News Release Details
Model contract rejig to ensure profit petroleum
New Delhi 09-Jul-2007
The model production-sharing contract (PSC) which determines profit share of the govemment and lays down conditions for oil companies engaged in oil and gas exploration is in for major changes. The government is likely to take on a direct role in cost revisions of exploration projects in the next round of bidding of oil acreages. While the existing model PSC allows costs and expenditure to be recovered only with the written prior approval of the management committee, it is proposed the power would rest only with the government from the Nelp-VII. This would be a departure from the prevailing system under which a cost escalation is approved by the management committee. For example, in the case of Reliance Industries, the initial development and production cost of KG basin was approved by the management committee at $2.47 billion. Later, the cost escalated to $5.2 billion and is likely to go up to $8.84 billion at peak production. It is understood the change is proposed to ensure there would be no leak in the government share, profit petroleum. Profit petroleum is calculated after deducting the costs incurred by the company in the development and production of the hydrocarbon. Thus, the changes in costs would have a direct bearing on profit petroleum. The government has also proposed to make a significant change in the definition of discovery of hydrocarbons. The provision of the current model PSC says a discovery would be recognized only when the petroleum deposit would not be previously known to have existed and that can be recovered at the surface in a flow measurable by the conventional petroleum industry-testing methods. In the forthcoming round, it is proposed the word conventional would be dropped. The move would help in avoiding spats between the upstream regulators, directorate general of hydrocarbons (DGH). And operators over testing methods. Recently, DGH had disallowed ONGC’s find in the KG basin (KG-DW-98/2 block! on the grounds that conventional testing methods were not adopted by the company in the UD-1 well. The ministry of petroleum & natural gas is in the process of finalizing documents for Nelp-VII. On the basis of die suggestions received from the stakeholders in various for a, changes have been proposed in the model PSC for Nelp-VTJ. The proposed changes would be incorporated in the model PSC of Nelp-VH after getting feedback from stakeholders, official sources said.
New Delhi 09-Jul-2007
The model production-sharing contract (PSC) which determines profit share of the govemment and lays down conditions for oil companies engaged in oil and gas exploration is in for major changes. The government is likely to take on a direct role in cost revisions of exploration projects in the next round of bidding of oil acreages. While the existing model PSC allows costs and expenditure to be recovered only with the written prior approval of the management committee, it is proposed the power would rest only with the government from the Nelp-VII. This would be a departure from the prevailing system under which a cost escalation is approved by the management committee. For example, in the case of Reliance Industries, the initial development and production cost of KG basin was approved by the management committee at $2.47 billion. Later, the cost escalated to $5.2 billion and is likely to go up to $8.84 billion at peak production. It is understood the change is proposed to ensure there would be no leak in the government share, profit petroleum. Profit petroleum is calculated after deducting the costs incurred by the company in the development and production of the hydrocarbon. Thus, the changes in costs would have a direct bearing on profit petroleum. The government has also proposed to make a significant change in the definition of discovery of hydrocarbons. The provision of the current model PSC says a discovery would be recognized only when the petroleum deposit would not be previously known to have existed and that can be recovered at the surface in a flow measurable by the conventional petroleum industry-testing methods. In the forthcoming round, it is proposed the word conventional would be dropped. The move would help in avoiding spats between the upstream regulators, directorate general of hydrocarbons (DGH). And operators over testing methods. Recently, DGH had disallowed ONGC’s find in the KG basin (KG-DW-98/2 block! on the grounds that conventional testing methods were not adopted by the company in the UD-1 well. The ministry of petroleum & natural gas is in the process of finalizing documents for Nelp-VII. On the basis of die suggestions received from the stakeholders in various for a, changes have been proposed in the model PSC for Nelp-VTJ. The proposed changes would be incorporated in the model PSC of Nelp-VH after getting feedback from stakeholders, official sources said.