Abstract
In this paper, the production sharing contract (PSC) terms and conditions are incorporated into a decision-making model of hydrocarbon production. Based on input parameters such as oilfield size, prices, exploration, development and operating costs, decline rates, cost recovery methods and profit oil split, the model was used to evaluate best, worst, and most likely scenarios. In each of the scenarios, the oil production rate from the field increases initially up to the maximum efficient production rate, as surface facilities are built, followed by a plateau period of constant production rate and then finally a decline as in typical offshore fields. Using the expected net present value (ENPV) of a project under various technology and financial arrangements, the model performs the summary economics of a scenario based on the pro-forma cash flow analyses. The numerical example for India has been developed to reflect geological, economic, and the recent contractual data as defined in the 1997 New Exploration Licensing Policy (NELP) for PSC agreements. The best and worst cases examine the optimistic and the pessimistic scenarios about the profitability of a project. In the third case (most likely case), probability distributions for various crucial parameters are specified in the model. The model also calculates India's share of economic rent from oil and gas production in these cases. Finally, a sensitivity analysis is performed on parameters which provides insights into mutually beneficial negotiating terms between the government and the multinational corporation.
Results indicate that recent PSC terms in India can be attractive to multinational corporation (MNC) investors for medium to large discoveries. Conversely, smaller projects have greater difficulty achieving profitability. The most likely case indicates a modest government take of around 46 percent in India. Sensitivity analyses show that reserve size and production decline are the dominant factors for determining project payout and net present value. In addition, PSC projects in India are less sensitive to factors such as profit oil split and cost recovery oil terms.
