Revenue-sharing model proposed for auction of gas fields

The government on Monday proposed to free domestic natural gas pricing and replace the existing production sharing contract (PSC) by the revenue-sharing model for all future acreage auctions.

"It is proposed to provide pricing and marketing freedom for the natural gas to be produced from the areas to be awarded under the new contractual and fiscal regime in order to incentivise production from these areas," the petroleum ministry said on its website, inviting comments from stakeholders on a consultation paper on new fiscal and contractual regime for award of hydrocarbon acreages.

"In the recently announced marginal field policy, the government has provided pricing and marketing freedom for the natural gas," it added.

In September, the Cabinet Committee on Economic Affairs had approved a landmark change in India's hydrocarbons exploration regime, sanctioning the auction of 69 small and marginal oil fields of state-owned ONGC and Oil India to private and foreign firms.

"For the first time, a revenue-sharing model is being approved in place of production-sharing contract," Petroleum Minister Dharmendra Pradhan had told reporters here.

"The government of India has been reviewing policies from time to time for exploration activity and investment there in. Over the years, there has been a shift in the E&P (exploration and production) policy, from nomination acreage to competitive bidding," the notice said.

The ministry proposed a Uniform Licensing Policy that will allow exploitation of all forms of hydrocarbons - oil and gas as well as shale oil and gas and coal-bed methane under one permit.

It also proposed Open Acreage Licensing Policy (OALP) allowing companies to choose the area for exploration rather than government identifying blocks and offering them in bid rounds.

Further, it proposed a revenue sharing model in place of the present fiscal system of production sharing based on Pre-Tax Investment Multiple (PTIM) and cost recovery.

Under the proposed regime companies offering the maximum revenue share or percentage of oil and gas to the government, and committing to do more work, will win the field.

As per current practice companies get blocks by bidding the maximum work programme, and recover all their investment before sharing profits with the government.

"In this model it is proposed that the bidders will bid the percentage of revenue that they will share with the government against two revenue scenarios -- when revenue is less than or equal to the Lower Revenue point and when revenue is more than or equal to Higher Revenue point," the paper said.

"The percentage government revenue share at revenue points falling between the lower and higher revenue points will be interpolated on a linear scale. Revenue, net of royalty (as applicable) will be shared between the contractor and the central government based on revenue accrued for oil and gas on a monthly basis," it added.