block are being negotiated between Cairn India and its joint venture partner, state-owned ONGC, and upstream regulator Directorate General of Hydrocarbons, sources told FE.
In January, ONGC decided not to object to an extension of the PSC and agreed to government the redoing the fiscal terms for the block.
For Cairn India, which contributed a handsome R19,047 crore to the exchequer in FY15, the higher profit petroleum would mean a further squeeze on margins. The Barmer production outlook for FY16 and FY17 are flat.
The current Barmer PSC expires on May 14, 2020. Cairn India’s output from the block has dropped to 175,000 barrels of oil equivalent per day (boepd) in FY15 against 182,000 boepd in FY14. For the first quarter of FY16, Cairn India reported net revenue of R2,627 crore, which was 1.9% lower quarter-on-quarter.
The petroleum ministry, the source said, feels the extension of oilfield contracts should be under non-discriminatoryterms. The petroleum ministry is set to extend the contracts for 28 small and medium fields, while tweaking the fiscal conditions so that the government’s revenue share goes up. According to a policy being finalised by the ministry, the government’s share of revenue post extension of PSC for small and medium fields will be 5% higher than those specified in existing PSCs and will not be less than 50% for small fields and 60% for mid-sized ones.
“It is a level playing field. The government cannot extend one contract without changing terms and several other terms with changed fiscal terms. This would not be justified,” the official added.