WRITE for ATol ADVERTISE MEDIA KIT GET ATol BY EMAIL ABOUT ATol CONTACT US
Asia Time Online - Daily News
             
Asia Times Chinese
AT Chinese



    South Asia
     Feb 1, 2008
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.



(Copyright 2008 Asia Times Online Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

 


India's oil majors in global hunt (Nov 3, '07)


1. US homes in on militants in Pakistan

2. A China base in Iran?

3. A failure of central banking

4. Indicators signal turn for the worse

5. US plays matchmaker to Pakistan, Israel

6. Shootout echoes across Pakistan

7. Race for sanctions on Iran speeds up

8. Straight to McCain's blind spot
9. Fed helpless in its own crisis

10. India smashes $1bn sports boundary

11. Taliban find fertile new ground

(24 hours to 11:59 pm ET, Jan 30, 2008)

 
 



All material on this website is copyright and may not be republished in any form without written permission.
Copyright 1999 - 2008 Asia Times Online (Holdings), Ltd.
Head Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East, Central, Hong Kong
Thailand Bureau: 11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110