Govt to extend production sharing contracts of 28 small and medium fields

The new oil and gas exploration policy allows for grant of extension of production sharing contracts signed by the government and award of small and medium sized and discovered fields to private joint ventures.

The Cabinet Committee on Economic Affairs on Thursday approved a policy for grant of extension to the production sharing contracts of 28 small and medium sized discovered fields. Of these 27 fields were awarded as a result of two rounds of bidding during 1991 to 1993, and one (PY-3) was separately put to bidding as discovered field.

For many of these fields the recoverable reserves are not likely to be produced within the remaining duration of contract period of these PSCs. Further, in certain fields where additional recovery of hydrocarbons can be obtained only through capital intensive Enhanced Oil Recovery / Improved Oil Recovery (EOR/IOR) projects, the payback period would extend beyond the current duration of PSC.

The government share of Profit Petroleum during the extended period of contract will be 10 per cent higher for both small and medium sized fields, than the share as calculated using the normal PSC provisions in any year during the extended period and hence will vary from year to year based on investment multiple (IM) /post tax rate of return (PTRR).

During the extended period of contract, the royalty and cess will be payable at prevailing rates (of nomination regime). These have to paid by all the contractors in proportion to their participating interest. This is expected to bring additional revenue of Rs2,890 crore to the government compared to present concessional regime in these blocks.

Besides these fiscal terms and conditions, the policy brings out detailed guidelines regarding pre-requisites for grant of extension, criterion for evaluation of request, time frame for consideration of request, duration of extension, seat of arbitration etc.

The policy for PSC extension will lead to production of hydrocarbons beyond the present term of PSC. The reserves, which are likely to get monetised during the extended period are of the order of 15.7 million metric tonnes of oil and 20.6 MMT of oil equivalent of gas. The reserves associated with this field would lead to monetisation of reserves worth $8.25 billion (around Rs53000 crore). The monetisation of these reserves would require an additional investment of $3 billion to $4 billion.

The extension of these contracts is expected to bring extra investments in the fields and would generate both direct (related to field operations) and indirect employment (related to service industry associated with these fields).

The extension of contracts would also envisage that the present employment levels in these fields are maintained for a longer period of time.

At present, medium sized fields are employing around 300 personnel for field operations while for small sized fields this would be around 40 to 60 persons.

The investments in these fields may also lead to construction and laying of facilities which would employ several unskilled labourers, over and above the skilled labourers.

The new policy will enable E&P companies to take investment decisions for exploitation of the remaining reserves in a fair and transparent manner.

The policy aims at bringing out clear terms of extension so that the resources can be expeditiously exploited in the interest of energy security of the country and improving the investment climate.