Big guns primed for $8bn Indian oil
hunt By Indrajit Basu
KOLKATA - For the mandarins of India's
Ministry of Petroleum it was supposed to be an
event just like any of the six before. Yet as the
team of a dozen-odd powerful officials, led by the
oil minister himself, arrived at a swanky hotel in
London on the morning of January 24, they knew it
would be like never before.
A crowd of 200
representatives from 97 global oil companies were
attending the road show that initiated the seventh
round of bidding for exploration licenses for
India's grossly under-explored oil and gas
reserves under the New Exploration Licensing
Policy regime. At stake are investments that might
be worth as much as US$8 billion.
"The
response was huge," said a ministry official. The
big guns of
the
oil world, such as Exxon-Mobile, BP, BG Group and
Chevron, were all in attendance, he said. So also
were Hardy Oil and many smaller players from
European countries like Hungary and Poland. "We
were expecting a high level of interest from the
foreign companies but we didn't expect it would be
this high," he said.
The interest wasn't
unwarranted, because this version of the New
Exploration and Licensing Policy (called the NELP
VII) too was unlike its predecessors. For the
first time since 1997, when India decided to
invite private participation in the country's oil
and gas exploration and production - through the
New Exploration Licensing Policy regime - India
has crafted a NELP with the specific intention of
attracting foreign and multiple interests in the
country's oil exploration, particularly in
deepwater exploration.
"One of the biggest
changes in this NELP is that it contains a
consortium clause that automatically gives 10
extra points to a foreign oil company forming a
consortium with a local oil company," said S N
Thakur, the deputy general manager at the
Directorate General of Hydrocarbons and heading
the NELP operations. The office works under the
Ministry of Petroleum and Natural Gas.
Other important changes include evaluation
criteria framed according to the size and risks
involved for each block, and introduction of a new
type of blocks (called Type-S), which are smaller
blocks set aside for smaller foreign oil companies
with little or no experience in exploration. "For
Type-S blocks, bid evaluation will be made on work
program and fiscal package parameters only," said
Thakur.
India had always maintained that
it desires foreign participation in its oil
sectors, yet foreign oil companies have had to be
satisfied with a marginal role. Until the
mid-1990s, Indian companies were given preference
in the exploration of hydrocarbon blocks. That
changed with the National Exploration Licensing
regime in 1997, which allowed foreign companies to
prospect for oil and gas in India on the same
terms as Indian companies.
Still, although
all the six NELPs spanning 1999-2006 awarded 162
exploration blocks, "and awarded contracts to 20
foreign companies", the only significant foreign
oil companies to bag any substantial stake in
India's oil hunt are London-based Cairn Energy (15
blocks ), BG (formerly known as British Gas -
seven blocks), Niko Resources of Canada (six
blocks) and Naftogaz of Ukraine (three blocks).
The 17 others have insignificant presence, concede
DGH sources, while a major chunk is controlled by
just two Indian companies - government-owned ONGC
Ltd and privately owned Reliance Industries Ltd.
"There are various reasons for this," said
Thakur, "but the primary one is that oil
exploration is a risky business and since very
little data was available on India's oil reserves
few foreign companies dared to commit to the
risks."
The other significant reason,
according to Thakur was that oil prices were until
recently much lower, "and were not enough to
justify the risk-reward ratio for a foreign oil
company".
"Moreover, even as Indian oil
companies were always preferred in the previous
NELPs, this time round India too is keen on
attracting foreign interests," he said.
So
why this change in stance? For one, Indian oil
companies have not been very successful in finding
the fuel, especially in deep water. Over the past
more than 100 years, 49 oil discoveries have been
made, primarily by Indian companies, yet the
country's exploration companies, led by ONGC, have
made just one deepwater find and that was three
decades ago.
According to Thakur, much of
India's attention was focused on onshore and
shallow water discoveries and so the Indian oil
companies failed to develop expertise in deepwater
work. "But it is a different scenario now, and
India has to be proactive."
Foreign help
may be what India needs most, given the country's
growing dependence on hydrocarbons for energy and
that it imports 70% of its oil.
India,
whose consumption of crude is increasing by 5% a
year, produces just 34 million tonnes (mmt) of the
stuff against the annual consumption of 120 mmt.
At it tries to buy overseas oil assets to meet its
demands, India is also having to compete with
neighbor China, and has been losing some key
battles.
Hardly less than foreign
expertise, India also needs foreign cash to drive
its hunt for oil. "While international oil prices
were low, Indian oil companies were making enough
profit to invest in exploration,'' said
Mumbai-based analyst Sanjeev Nayyar. "But with
crude hovering in the region of $100 a barrel,
there's hardly any money for Indian oil companies
or for the government [to fund companies] to risk
exploration in areas where Indian companies have
little expertise."
The Indian government
controls the price of oil and gas for the domestic
market, keeping it much lower than international
market rates. In times of rapidly rising oil
prices, Indian companies lose heavily (which the
government ultimately bears) because they cannot
increase sale prices in line with the rise in
international rates they have to pay for imported
oil.
BP, which has bid unsuccessfully in
the past, "will be evaluating what's on offer this
time [in NELP VII] and will bid accordingly", said
the oil giant's exploration director Jonathan
Evans. Even so, the moot question is, to what
extent will this heightened interest translate
into real business? After all, even in the earlier
NELPs, particularly NELP V and VI, there were
several foreign bids but none bar those mentioned
above was successful.
DGH sources said
that was due to the fact that there wasn't enough
seismic data on the oil blocks put up for bidding,
because of which "few foreign interests were able
to bid high enough".
"However, we project
that NELP VII could attract $8 billion of
investment, half of which could come in from
foreign oil companies," said Thakur. And why? "For
one, at $100 a barrel, exploring any opportunity
anywhere makes a lot of sense, and more
importantly, with just 21% of India's total
reserves [325 billion barrels estimated] explored
so far, opportunities in India have never been
better."
The latest research reveals that
India has 26 sedimentary basins, or basins with
oil, spanning an area of 3.14 million square
kilometers, against the earlier belief of 15
sedimentary basins, according to DGH. Out of the
new total, 1.32 million square kilometers, or 42%,
of the total sedimentary basin area, lies offshore
or in deep waters that have not been touched at
all.
"This is a wide open area for foreign
companies," said Thakur. "By 2015, India plans to
bring the whole sedimentary basinal area under
exploration, for which the country needs foreign
help."
To ensure that foreign interests
receive adequate data, the DGH says it has
conducted extensive research on all the 57 oil
blocks - 19 deep water, nine shallow water and 29
on-land blocs - to help NELP VII license
candidates assess their offers. It has made all
geo-scientific data available online to enable
companies to view data at their own convenience
and location.
The DGH has also established
work stations in Delhi, London, Houston, Perth
(Australia) and Calgary in Canada, equipped with
software to enable companies to analyze and
interpret data quickly. These data centers will
also provide spot clarifications and other
information, such as details of all operational
blocks from earlier rounds and their work programs
and so forth.
NELP VII, as with earlier
rounds, comes with freedom to market the oil and
gas found internationally and the freedom to sell
at international crude oil prices and free
market-determined prices in India.
Indrajit Basu is a Kolkata-based
journalist.
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