Will Small Oil Fields Find Takers? 

The government is starting off with the small and marginal field auctions. How successful do you expect government to be this time around? 

By the interest that government is getting in the acreage area, it seems to be great. Other triggers is that the government seems to have changed the terms of the contract in a very favourable manner for the operators. And other coincidence is that oil prices have started going up and interest is going up and the negatives for the industry has started evening out. So, looks like interest is good.

So just to clarify these are the blocks where the discoveries have happened and because of cost & viability these have not been commercialised?

Because of the perception that viability was less, it was untapped. You (companies) can start re-looking at it because the cess on this oil has been removed, which was applicable earlier. The ability to bid for what production share you want to give to government is also available. You can also bid very low, which means you are keeping more profits. So the whole goal post has changed.

Also, technology has developed. What you used to do in millions of dollar is now done much cheaper. Infrastructure sharing is now available. Infrastructure that is already created in offshore areas, especially pipelines in offshore areas, was not being factored in earlier cases, and companies will start looking at with fresh perspective.

In the last few years, we have seen not many private sector companies coming out with discoveries. There has been one or two cases, but there too those companies are in arbitration or there are issues with respect to reserves. Won't that be a factor?

I won't deny what you are saying is not right. Completely agree that this sentiment does reside in the industry. And the last two years how it has been handled by the government and the manner in which production sharing has been ironed out despite whatever challenges they had, setting up policies and procedures for cases where ambiguity was galore and cases where there was ambiguity existed has been dealt with one by one.

Today, not even a single case is pending with the management committee. Every case has been cleared. This message has gone out to the E&P industry.

Second, this particular contract doesn't have anything for which you have to go to the government. Management Committee powers have been diluted to the level of monetary, there is no approval required. So it's a well that has been handed over to you and now it is yours, how your develop, how you monetise etc. The mindset has been changed.

What are the key issues with the new revenue sharing model. Can you elaborate?

Let me give one example. In the earlier contract, there was something called fiscal stability. Fiscal stability basically means that from the time you take the contract, if it undergoes change with respect to taxation, then you are entitled to the difference between what is the new tax and the old tax. Basically, you don't suffer because of fiscal changes. That has been taken off from the contract.

It has not been taken off from the contract because government does not want to offer it to the investor. But because it is the regime that is very difficult to administer. There has been too much litigation around that subject and there are too many arbitration cases that are in the court on the issue of fiscal stability. And investors are unhappy, saying that you promised it in the contract but you are not able to give it.

Finally, implementing those clauses are very tough - financially, commercially in every way. In the end there may be few million dollars lying there, but the processes and procedures that investors have to get that due is very tough and most of the time government guys don't sign.