Production Sharing Contracts”

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PSCs – Key Contractual Issues
Legal Framework

 Constitution of India, 1950

 The Oilfields (Regulation and Development) Act,
1948
 The Petroleum and Natural Gas Rules, 1959
 Territorial Waters, Continental Shelf, Exclusive
Economic Zone and other Maritime Zones Act, 1976
 Income Tax Act, 1961
 Customs Act, 1962
 Foreign Exchange Management Act, 1999
 Environment Protection Act, 1986
 Arbitration and Conciliation Act, 1996
PSCs – Key Contractual Issues
Contractual Framework
BIDDER 1 Joint Bidding CONSORTIUM / Bid
Agreement GOVERNMENT
CONTRACTOR
BIDDER 2
License
BIDDER 3
Production Sharing
Contract
 Work program & budget approvals
 Exploration Activities

DISCOVERY

 Notification to Government
 Appraisal and testing

COMMERICAL

mining lease
 Development and production
PSCs – Key Contractual Issues
Parties

 For offshore areas – Grant of license and lease by the

Central Government
 For onshore areas – Grant of license and lease by the
State Government, with prior approval of the Central
Government
 Every license or lease granted to contain additional
terms and conditions as provided for in an agreement
between the Central Government and the licensee or
the lessee (the PSC)
 Where license or lease to be granted by a State
Government – merely an obligation to ‘consult’ the
State Government
PSCs – Key Contractual Issues
Parties

 NELP V – Special emphasis on onshore basins

 Issues and options:
* In the case of onshore PSCs:
(1) delays in post contract clearances; and
(2) procurement of mining leases from the
State Government seen as a major bottle neck

* Though ‘concurrence’ already received, States should

be better involved by:
(1) Involvement at bidding stage;
(2) Involvement as confirming parties to contracts;
PSCs – Key Contractual Issues
Term

 Exploration Phase – multiple exploration periods

EXPLORATION EXPLORATION EXPLORATION

PHASE I PHASE II PHASE III

100% of contract area 25% of contract area 50% of contract area 100 % of contract area
less discovery areas not being discovery areas not being discovery areas not being discovery areas

100% of contract area

less discovery areas

RELINQUISHMENT OF CONTRACT AREA

PSCs – Key Contractual Issues
The ‘take’
REVENUE

Royalty

Cost Petroleum

Profit Petroleum Profit Petroleum

Tax
CONTRACTOR GOVERNMENT
TAKE TAKE
PSCs – Key Contractual Issues
Cost petroleum

 Cost petroleum linked to volume of petroleum

produced and saved and ‘contract costs’
 Control over costs – a legitimate state concern
PSCs – Key Contractual Issues
Production sharing and profit petroleum

 Profit petroleum – total value of product saved from

a particular contract area – calculated in specified
manner
 Use of investment multiple
 Contractors bid on IM
 Complex proportions are intended to make sharing of
oil more favorable to the Government at higher
production levels
PSCs – Key Contractual Issues

Thank you !