It is pertinent to note that the indigenous oil and gas industry stands opposed to the revenue-sharing contracts.
8The industry has objected to one of the major assumption for moving to the revenue sharing model: that the PSC (with cost recovery) system encourage contractors to inflate costs.
8This argument has been faulted on the ground that the operator in fact recovers less and not more under the cost recovery model than what he spends (as the financing cost is not recoverable under the contracts) in the blocks.
8Thus a higher expense is a net loss to the contractor. In addition, higher investment increases risks, delaying full cost recovery. In light of these facts, the industry had earlier argued that no prudent investor will inflate the capex because he stands to lose more than he gains
8The industry is of the view that the interests of the contractor and the government in the PSC are perfectly aligned and there is no need to tinker with the Pre-Tax Investment Multiple (PTIM) model.
Comment: How would a company know by scanning sparse seismic data made available in a DGH data room on a deepwater block whether it will have enough oil or gas for it to come up with a revenue share number while bidding for the block? A deepwater well can cost anywhere above $ 25 to 100 million and it is not possible for anyone to accurately project what kind of revenue it will generate at the very beginning, even before exploration work can starts in the block. The revenue share model can work when there is some kind of certainty on the prospectivity of a block or the exploration work has been completed and a Field Development Plan has been drawn up. Then again, there is so much uncertainty on the gas pricing front that it will be difficult to get investors to make long term commitments without more clarity on the future gas price. There is also uncertainty over how the oil and gas sector will fare in the years ahead given changes on the ground brought about by global warming and disruptive technologies. Lobbies are already calling for keeping most of the global oil and gas reserves untapped in order to ensure that global warming does not cross the 2 degree threshold. This website predicts that the revenue share model will fail in India. And the sooner policy makers realize it, the better it is for the country. The best way to encourage the industry will be to retain the PTIM Model despite its obvious disadvantages.
For more details visit indianpetroplus.com
8The industry has objected to one of the major assumption for moving to the revenue sharing model: that the PSC (with cost recovery) system encourage contractors to inflate costs.
8This argument has been faulted on the ground that the operator in fact recovers less and not more under the cost recovery model than what he spends (as the financing cost is not recoverable under the contracts) in the blocks.
8Thus a higher expense is a net loss to the contractor. In addition, higher investment increases risks, delaying full cost recovery. In light of these facts, the industry had earlier argued that no prudent investor will inflate the capex because he stands to lose more than he gains
8The industry is of the view that the interests of the contractor and the government in the PSC are perfectly aligned and there is no need to tinker with the Pre-Tax Investment Multiple (PTIM) model.
Comment: How would a company know by scanning sparse seismic data made available in a DGH data room on a deepwater block whether it will have enough oil or gas for it to come up with a revenue share number while bidding for the block? A deepwater well can cost anywhere above $ 25 to 100 million and it is not possible for anyone to accurately project what kind of revenue it will generate at the very beginning, even before exploration work can starts in the block. The revenue share model can work when there is some kind of certainty on the prospectivity of a block or the exploration work has been completed and a Field Development Plan has been drawn up. Then again, there is so much uncertainty on the gas pricing front that it will be difficult to get investors to make long term commitments without more clarity on the future gas price. There is also uncertainty over how the oil and gas sector will fare in the years ahead given changes on the ground brought about by global warming and disruptive technologies. Lobbies are already calling for keeping most of the global oil and gas reserves untapped in order to ensure that global warming does not cross the 2 degree threshold. This website predicts that the revenue share model will fail in India. And the sooner policy makers realize it, the better it is for the country. The best way to encourage the industry will be to retain the PTIM Model despite its obvious disadvantages.
For more details visit indianpetroplus.com
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