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Oil ministry wants revenue sharing for future oil contracts

business Updated: Aug 21, 2014 19:33 IST
oil ministry

Seeking to revive interest in oil and gas exploration by simplifying rules, the oil ministry is looking at replacing the controversial Production Sharing Contracts (PSC) with simpler revenue-sharing regime.

Besides suggesting doubling of natural gas prices, a committee headed by Dr C Rangarajan had suggested moving to a revenue sharing regime where companies bid upfront the quantity of oil and gas they will share with the government for winning an exploration acreage.

Accepting the suggestion in-principle, the ministry today shared a model revenue sharing contract (MRSC) that the government will enter into with companies with an exploration acreage and sought comments from the industry on it.

The ministry sought comments by September 10 on MRSC.

MRSC will replace the current practice of companies getting blocks by bidding maximum work programme and then recovering all of their investment before sharing profits with the government.

This model was criticised by CAG which said it encouraged companies to keep raising cost so as to postpone higher share of profits to the government.

In the new regime, the companies will have to indicate the quantity of oil and gas they will share with the government at different stages of production as well as at different rates.

"The Government's revenue share of crude oil and/or natural gas shall be determined based on a two dimensional production-price matrix, where Government's revenue share with the contractor (s) shall be linked to the average daily production in a month and average oil and gas prices in a month," the MRSC said.

Besides quoting the quantity they will share with the with government at different levels of production, the companies would also quote the quantum at different price levels - less than USD 100 per barrel, USD 100-125, USD 125-150 and more than USD 150 per barrel for oil and for gas in bands of less than USD 6 per million British thermal unit rate, USD 6-10, USD 10-14 and more than USD 14 per mmBtu.

The production levels for onland, shallow offshore and deepwater have been proposed at different tranches.

Companies will have to bid the amount they will share with the government at different levels of production as well as different rates for oil and gas.

"In the matrix production is linked to sliding scale (incremental) production tranche and price is linked to fixed scale price band," the MRSC said.

The MRSC defines revenue to be shared with the government as "all amounts accrued in relation to Petroleum Produced and Saved in a month (remaining after deducting Royalty payments required to be made by the Contractor, in the relevant month)".

Marketing margin charged by contractor shall be included to calculate this revenue.