The indispensability of crude oil imports which account for four-fifths of petroleum products consumed in and exported from the country and 34% of total imports has undermined the government?s ability to contain the trade and current account deficits, and the way forward is to augment domestic crude output and reduce import costs by acquisition of oil assets abroad. However, despite the allure it holds, global investors have stayed off India?s oil and gas sector and the latest data from the Directorate General of Hydrocarbons (DGH) on the experience with the new exploration and licensing policy (NELP) proves this beyond question. According to the DGH, only three NELP blocks have so far seen any kind of commercial production, even as 254 blocks have since 1999 been allotted to exploration companies in the nine rounds of NELP, from which 113 discoveries have been made.
The tenth round of NELP auctions to be held later this financial year might not also see a grand turnout of global oil giants seeking a slice of India?s hydrocarbon pie.
Companies have spend over $15 billion in winning bids to explore these NELP blocks since the first round of NELP kicked off in 1999. What?s worse is that the production from the three blocks that have gone into commercial production are anything but prolific. This includes the Reliance Industries-operated KG-D6 block where production has fallen significantly from 62 million metric standard cubic metres per day (mmscmd) in 2010 to about 14.2 mmscmd now.
The other two producing blocks are small finds off the Cambay Basin ? the Niko-operated CB-ONN-2000/2 and the GSPCL-operated CB-ONN-2000/1. Oil ministry officials say Niko has decided to relinquish the CB-ONN-2000/2 block as the company finds it unviable for production, and the block will now be transferred to ONGC.
The oil ministry is currently awaiting defence and environment ministry clearances for 68 blocks
for the 10th round of NELP this year. This will be the second-highest offering of blocks since the advent of NELP in 1999. Of the blocks being considered for offering, 25 are deep water, 20 shallow water and 23 onshore blocks.
Operators say that poor production numbers cannot be pinned down to a single cause. AK Bannerjee, director (finance) at ONGC, said that the country is not as naturally endowed with hydrocarbons as some of the Gulf countries and, therefore, expecting production at those levels is unreasonable. ?India has less than 0.5% of global oil and gas reserves,? he said.
A top official from a private company said that unreliable surveys of India?s 26 sedimentary basins could be another reason that India?s strike record is not great. Despite having about 3.14 million square km of sedimentary basins with hydrocarbon potential, oil explorers have undertaken moderate levels of exploration in only 22% of this acreage.
Acknowledging the poor quality of currently available surveys conducted by DGH and other external agencies, an oil ministry official said that the DGH is now working on setting up a National Data Repository to cull reliable information on oil and gas reserves. ?The DGH has sent out tenders to third-party survey companies to undertake the process. This will help us transition to the open acreage licensing policy where any company can bid for any block,? said the official.
Bob Fryklund, chief upstream analyst at global information company IHS, said that regulatory hurdles have slowed down projects and hit production numbers. Multiple clearances at various levels and files stuck with the babus have led to numerous delays in blocks coming to production. However some progress is being seeing under the Veerappa Moily regime. Over the last few months, the oil ministry cleared around 200 pending management committee (MC) resolutions involving oil and gas blocks operated by both public and private companies, from as far back as 2004. In April alone, around 88 pending MC resolutions were cleared.
Ananth Kumar, director (finance) at Oil India, said that the previous unattractive pricing regime in the case of natural gas has meant that several marginal fields and fields in difficult terrains with high production costs have not been able to come on stream. Kumar fears that future exploration activity will be hit with the current subsidy sharing mechanism leaving them with little money for investments. In 2012-13, of the Rs 1.6 lakh crore subsidies paid to oil retailers for under-recoveries, upstream companies ONGC, OIL and GAIL contributed around Rs 60,000 crore.
Industry insiders worry that the tenth round of the NELP will be a repeat of the immediately preceding rounds where international oil companies largely stayed away and ONGC was forced to to pick up a majority of the blocks. In the ninth round held in 2011, which saw very little global interest, ONGC won 10 of the 33 blocks that received bids. In the eighth round, ONGC won more than half of the blocks offered.
The oil ministry is, however, hopeful that reform measures like revising domestic gas prices and fast-tracking of projects stuck for want of various clearances will send a strong to global investors. Moreover, in several NELP blocks, particularly those offered in rounds four to seven, exploration activities are still being undertaken and, thus, there could be a production surge in coming years. ONGC?s KG-DWN 98/2 and RIL?s D-55 blocks are examples of potentially large blocks that will start production in the next few years.
However, Fereidun Feshraki, chairman of Facts Global Energy, feels that the one step forward and two steps back approach by the government will drive away international investors. ?While revising gas prices is progressive, proposing to move to a revenue sharing contract model is retrogressive,? he said.
Feshraki added that India cannot afford such an unduly strict oil regime, especially when oil and gas reserves are being unearthed across vast stretches of the world including Mozambique, Israel, Brazil as well as the new-found shale reserves in the US.
