The Telegraph
Monday , February 10 , 2014
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Call on oil hunt share

New Delhi, Feb. 9: The revenue model for the tenth round of oil and gas exploration will be finalised by the cabinet later this month after reviewing both the production-and revenue-sharing mechanisms to be placed before it by the oil ministry.

The ministry is caught between two reports by the Rangarajan and the Kelkar committees. The former has suggested a shift to the revenue-sharing model, while the latter has proposed the continuation of the production sharing method.

“The recommendations of the two reports, including the benefits and drawbacks, will be placed before the cabinet committee on economic affairs (CCEA) to take the final call,” a senior oil ministry official said.

“We are hopeful of getting the CCEA clearances for this by February 15 and roadshows will start after that,” oil minister M. Veerappa Moily said.

The ministry, which had decided to switch to the revenue-sharing model, is in two minds following the Kelkar panel report.

Sources indicated that the ministry had been forced to do a rethink after the lukewarm response from the industry to the revenue-sharing model during the recent Petrotech conference. At the conference, 46 blocks, which had received clearances and would be put on the block, were showcased. The ministry plans to auction 86 blocks under the tenth round of new exploration licensing policy (Nelp-X).

At present, oil companies are allowed to first recover the entire cost of exploration and production and then share the profit with the government.

This approach has been criticised by the Comptroller and Auditor General of India on the grounds that it may encourage operators to show higher expenditure and defer the Centre’s share of profit.

The Rangarajan panel report suggested a shift to the revenue-sharing method, under which a bidder shall be asked to quote the amount of oil or gas output it is willing to offer to the government from the first day of production. The company offering the highest share will get the block.

However, the Kelkar committee, in the first of its two-part report on a road map to enhance domestic oil and gas outputs, has favoured the current production-sharing regime for high-risk deep-sea oil and gas exploration.

The report said the production-sharing mechanism, which guaranteed the recovery of all sunk costs, were important to attract oil majors with proprietary technology.

The report cited examples when revenue-sharing mechanism will not work because of huge differences between projected and actual production. The Neelam Heera offshore oil field near Bombay High actually produced only 33,000 barrels per day (bpd) against the estimated 90,000bpd.

Similarly, Imperial Energy in Russia is producing just 15,000bpd compared with the 80,000bpd projected output when ONGC Videsh had acquired the company.