Commodities

Lower crude oil price: Oil Ministry forms panel to review production sharing contracts

Twesh Mishra New Delhi | Updated on May 10, 2020

Production from PSCs now stands around 30% share of domestic oil, 20% of natural gas

The Ministry of Petroleum and Natural Gas has formed a committee to review existing production sharing contracts (PSC) and suggest changes in their implementation to boost domestic crude oil and natural gas output.

“In view of the current low oil and gas price environment, there is a need to find innovative ways of attracting investment in exploration, development and production of oil and gas,” the Oil Ministry order for setting up this committee said.

 

Production sharing contracts (PSC) were signed with project developers that were awarded under the New Exploration and Licensing Policy (NELP) and pre-NELP regimes. There have been 310 PSCs signed by the government till now. These involve 29 discovered fields (One PSC signed for Panna & Mukta Fields), 28 exploration blocks under pre-NELP Exploration Blocks and 254 blocks under NELP regime. Presently, of the 310 PSCs, 106 are operational while 33 are producing oil and gas.

Production from PSCs now stands around 30 per cent share of domestic oil production and 20 per cent of natural gas production. Total domestic oil production is now around 32 million tonnes, while gas production is around 30 billion cubic metres.

 

“The committee has been tasked to suggest ways of attracting investment in exploration, enhance production and eliminating obstacles, if any,” said the oil ministry order issued last week.

Under the PSCs, the government’s share of revenue is linked to sharing of profit on petroleum, based on the pre-tax investment multiple (PTIM) after cost recovery.

Simply put, the government’s earning from oil and gas production was linked to the expenditure or investment incurred by the companies in exploration and production activities. If the investment was higher, the government would get a lower income. This regime came under severe criticism due to accusations of gold plating or reporting higher costs to intentionally lower the government’s income.

Eventually, in 2016, the PSCs were replaced by revenue sharing Contracts that fixed the government income on the total revenue earned on sale of products.

Published on May 10, 2020

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