New Delhi: In yet another reflection of rapidly diminishing interest in the Indian hydrocarbon sector, prompted largely by the policy regime, foreign firms such as Australia’s Santos Ltd and Italy’s Eni SpA plan to exit their oil and gas exploration and production (E&P) business in India.
This comes in the backdrop of accusations that the Congress party-led United Progressive Alliance has been guilty of policy paralysis that has created the circumstances to stoke a flight of foreign investors.
While Mint reported on 14 June about Eni’s proposed exit from its three blocks, the firm also plans to exit Hindustan Oil Exploration Co. Ltd (HOEC), where it has a 47.16% share after it acquired Burren Energy Plc in 2008. “The foreign explorers are in exit mode. One can’t blame them. Eni wants to quit the blocks it has on its own and also its stake in HOEC. Same goes for Santos,” said a senior executive at a state-owned hydrocarbon company who requested anonymity.
Part of the problem is the failure to obtain clearances from several ministries such as environment and forests and defence; it has come to such a point that officials at the highest level in the government are working towards resolving the stalemate.
However, a petroleum ministry official requesting anonymity maintained that these are individual instances and are not part of a pattern. “While the issues related to the blocks in Andaman and Nicobar and Bay of Bengal are beyond our ministry, Eni is clouding the issue on the Rajasthan block. They are having financial problems overseas and particularly in Russia. They didn’t submit the desert action plan to the Supreme Court, and minimum investment in the block has not been made.”
Petroleum minister S. Jaipal Reddy said, “I am unaware about foreign companies planning to quit India. No one has approached me.”
These developments also come in the backdrop of India’s ninth round of auctions of hydrocarbon exploration blocks which reflected poor investor interest; only 13 of the 33 blocks on offer were formally awarded in March this year, though they had actually won the bids a year ago—the delay was on account of the inability to get due clearances.
Another person who also didn’t want to be identified confirmed the development and said, “The government hasn’t been able to resolve the issues. Nothing has moved. There is a limit to which an independent business entity may hang around indefinitely.”
Santos’s exit plans come in the backdrop of the Indian government’s inability to resolve a maritime boundary dispute with Bangladesh regarding its subsidiary’s block in the Bay of Bengal, as reported by Mint on 30 December 2010. The Bangladesh Navy has repeatedly denied Santos International Operations Pty Ltd access to its NEC-DWN-2004/1 and NEC-DWN-2004/2, covering about 16,500 sq. km in the Bengal Basin.
The northern waters of the Bay of Bengal have been a subject of contention between India, Bangladesh and Myanmar as the land mass of the three countries surround these waters.
Through Eni India, Eni is present in three blocks in India. It is the operator with a 40% stake in the AN-DWN-2003/2 block in the Andaman and Nicobar Islands area and holds a 34% participating interest in Oil and Natural Gas Corp. Ltd’s (ONGC’s) Mahanadi block MN-DWN-2002/1.
Eni couldn’t get permission to drill from the department of space relating to its block in the Andaman and Nicobar Islands area, due to the proximity of the block to the rocket stage impact zone of the Indian Space Research Organisation.
Similarly, its Rajasthan block has also run into trouble as one-third of it falls under a protected area classified as a “desert forest”.
The new exploration and licensing policy (Nelp) was approved by the government in 1997 and operationalized in January 1999 to boost hydrocarbon exploration in the country. Under this, the government allocates the rights to explore blocks through a bidding process and has done this in nine phases so far. While Santos was awarded these blocks in the sixth edition of Nelp, Eni got the Andaman and Nicobar and Rajasthan blocks in the fifth round.
This is not the first time a foreign energy firm has exited India. Earlier, Norwegian oil company Statoil ASA and Brazil’s Petroleo Brasileiro SA (Petrobras) quit their partnership with ONGC in the development of a gas find in the Krishna-Godavari (KG) basin. The UK’s BG Group Plc recently exited three exploratory blocks in the KG basin and the Mahanadi basin.
While an Eni spokesperson declined to comment, questions emailed to HOEC and those posted on Santos’s website on Monday remained unanswered till press time.