Falling government profit share blamed for DGH stand

Vol 12, PW 16 (15 Jan 09) Exploration & Production

Dig a little deeper and it isn’t difficult to see why the DGH is reluctant to endorse the additional four-well work programme for 2008-09 at the PMT fields.

Consortium sources suspect the sharp fall in global crude prices from a high of $147 in July last year to less than $40 today has scared the DGH into believing any new capital expenditure on PMT will cut into government profit share. “Falling oil prices might be scaring the DGH into thinking that fresh capital spending will push the investment multiple below two, reducing the government’s profit share from 15% to 5%,â€‌ we hear.

“But new capital spending at PMT is a must to reverse the 15% to 18% annual decline in production.â€‌ Expecting the worst, BG and its partners have pre-empted any formal DGH notification and delayed plans for a new $80m (PL) platform at the Panna field.

In money terms, we hear, the government stood to lose about Rs300cr ($66m) every year at current prices if approval were to go through. Consortium partners originally wanted to club together PL platform construction with the PK ($170m) and SWP ($130m) platforms whose installation was already approved in the budget for 2008-2009.

“If not the â€کtopside’ then at least the PL â€کjacket’ could have come in during 2008-09 and been installed using the barge and other facilities hired to install the PK and SWP platforms,â€‌ we hear. Instead, a proposal for the PL platform construction will go before the DGH for approval in the work programme and budget for the next financial year ending March 2010.

Some argue the DGH has wasted a valuable opportunity because drilling an extra nine wells and construction of the PL platform could easily have been accommodated in this year’s budget by “tweaking some numbersâ€‌ to protect government profit share.