Choubey believes 'cost-recovery' is a good concept

Vol 16, PW 7 (18 Oct 12) Exploration & Production

Five months after parachuting in to clean up the DGH, former home affairs additional secretary Rajiv Nayan Choubey is fast emerging as a man with a mind of his own, not oil minister Jaipal Reddy’s ‘yes’ man.

Choubey, it seems, has been listening to E&P operators in India and shares their concern about moves to replace the PSC ‘cost recovery’ regime with a CBM-style Production Linked Payment (PLP) regime, say friends close to the 53-year old DG. “Choubey believes cost recovery should be allowed,” says a friend.

“He thinks in a low prospectivity country like India cost recovery gives huge comfort to investors because E&P is not an exact science; that investors who commit billions don’t know if the success rate will be one in five or one in ten or one in 20; that there is a huge difference between the fifth well striking oil and the 20th well striking oil, because between the fifth and 20th well half a dozen companies would go bankrupt.” Is moving to a CBM-style PLP regime better “Choubey believes if you move away from cost recovery to a PLP regime investor comfort reduces hugely because under present PSCs an operator knows he can recover his cost on the fifth well or twentieth well irrespective of whether it strikes oil; but under PLP the operator must make an enlightened guess, that his seventh well will strike oil, and from the eighth well onwards he will pay, say 10% to the government.

But if only the 12th well strikes oil he can’t recover the cost of his eighth, ninth, 10th or 11th well.” Will the government-appointed Rangarajan Panel set up to take a fresh look at the PSC regime take any notice No one can say.

LNG Summit