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The production sharing contract framework for the oil and gas sector currently allows for cost recovery by oil and gas explorers before they pay the government a share of revenue. Photo: Nandu Chitnis/Wikimedia Commons
The production sharing contract framework for the oil and gas sector currently allows for cost recovery by oil and gas explorers before they pay the government a share of revenue. Photo: Nandu Chitnis/Wikimedia Commons

Niko Resources in DGH radar over govt’s unpaid profit share

The block in question was awarded to Niko under the second round of the new exploration licensing policy

New Delhi: At a time when the petroleum ministry is debating the incentive regime for hydrocarbon exploration, it has emerged that Canada’s Niko Resources Ltd, the owner and operator of a block in the Cambay basin on India’s west coast, has not paid the government’s full share of profit from the block.

The block in question is CB-ONN-2000/2 and was awarded to Niko Resources under the second round of the new exploration licensing policy (Nelp).

According to documents reviewed by Mint, Niko Resources has not paid the Indian government’s full share of profit petroleum.

Profit petroleum is the total value of hydrocarbons produced in a contract area after deducting costs incurred by the explorer, and is split between the government and the explorer.

Interestingly, while the short paid profit petroleum is $97,678 (around 60 lakh today), the issue has been repeatedly raised by India’s Directorate General of Hydrocarbons (DGH) with Niko as early as in May 2012. These dues are since fiscal 2009 till 2012-13.

India’s annual profit petroleum amounts to around 10,000 crore a year in favour of the central government and is deposited in the consolidated fund of India.

India approved Nelp in 1997—it took effect in January 1999—to boost hydrocarbon exploration. Under Nelp, the government allocates rights to explore hydrocarbon blocks through a bidding process and has done so in nine phases so far for 360 blocks, involving an investment of around $21.3 billion.

A top government official confirmed the issue of “short paid profit petroleum" by Niko Resources and said, “While it’s a small sum, they will have to pay. But the point is how do we get our dues."

The production sharing contract framework for the oil and gas sector currently allows for cost recovery by oil and gas explorers before they pay the government a share of revenue. DGH manages petroleum resources, besides monitoring production sharing contracts, and assists the government in auctioning oil and gas exploration fields. Hydrocarbon explorers in India have made a total payment of $15.41 billion to the Union government as royalties, cess and profit petroleum, and $1.93 billion to state governments since 1994.

The shortfall of profit petroleum comes in the backdrop of India reworking the incentive regime governing hydrocarbon exploration. Petroleum and natural gas minister Dharmendra Pradhan signalled the government’s desire to debate the incentive regime governing hydrocarbon exploration at Mint’s Energy Conclave on Friday.

Queries emailed to spokespersons of Niko Resources, the petroleum ministry and DGH remained unanswered till press time.

There has been a debate on whether to retain the existing production sharing agreement or shift to a new revenue sharing one, with support emerging for both proposals. Explorers want the existing contract to continue.

A senior executive at an Indian hydrocarbon exploration firm who didn’t want to be identified said, “It is highly unlikely that a firm does such things, given that it is the government’s share."

A former top petroleum ministry official requesting anonymity said, “These kinds of things are unheard of."

Niko Resources is also a partner of Reliance Industries Ltd in the D6 block of the Krishna-Godavari basin with a 10% share, with British oil and gas firm BP Plc. having a 30% stake. According to information available on its website, “Niko Resources has participated in most of the Nelp rounds and has working interests in 6 blocks."

According to a Niko Resources report for the quarter ended 30 June, there has been “a shift in strategic focus of the company, specifically, the planned limitation of exploration outside of India and Bangladesh, and the planned decrease in commitments and capital obligations with respect to exploration and evaluation assets".

There has been waning investor interest in the Indian hydrocarbon sector, with around 70% of basins remaining largely under-explored. The response to Nelp has been tepid. India has an energy import bill of around $150 billion. That is expected to reach $300 billion by 2030.

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