Smaller operators will have to pay more to drill more

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New Delhi | Published: January 16, 2015 2:36:05 AM

Contractors of small and medium-sized hydrocarbon fields, many of whom have already recovered...

The move would facilitate uninterrupted production from as many as 28 small and medium-sized oil and gas fields and would benefit explorers. ReutersThe move would facilitate uninterrupted production from as many as 28 small and medium-sized oil and gas fields and would benefit explorers. Reuters

Contractors of small and medium-sized hydrocarbon fields, many of whom have already recovered their capital expenditure, will get extensions but with an obligation to shell out more to the government as revenue share as well as royalty and cess. According to a policy being finalised by the petroleum ministry, the government’s share of revenue from these fields in the revised production-sharing contracts (PSCs) will be 5% higher than those specified in the extant PSCs and will not be less than 50% for small fields and 60% for mid-sized ones.

The idea, official sources said, would be to give certainty of tenure to these operators while the government appropriates a fair share of their increased profits from these fields where cost recovery has been either full or substantial. While the existing PSCs are of 20-25 years, the renewal will be for the balance economic life or 10 years, whichever is earlier.

The move would facilitate uninterrupted production from as many as 28 small and medium-sized oil and gas fields and would benefit explorers such as ONGC, GSPC, Reliance Industries, BG India, Jubilant Energy and OILEX.

The balance reserve of these producing assets is estimated at 43.89 million tonnes of oil equivalent. The policy is being formulated keeping in view that the 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 sources added. The extra effort required for the rebidding is avoidable unless inevitable, they added.

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Under the renewed contracts, royalty would be charged at 20% for on-land oil and 10% for offshore oil and 10% for gas as against the current rate of Rs 481 per tonne. Additionally, the operators will have to pay a cess of Rs 4,500 a tonne compared with Rs 900 per tonne currently.

Since some of these fields are caught in arbitration/litigation over disputes between the operators and the government over the quantum of levies, the government would clarify that extension would be subject to the final outcomes of the legal processes. The government would, however, reserve the right to not extend the PSC without assigning any reason.

The ministry’s proposals would be put up before the Prime Minister Narendra Modi-led Cabinet Committee on Economic Affairs for approval soon.

The policy sets a time frame for the process to approve these small and medium-sized oil and gas fields. In order to seek an extension, 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 Directorate General of Hydrocarbons (DGH) will make a recommendation within eight months of the request and the petroleum ministry would have to decide within four months.

Meanwhile, the contractor should have drilled at least 70% of the development wells of the development plan or should have achieved 70% of the cumulative committed production with reference to the approved field development plan (FDP). Also, the contractor will have to provide a bank guarantee equal to 10% of the total estimated annual expenditure in respect of the annual work programme approved by the management committee.

The prerequisites for seeking the extension 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 a revised FDP for the extension period with the approval of the management committee.

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