New Delhi: An explorer will be entitled to compensation if the government takes away its assets or contractual rights under an oilfield agreement, according to a draft contract proposed by the oil ministry. The move aims to address international energy companies’ long standing demand for protection against expropriation.
“If any measure or series of measures taken by the government or the state government substantially or permanently deprives the contractor of the ownership of any assets being utilised for mineral oil operations, or of its rights under the lease or this contract, the contractor shall be entitled to compensation,” the draft contract states.
The compensation will be equivalent to “all costs and expenditures incurred in respect of mineral oil operations, up to that point relating to such asset or rights deprived,” per the draft.
However, compensation will not be paid if the company hasn’t submitted a field development plan for the specific field, or if the government action was prompted by the need to protect its own rights or legitimate public interests.
Energy giant ExxonMobil has for years demanded that exploration contracts provide a legal shield against government moves to expropriate assets. Without using the term ‘expropriation’, the draft contract attempts to address concerns like those raised by Exxon by including a provision for compensation, an official said.
An Exxon India executive previously told ET that its demand for protection against expropriation was “rooted in experience,” citing how it faced expropriation after a change in government in Venezuela in the past.
The government is reworking the Model Revenue Sharing Contract (MSRC) to attract large foreign oil companies, which have largely stayed away from India’s exploration licensing rounds under the Open Acreage Licensing Policy introduced eight years ago. Scarce exploration success and maturing fields have led to falling output and rising dependence on oil and gas imports.
Globally, capital allocation for exploration has been shrinking and is being increasingly directed toward regions offering the best returns and stronger investment protection. Lower oil prices are also making it harder for multinationals to commit capital to countries like India, which are not known for abundant petroleum resources.
