PSC: Production Sharing Contract

Imagine a landlord who owns a plot but has no money to build on it, so he lets a builder construct and manage the property, and instead of charging rent, simply takes an agreed share of whatever profit the property earns once running costs are covered. That was, for decades, the deal India offered oil companies before HELP arrived, and the deal was called a Production Sharing Contract, or PSC.

Under a PSC, a company spends its own money to explore and develop a block. If oil or gas is found, the company first recovers its own costs from the revenue generated, a portion called cost oil, and only after that is the remaining profit oil split between the company and the government in a ratio that typically rises as the field becomes more profitable. The idea was sound. The execution was not, because what exactly counted as a legitimate cost became a constant point of dispute between operators and the Directorate General of Hydrocarbons, sometimes dragging into arbitration for years.

That exact friction is why HELP replaced PSC with Revenue Sharing for every block awarded after 2016. Older blocks awarded under NELP, including several still run by ONGC, Oil India and Reliance, continue operating on their original PSC terms, so both frameworks still exist side by side in India today, depending simply on when a block was first awarded.