Market price for oil from Tullow's Assam block

Vol 6, PW 13 (28 Aug 02) Exploration & Production

TULLOW CAN RECEIVE market prices for any oil or gas it produces from AA-ONJ-2.

A source tells us the PSC includes a mechanism to decide crude oil prices every month on a FOB 'delivery point' basis minus transportation, demurrage, loss of crude in transit and other costs. Prices will be calculated after comparison with the average FOB selling price of similar crudes listed with Platt's Crude Oil Market Wire, or the spot market for similar crudes "whichever price more truly reflects the current value." If no crude of a similar kind is available for comparison, or the FOB selling prices and global spot market prices vary widely between producers, Tullow and its buyers can decide the price "in good faith".

Interestingly, the contract has no mechanism to decide gas prices. The only reference to gas prices is that the value for calculating cost and profit gas will be obtained from "prices actually received from sales of natural gas".

The "appropriate market price" will be used to calculate the value of such sales. Profit petroleum will be shared between Tullow, ONGC and the government on the following basis.

Investment Multiple (annual) Contractor's share Government's share <1.5 95% 5% <2 85% 15% <2.5 75% 25% <3 60% 40% <3.5 50% 50% equal to/more than 3.5 40% 60%