The Hindu Business Line : Oil, gas blocks: Ministry cautious on profit sharing issue

More cautious
The objection was that the bidders have shown a lower share for the Government in the later years of production from the almost 19 blocks
The issue was also submitted before the Empowered Committee of Secretaries

New Delhi , Dec. 30

With concerns being expressed by a section of industry over the Government's share of profit petroleum in certain blocks under the latest round of New Exploration Licensing Policy (NELP-VI), the Petroleum Ministry prefers to tread cautiously before firming up its views. Apprehensions were expressed on the `extreme financial packages' offered by some of the bidders for different blocks.

A senior Ministry official told Business Line that the matter is under consideration. "The issue of profit petroleum has to be viewed in the context of geological prospectivity of the area and the bids received were technically right under the NELP guidelines," he added.

The objection was that the bidders have shown a lower share for the Government in the later years of production from the almost 19 blocks (both deepwater and onshore) under question. This in effect would mean that if there is an increase in production at a later stage, the Government would lose out on its share of oil and gas from that find.

According to the official, the issue was also submitted before the Empowered Committee of Secretaries, which makes the final recommendations for NELP. The committee was also forwarded the views of the Directorate-General of Hydrocarbons on the issue, which were that negotiations could be undertaken with the bidders wherever the profit share percentage is falling or initially falling and subsequently rising.

However, since it was felt that the entire bidding process was very transparent and best offers have been received under the auctioning round, negotiations may not be required. Besides, declining profit share could not necessarily be rejected, when the net present value offered by the bidders is highest amongst all the other participants.

The issue was around the interpretation of the principle of `sliding scale of the pre-tax investment multiple', the official said. The bidders, as per bid evaluation criteria, were expected to indicate profit share proposed to the Government against the per-tax investment multiple in tranches.

Experts in the sector also point out that time and again questions have been raised over recovery of oil and gas by the exploration and production companies in India.

"To enhance recovery, the companies need to bring in latest technology, which is not cheap. Hence, it is not necessary that if the company is giving lesser share towards the later part of production, it would be making more cost recovery," they added.

As per market buzz, the options available before the Ministry were the following: asking the DGH to re-negotiate and subsequently take the issue back to the Committee before seeking Cabinet approval; Or the Ministry could push for awarding the remaining blocks even while it firms up its view on these blocks.

Profit petroleum

The debate on profit petroleum has made the wait for the first rank bidders under the sixth round of NELP a little longer before the blocks are finally awarded. However, the Ministry is hopeful of completing the entire process shortly, the official added.

Initially, the blocks were to be awarded by November 15 and the entire process from bid evaluation to the signing of the contract was expected to be complete by January. The 19 blocks under question include bids of Reliance Industries Ltd, Oil India Ltd and its consortium, and Naftogaz-Reliance Natural Resources Ltd consortium. Under NELP-VI, 55 blocks were put on offer and bids were received for 52, of which 39 attracted multiple bids and 13 single bids.

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