Production-linked revenue model for oil, gas exploration biz

In public glare for possible loopholes in the existing production sharing contracts favouring the oil and gas exploration companies, the Ministry for Petroleum & Natural Gas seems to have gone all out to protect the Government’s interests in the Model Revenue Sharing Contract.

The draft released on Thursday, while defining the revenue model for this business, also specifies how crude oil and gas will be valued as well as how the Government’s share will be calculated for both oil and gas.

At the first glance, it looks like the revenue calculation has been linked to production, said an industry player. Linking revenue calculation to production was something that the exploration and production companies were opposed to, but was suggested by the C Rangarajan panel looking into Production Sharing Contracts.

Circulated to all companies in the business of oil and gas exploration earlier this week, the Ministry has sought their views on the proposals.

Industry players feel that the proposals seem to suggest that the Government wants to control the business.

The draft proposes opening of an ‘escrow account’, which is a deviation from the existing production sharing contracts. This is seen by the industry as the Government’s way of protecting its revenues in situations where the producer has not been able to meet the committed output from the fields, resulting in fall in profits from the acreage.

As per the draft, ‘revenue’ for the purposes of sharing will be determined by taking into account the entire amount accrued in relation to petroleum produced and saved in a month. The only deduction will be the royalty payments required to be made by the contractor in the relevant month.

Marketing margin, any monetisation of petroleum in the reservoir and the value of petroleum produced from the field for any transaction will also be taken into account for computing the revenue, the draft proposes.

The contractor winning the bid shall also be required to put all the revenue in an escrow account. As per the draft, all withdrawals from the escrow account will be decided by the Government.

All royalty payments, Government’s revenue share payments of liquidated damages certified by the Government and any balance for the Government shall be withdrawn first from the escrow account before the remaining money is given to the contractor, it states.

The draft also specifies on the exploration period based on the recommendations of the Rangarajan Panel on Production Sharing Contracts. It stipulates that the exploration period shall be eight years initially for onland blocks (including CBM and shallow water blocks) and 10 years for frontier area, deepwater area and ultra deepwater blocks.

For phase one of the exploration period, it would be five years for onland and six years for offshore blocks and for phase two it will be three years and four years, respectively.

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