India is mulling a substantial overhaul of the conditions related to future exploration of its deep and ultra-deepwater frontier areas, including extended timeframes and tax breaks, following a report by an independent group of experts.
The country’s Petroleum and Natural Gas Ministry is assessing a series of recommendations from the Rangarajan Committee, related to a new Production Sharing Contract (PSC) mechanism regime for its oil and gas blocks.
“We are going through the Rangarajan report. We are trying to see if it can be implemented,” said Petroleum and Natural Gas Minister Veerappa Moily, adding that his ministry had already accepted most of the committee’s recommendations.
The Rangarajan Committee, headed by Dr C. Rangarajan, suggested a series of changes in the PSC mechanism for oil and gas blocks to be offered in future bidding rounds.
Of those that related to the deepwater sector, the suggestions include an extended tax holiday of 10 years, as opposed to that of seven years already available for all blocks, for those that will have a substantial portion involving drilling in water depths of more than 1,500 m (4,921 ft). This is essentially due to the higher well costs for deep and ultra-deepwater probes.
Another involves extending the timeframe for exploration in future PSCs for frontier, deepwater (more than 400 m water depth) and ultra-deepwater (more than 1,500 m water depth) blocks from eight years currently to a proposed 10 years.
Also of benefit, and also applying to blocks in all water depths, the committee has recommended scrapping the current cost recovery-led PSC model in India with a more accepted international-style system of revenue sharing from a block from the first day of production in all future rounds.
The government share would be determined through a competitive bid process for future PSCs. The bids would be made via a matrix system, in which the bidder will offer different percentage revenue shares to the government for different levels of production and price levels. The bids will have to be progressive with respect to both volume of production and price level.
“This will ensure that as the contractor earns more, the Government gets progressively higher revenue, and will also safeguard government interest in case of a windfall arising from a price surge or a surprise geological find,” the committee stated.
All existing PSCs currently allow the contractor/operator to recover their costs before giving the Government a share of revenues.
It has also recommended taking a combination of two global methods of valuing gas to arrive at a correct price for gas in India. The first is a volume-weighted net-back price to producers at the exporting country wellhead (such as Qatar) for Indian imports for the trailing 12 months. The second is the volume-weighted price of the US’s Henry Hub, the UK's NBP and Japan Custom Cleared (on net-back basis) prices for the trailing 12 months.
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