Oil Min rethinks on terms for extending oil field contracts

The Petroleum Ministry is having a rethink over the terms for extending licenses of small and medium sized oil and gas fields after their operators opposed tough terms being set.

Production Sharing Contracts (PSCs) for as many as 28 fields including western offshore Panna/Mukta and Tapti oil and gas field operated by BG Group of UK are due for extension and the ministry is working on parameters on which the same could be granted.

The Ministry, based on recommendation of a committee headed by the then its additional secretary and financial adviser S C Khuntia, had drawn a draft extension policy that stipulated increase royalty as well as government's profit take from the fields, official sources said.

The policy had stipulated that the oil companies pay royalty at prevailing rate as against Rs 481 per tonnes they currently pay.

Also, it wanted government's share of oil and gas increased by 5 percentage points - to 55 per cent in fields like Panna/Mukta where it is currently at 50 per cent and to 60 per cent in fields where it is currently at 55 per cent.

Sources said the oil field operators made several representations to Oil Minister Dharmendra Pradhan saying the terms for extension beyond the licence period are tough.

Following this, the ministry is having a rethink on the terms and a revised policy is under discussion, they said.

Extension of the PSC is likely to be offered till economic life of the asset. However, the PSC provides for such an extension at mutually agreeable terms.

Royalty rates for blocks offered under New Exploration Licensing Policy (NELP) since 1999 are 10 per cent of the wellhead value of gas. For oil, it is 12.5 per cent of the price for onland areas and 10 per cent for offshore areas.

For the 28 small and marginal fields, which were offered prior to advent of NELP, the royalty was fixed at Rs 481 per tonne for crude oil and 10 per cent of the wellhead value of gas.

Sources said the Khuntia committee felt that since investment in most of the fields has already been recovered, the extension can be subjected to they paying current rates of royalty and a marginal increase in government's profit share.

The extension policy is to cover 28 small and marginal fields but Cairn India's Rajasthan block will not be covered as it has a different regime.

The PSC for the block RJ-ON-90/1 expires in May 2020 and Cairn is seeking an extension of 10 years.

Sources said the terms for Cairn's Rajasthan block extension cannot be very different from the small and marginal fields. However, no decision on terms of extension of Cairn's block has so far been taken, they said.