Profit oil should increase over time not decrease: DGH

Vol 10, PW 21 (22 Feb 07) People & Policy

On one issue the DGH was refreshingly clear: for NELP-VII it will be clearly indicated that profit petroleum to the government should increase over time, not decrease.

Or, in industry jargon, profit petroleum should be on a â€کclimbing scale’ not a â€کdeclining or sliding scale.’ During NELP-VI, several disingenuous companies (Reliance, Oil India, to name but two) cunningly exploited loopholes on this critical point to submit hilarious bids where the government was offered higher profit oil in the initial period with low investment multiples and lower profit oil (1% or even 0% in some cases!) in the later period with high investment multiples.

Nineteen of the 52 blocks received bids such as this, delaying the award announcement by several months. Eni and British Gas were among those to protest loudly, and in writing, but in vain.

Fortunately under NELP-VII, the DGH clearly states: “The percentage share of profit petroleum to the government at various tranches shall be bid in a progressively increasing trend from the lowest level of the investment multiple (less than 1.5) to the highest level of the investment multiple (3.5 and above), i.e.

, with the increase in investment multiple, the percentage share of profit petroleum to the government shall increase from the lowest level of the investment multiple to the highest level of the investment multiple.â€‌ Few participants bothered to comment on this highly significant change, despite its importance.

BP, for example, restricted itself to the acutely perceptive comment that the modifications proposed for NELP-VII would unfairly pit larger companies against smaller companies, and called for a â€کmechanism’ to filter out companies before they bid. Santos and Oil India agreed.

Assam Company criticised the DGH’s obsession with â€کReserves Accretion’, saying it was unfair to new entrants such as itself. Other then Kharsang, Assam Company can claim vast reserves of tea (P1, P2 and P3), but little else.

Assam Company also said ONGC and Reliance should be barred from bidding for more than 20% of the acreage on offer. Reliance and ONGC, unsurprisingly, disagreed.

Adani Energy said there should be a cap on blocks for bigger companies.