CHAPTER 3PRODUCTION SHARING CONTRACTSIntroduction
There are various mechanisms and systems in the field of upstream oil business of theworld on which host government award right to explore and exploit petroleumresources. For exploration and exploitation of natural resources, India has adopted amixture of concessionary and production sharing regimes which has been adoptedunder a Model Production Sharing Contract..
Development of Production Sharing Concept
In 1960, Law No. 44 was passed in Indonesia providing that Oil companies willbe known as “contractors” rather then “concessionaires”. The Western Oil Companieswere very upset and much worried because of its possible impact on their Middle Eastconcessions. The companies working in Indonesia refused to accept this Law.Negotiations failed and Government of Indonesia declared that in case agreements arenot reached, the companies will be nationalized. In this backdrop and after theintervention of USA, an agreement was reached through which these companies wereallowed to carry on the operations under a “Contract of Work” arrangement. The sharingof production and control under a production sharing arrangement was not agreed to bymajor oil companies operating in Indonesia but when some Japanese and AmericanIndependents entered in to such contracts , others followed suit. So, after 1970, thethings were concretized and a new era of joint ventures of oil companies with the hostgovernment started. With the passage of time these Contract of Work graduated in toProduction Sharing Contracts.In India, PSC incorporates the charging of Petroleum Exploration License feesand royalty as well as sharing of profit oil left after cost recovery. Thus, it a hybrid ofboth the concessionary and production sharing regime. The Indian PSC makesfollowing declarations as to its legal position in the Recital clause, which put PSC inproper legal perspective:
For offshore areas Recital in the Contract provides as follows:-
By virtue of article 297 of the Constitution of India, Petroleum in its natural state in theTerritorial Waters and the Continental Shelf of India is vested in the Union of India. TheOil Fields (Regulation and Development ) Act, 1948 (53 of 1948) and the Petroleum andNatural Gas Rules, 1959, made there under (hereinafter referred to as "the Rules")make provisions, inter alia, for the regulation of Petroleum Operations and grant oflicenses and leases for exploration, development and production of Petroleum in India.The Territorial Waters, Continental Shelf, Exclusive Economic Zone and otherMaritime Zones Act, 1976 (No. 80 of 1976) provides for the grant of a license or letter of