Deepak Mahurkar, leader, oil and gas, PricewaterhouseCoopers opined that a move towards revenue-sharing mechanism in exploration contracts exposes investors to more risks of investments, and that may dissuade large oil companies from India.
It may be noted that the union Finance Minister P Chidambaram announced in his budget speech that a new oil and gas exploration policy will move from profit-sharing to revenue-sharing contracts.
Revenue sharing replacing profit sharing will help investors to not get subjected to cost scrutiny and the likes of CAG audits. However, withdrawal of cost recovery mechanism exposes explorers to considerable risk, industry experts feel.
According to industry players, the move towards revenue-sharing contracts may multiply the risk profile of the exploration and production players.
Ananth Kumar, director finance, Oil India said for more risk to be taken, it’s better to have a cost-sharing basis, as whatever is spent on exploration, can be recovered if a discovery is made.
Therefore, the finance minister’s token announcements for the oil and gas sector has disappointed the industry, which expected much more from the government.
In line with the current production-sharing contracts (PSCs), under a specific formula, explorers are first allowed to recover the capital and operating expenditure from oil and gas revenues before sharing profits with the government.
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