New Delhi: Italian firm Eni SpA plans to exit its oil and gas prospecting and production business in India—an indication of diminishing interest in the Indian hydrocarbon sector, largely on account of the policy regime—and is in talks with state-owned Oil and Natural Gas Corp. Ltd (ONGC), according to two people familiar with the matter, including a senior executive at ONGC. Neither wanted to be identified.
“Eni has decided to exit. It was facing many problems with its blocks. It is in talks with ONGC for a potential transaction,” said one of the persons.
Questions emailed to the offices of Eni SpA on Tuesday remained unanswered at the time of filing the story. Sergio A. Laura, managing director of Eni India Ltd, did not respond to a message left for him at his office.
Sudhir Vasudeva, chairman and managing director of ONGC, said he was “unaware of the development”.
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, where ONGC and GAIL (India) Ltd hold 45% and 15%, respectively. It also holds a 34% participating interest in ONGC’s Mahanadi block MN-DWN-2002/1 and is the operator in Rajasthan block RJ-ONN-2003/1 with a 34% stake, where ONGC and Cairn India Ltd hold 36% and 30%, respectively. Eni also has a presence in the sector through Hindustan Oil Exploration Co. Ltd (HOEC), where it has a 47.16% share after it acquired Burren Energy Plc in 2008. Mint couldn’t ascertain Eni’s strategy on HOEC.
The ONGC executive said Eni doesn’t want to have an interest in the Mahanadi block any more. He added that ONGC was yet to take a decision on buying Eni’s stake.
Mint reported on 29 June 2010 that the Indian government planned to suspend the contractual obligations of Eni relating to its block in the Andaman and Nicobar Islands area, because it has been unable to get the permission to drill from the department of space due to the proximity of the block to the rocket stage impact zone of the Indian Space Research Organisation.
The block was awarded under India’s new exploration and licensing policy (Nelp). Nelp was approved by the government in 1997 and implemented in January 1999 to boost oil and gas 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. This also requires prior clearance from several ministries. Similarly, Eni’s Rajasthan block has run into trouble as one-third of it falls under a protected area classified as a “desert forest”.
“The company finally decided to relinquish the Rajasthan block and has applied to the petroleum ministry for the same. Slow government decision-making is one of the reasons for this change in strategy. Also, every investment must be worth it,” said the first person.
This comes at a time when the Congress party-led United Progressive Alliance has been accused of policy paralysis and taking decisions that have led to the flight of foreign investors from the country.
The Indian hydrocarbon sector is going through a crisis. India’s ninth round of auctions of hydrocarbon exploration blocks turned out to be a low-key affair, with rights to explore only 13 blocks of 33 on offer awarded in March this year. While the winners of these blocks were known in March last year, the process was stretched out for over a year due to clearance delays. While one block had failed to elicit a bid in March last year, 33 blocks received 74 bids, the bulk of which were from state-owned oil companies.