Cabinet clears policy for extension of oil & gas contracts

Source: The Economic Times, Mar 23, 2017

NEW DELHI: The Cabinet has approved a new policy to allow transparent extension of oil and gas contracts for companies that agree to increase the state’s share of profit by 10% — a move that raises government’s revenue and allows companies like Vedanta-controlled Cairn India to plan future investments.

This is expected to encourage investment of $5.4 billion to extract 426 million barrels, the government said after a late-evening meeting of the Cabinet, which also approved amendments to tax laws to abolish cesses and surcharges to facilitate goods and services tax (GST), made the provision of the funds for startups more user friendly, and sanctioned raising of NABARD’s authorised capital.

The new policy for oil and gas would apply to contracts that predate the New Exploration Licensing Policy of 1999. This includes Cairn India which has a 25-year contract for RJ-ON-90/1that expires in May 2020. The contract provides for a mutually-agreed 10-year extension if gas is being produced commercially. Commercial production of gas from the field commenced in 2013.

Cairn India holds a 70% stake in the Rajasthan block while ONGC owns 30%. The contract extension has the potential to add another 250 million barrels of oil equivalent into its reserves. The company had earlier approached the Delhi High Court seeking its intervention for an early decision on the extension of the PSC. The court has asked the government to come up with a decision soon.

The policy also brings out detailed guidelines regarding grant of extension, criteria for evaluation of request, time-frame for consideration of request and the duration of extension.

“This policy will enable the contractors to extract not only the remaining reserves but also plan to extract additional reserves by implementing new technologies.

In certain fields, additional recovery of hydrocarbons can be obtained through Enhanced Oil Recovery or Improved Oil Recovery (EOR/IOR) Projects and as such the production would extend beyond the current duration of PSC,” the official statement read.

Oil and gas blocks allotted in the pre-NELP regime produced around 55 million barrel of oil and 965 million standard cubic meter (mmscm) of natural gas in the current financial year between April 2016 and February 2017.

The Union Cabinet also approved amendment of the customs and excise laws to facilitate implementation of the goods and services tax (GST).

The amendments to the National Bank for Agriculture and Rural Development Act, 1981 cleared by the Cabinet would increase its authorised capital to Rs 30,000 crore from existing Rs 5,000 crore.

The amendment will also allow the government to further increase the capital in consultation with Reserve Bank of India, whenever required. The RBI will also transfer its 0.4% equity in NABARD to the central government.

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