PSC extension: 28 smaller fields may get relief

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Updated: October 29, 2015 2:07:30 AM

The petroleum ministry has decided to drop a plan to increase the government's share of revenue from the 28 small and medium-sized hydrocarbon fields by 5% but would ask the developers of these fields to pay royalty and cess at the same rate as the NELP (New Exploration Licensing Policy) developers.

The petroleum ministry has decided to drop a plan to increase the government’s share of revenue from the 28 small and medium-sized hydrocarbon fields by 5% but would ask the developers of these fields to pay royalty and cess at the same rate as the NELP (New Exploration Licensing Policy) developers.

The move would give some relief to firms such as ONGC, GSPC, Reliance Industries, BG India, Jubilant Energy and OILEX, whose production sharing contracts (PSC) are due for extension in a year or so.

According to sources, upstream regulator Directorate General of Hydrocarbons (DGH) has submitted a revised proposal to the petroleum ministry regarding the revised PSC terms. “There is a view that hiking government’s share of revenues could make the projects economically unviable,” a senior official privy to the development told FE.

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“The royalty rates would be made similar to NELP blocks,” the official added. Currently, a fixed royalty of R500 per tonne and cess of R900 tonne is levied on these fields. On the other hand, royalty is charged at 12.5% for crude oil from onland areas and 10% from offshore areas from the blocks awarded under NELP auction. The royalty on natural gas is levied at 10%. Cess rate is R4,500 a tonne.

The petroleum ministry is of the opinion that PSC extension process should be hassle-free and offered for 10 years or economic life of the field, whichever is earlier. These fields are small- and medium-sized, hence ‘the extra effort that is required for the re-bidding is avoidable unless inevitable.’ These fields were allotted to the explorer for certain period prior to the launch of auctioning of oil and gas blocks under the NELP regime.

The move is aimed to help the exploration companies plan their investments in these producing assets with estimated balance reserve of 43.89 million tonne (MT) of oil equivalent. The policy is being formulated keeping in view that existing contractor has the best knowledge of the field and its geology and would be in a better position to exploit the balance reserves.

The petroleum ministry would seek inter-ministerial comments on the policy before putting it up with Prime Minister Narendra Modi-headed Cabinet Committee on Economic Affairs (CCEA) for a final nod.

According to an earlier proposal, the petroleum ministry had proposed the government’s share to be 5% higher than that calculated with a floor of 50% for small-sized and 60% for medium-sized fields. Royalty would be charged at 20% for onland oil and 10% for offshore oil; 10% for gas.

In addition, the policy would time bounds the process for approval of extensions. The contractor would have to submit application at least two years prior to the expiry and not before five years of expiry of contract. The DGH will make a recommendation within eight months of the request and the petroleum ministry would have to decide within four month.

The pre-requisites for seeking the extension might include that the contractor must have a valid mining lease, would have to demonstrate the available balance hydrocarbon reserves through a third party audit and will have to submit revised field development plan for the extension period with the approval of the management committee.

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