Exploration News
19 APR 2017

Past performance to be a criterion for extension of oil and gas contracts under new policyNew Delhi: Oil and gas companies operating pre-NELP blocks and chosen for extension of their contracts by the Union Cabinet last month will be granted 10-year extension based on their past performance. Also, the firms will have to furnish third party reserves audit report on the availability of balance recoverable reserves from their blocks while submitting the application for extension, an oil ministry’s notification showed.

The Cabinet Committee on Economic Affairs (CCEA) last month approved a new policy for the grant of extension of PSCs to contractors who had been awarded oil and gas exploration rights during the pre-NELP regime. The government has identified 10 different blocks being operated by Cairn India, Gujarat State Petroleum Corporation, Essar, Hindustan Oil Exploration Company, Oil and Natural Gas Corporation and Focus Energy which would be eligible to avail and 10 year PSC extension if the conditions laid down by the new policy are met.

According to the new policy, the government will only grant the extension if the past performance of the contractor is satisfactory. The grant of extension will be subject to the contractor drilling at least 70 percent of the development wells as proposed in the earlier field development report. Additionally the contractor should have complied with the provisions of creation of Site Restoration Fund and Site Restoration Plan.

As per the new policy governing PSC extension, contractors will have to submit an application approved by the Operating Committee for extension of Contract to the ministry of petroleum and natural gas at least two years in advance of the expiry date of the contract.

According to the fiscal parameters of PSC extension, the government’s share of profit during the extended period of contract will be 10 percent higher than the share as calculated as per the previous PSC. Also, royalty and cess to be paid by the contractor will remain the same as paid during the earlier PSC. The application for extension submitted by the contractor should have third party reserves audit report to demonstrate the availability of balance recoverable from the blocks concerned.

The policy also adds that in case of a situation where the oil and oil equivalent of gas of any development area is more than five thousand barrels then the contractor will have to conduct third party reserves audit by a consultant on international repute as per the empanelled list maintained by Directorate General of Hydrocarbons (DGH).

The contractor, along with the request of extension, will have to furnish details of revised field development plan for the proposed extension period along with proof of technical expertise, cumulative achievement of drilled wells and production since inception and proof that all statutory payments to the government have been made.

Up to Feb 2017, the production from oil and gas blocks allotted in the Pre-NELP regime was around 55 million barrel of oil and 965 million cubic meter of gas. According to government’s estimates, the recoverable reserve from these blocks is estimate to be more than 426 million barrel of oil equivalent. The government expects an additional investment of more than $ 5430 million in the 10 blocks eligible for PSC extension.

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