PSK involves granting certain rights (prospecting and production) of a host government to an international oil company (IOC) in order to research and develop post-development activities for hydrocarbon resources. They are of great value; represent a significant investment (for the IOC); and often have a higher risk profile. In production-sharing agreements, the country`s government entrusts the production and exploration activities to an oil company. The oil group supports the mineral and financial risk of the initiative and explores, develops and produces the field as needed. During the successful year, the company can use the money from the oil produced to recover capital and operating expenses known as “cost oil.” The rest of the money is called “profit oil” and is shared between the government and the company. In most production allocation agreements, changes in international oil prices or the rate of production affect the company`s share of production. In 2012, the Rangarajan Committee recommended replacing PSC with a revenue-sharing model. Unlike the existing tax model of the production sharing contract (CSP), where the winning oil only begins in government once all contractual costs have been recovered (in the case of 100% cost coverage of the holder), the share of revenue in the government begins in the new system from the first day of production. The proposed changes will lead to a simple and transparent system, with easy-to-control production parameters and prices. This will ensure that the government receives ever higher revenues, as the contractor earns more, while preserving the state`s interest in the event of a collapse due to higher prices or a surprising geological discovery. In addition, the management committee will no longer address issues related to the approval of budgetary or procurement issues and private operators will have an easier operating environment.
On 10.03.2016, the government adopted a variant of the contractual revenue-sharing model under the new hydrocarbon exploration and production tax regime, HELP or Hydrocarbon Exploration and Licensing Policy. The PsA, also known as the PSCS (Production Sharing Contracts), allows the host country, sometimes called a national oil company or NOC, to maintain some control over the development of oil and gas within the country. The agreement also helps NOCs acquire the know-how they may lack in terms of hydrocarbon exploration and development within their borders. The IOC handles most or all of the costs and risks associated with exploration. The NOC begins or increases its contribution after the discovery of minerals and the site is developed into a normal operating production unit.