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PSC a definition
An agreement between the contractor and the
government whereby the Contractor bears all the exploration risk, production and development costs in return for its stipulated share of the production resulting from its efforts.
commercial Discovery.
Historical Background
First concept for PSC was introduced in Bolivia in 1950 PSCs were successfully implemented in Indonesia in 1966 PSCs are being widely used in more than 40 countries In India, first PSC was signed in 1993 for a Pre-NELP Block PSC terms continuously improved in consecutive NELP
rounds
with the state while in concessionary it remains with the company petroleum company, while in a Concession they deal with the host government production split after being allowed to recover costs from initial production. In a Concession the companies can take all the petroleum produced, but they must pay a royalty based on a percentage of production.
SERVICE CONTRACTS (2) Iran , Qatar HYBRID (16) Libya, China, Malaysia, Kenya, Tanzania, Gabon, Myanmar
Consortium / Contractor
Bid License
Government
Production Sharing Contract Work Programme and Budget Approvals Exploration Activities Discovery Notification to Govt. Appraisal and Testing Commercial Mining Lease Development and Production
Operating Committee Discovery, Development and Production Cost Recovery and Production Sharing Domestic Market Obligation (DMO) Contract Duration and Commerciality
INTRODUCTION
A total of 34 Exploration blocks are on offer under
NELP IX Round. Sl.No. 1 Type Onland Blocks Number 19 ( 8 are Type S Blocks)
2 3
Shallow Water Blocks 7 Deep Water Blocks (beyond 400 8 meter bathymetry) Total Exploration Blocks 34
Exploration Period
Exploration Period will be of 7 years for Onland &
There will be only one Exploration Phase The initial Exploration period shall consist of the
first four consecutive contract years in case of onland and shallow water blocks and five years in case of deep water blocks
Relinquishment
There will be no compulsory relinquishment after initial
exploration period (when mandatory and committed programme are to be completed i.e. first four years)
completion of MWP
OR one well in 3 years in case of Deepwater Blocks In any case, the entire area (leaving aside the development
and discovery area) has to be relinquished at the end of the 7th or 8th years of exploration, as the case may be.
Work Programme
Mandatory Work Programme Minimum Work Programme (MWP) Both to be completed during the first four or five
respect of crude oil and natural gas extracted in association with crude oil.
MC & OC
MC consists of two members from the government and one
member each from the company constituting the Contractor One representative of the Government will be designated as the Chairman of the committee and the other designated as the Deputy Chairman The member of the Operator will be designated as the Secretary of the committee MC committee shall be formed within 30 days of the effective date
The companies constituting the Contractor shall for a Joint
Operating Agreement (JOA) and Operating Committee constituting representation from each company. OC committee must be formed within 45 days of the effective date.
its costs than that left cost is taken up in the next year.
Profit Petroleum
Production Sharing of Petroleum
A partys share of profit petroleum in any year is calculated on the basis of Pre-Tax Investment Multiple (PTIP) achieved by the contractor.
Contractors take = Cost petroleum + Contractors share of Profit petroleum Contractors net cash flow = Contractors take ( Production cost (OPEX) +Royalty )
PTIM
Contractors Cumulative net cash flow Cumulative exploration & development cost
Profit Share
Up to 1.5
Sharing Framework
FOC GROSS PRODUCTION NOC
COST RECOVERY
ROYALTY
PROFIT OIL
FOC SHARE
NOC SHARE
PROFIT
INCOME TAX
Sharing Concept
CONTRACTOR $20bbl GOVERNMENT $2 ROYALTY 10% $18 $6 $4.80 COST RECOVERY 33.3% PROFIT OIL SPLIT 40% / 60% -$1.44 $9.36 $3.36 24% TAX 30% GROSS REVENUE NET CASH FLOW TAKE $1.44 $10.64 $10.64 76% $7.20
Royalty
Onshore areas - @ 12.5% (crude oil) @ 10% (natural gas) Shallow Offshore areas - @ 10% (for both crude oil & gas) Deepwater area - @ 5% (for both crude oil and natural gas for the first seven years of Commercial Production and thereafter at the rate of 10%)
commercial production of Mineral Oil Predetermined Liquidated Damages (LD) specified for unfinished Minimum Work Programme One Time Bank Guarantee (BG) at a lower rate for the total committed Work Programme A nominal Bid Bond at a specified rate to encourage serious bidders.
Biddable Terms
Companies would be required to bid for:
Work Programme commitment Percentage of value of the annual production sought to be allocated towards cost recovery Profit Petroleum share offered to Government of India at the Lowest tranche (<=1.5) and the highest tranche (3.5 and above)
Technical Capability Acreage Holding (PEL) Operatorship Experience Annual Accretion of Proved Reserves Average Annual Production (O+OEG) for the previous five years Work Programme 2D Seismic surveys 3D Seismic surveys Exploratory Drilling of wells Fiscal Package Profit Share to Govt. Cost Recovery
Technical Capability Neither a pre-qualification nor a bid evaluation criteria Financial Capability The net worth of every company should be equal to more than every companys participating interest in the MWP commitment, including the both mandatory and biddable work programme Work Programme Only the biddable work programme by the company / consortium will be evaluated Successful bidder will not be allowed to transfer its Participating Interest (PI) till completion of MWP during the first four years.
Technical Capability Will be a pre-qualification criteria. The designated operator has to score non-zero on one out of the three sub-criteria of technical capability apart from non-zero score on operatorship experience. Financial Capability The net worth of every company should be equal to more than every companys participating interest in the MWP commitment, including the both mandatory and biddable work programme Work Programme Only the biddable work programme by the company / consortium will be evaluated Successful bidder to confirm to complete the Mandatory Work Programme during the Initial Exploration Period.
Technical Capability Will be an evaluation criterion. The designated operator has to score non-zero on aggregate basis on account of Acreage Holding, Operatorship experience, Average Annual Accretion of Proved Reserves and Average Annual Production taken together should be more than zero. Financial Capability The net worth of every company should be equal to more than every companys participating interest in the MWP commitment, including the both mandatory and biddable work programme Work Programme Only the biddable work programme by the company / consortium will be evaluated Successful bidder to confirm to complete the Mandatory Work Programme during the Initial Exploration Period.
Pre-Qualifying 50 50 100
25 25 50 100
Bid bond to be valid for a period of one year Will be released on signing of the PSC of the block Amount for the bid bond is as follows, ( IN Rs. MM)
Deepwater Block Shallow Water Block Onland Block Onland Type S Block
One time Bank Gaurantee valid for the period of the exploration at the rate of 7.5 % of the total committed work programme Assignment For Type S blocks, no assignment of PI permitted without completing Minimum Work Programme during the first four years
To Conclude
In a competitive world, areas with the least
favorable geology, with highest costs, and with lowest wellhead prices would be expected to offer the best fiscal terms costs, and with the highest well head prices offer the toughest terms. offer very favorable or favorable terms, and countries with favorable conditions, such as the oil-exporting countries, demand tough or very tough terms.
FINAL WORD
The key differences among the PSCs are on the
basis of:
Ensure stable business environment Discourage speculation Provide potential return to both state and the companies, balancing risk Promote healthy competition.
Thank You