Security creation under revenue sharing contracts

The government of India introduced private-sector participation in the oil and gas sector in 1992. The government came up with the New Exploration Licensing Policy (NELP) in 1997, to attract foreign and private participation in the exploration and production (E&P) of oil and natural gas. Under NELP’s production sharing contract (PSC), the contractor was entitled to recover 100% of its expenditure for carrying out E&P activities and the remaining product was subject to a split between the contractor and government. Under this model the contractor could inflate its costs, reducing the government’s share of production.

In light of the observations and recommendations in a report on the PSC by the Rangarajan Committee, published in December 2012, the government came out with a new Hydrocarbon Exploration Licensing Policy (HELP) on 10 March 2016. HELP did away with the concept of 100% cost recovery for the contractor. Now, the government enters into a revenue sharing contract (RSC) with the contractor in relation to E&P of hydrocarbons.

Harsh Arora is a partner and Loveleen Singh is an associate at HSA Advocates. HSA is a full-service firm with offices in New Delhi, Mumbai, Bengaluru and Kolkata.