The race for acquiring hydrocarbon blocks in the latest round of the government’s New Exploration Licensing Policy, also known as Nelp-VII, has revved up with Indian Oil Corp. (IOC), India’s leading oil refiner, opening talks with four overseas hydrocarbon exploration and production companies for joint participation in deep-water offshore blocks.
IOC neither has the technology nor the expertise to bid alone for the deep-water blocks that will be offered in Nelp-VII and is hence seeking partnership with Petrobras of Brazil, Petronas of Malaysia, Total of France and Shell.
“We are in talks with them and are hopeful that something works out. We do not have the strength for deep-water exploration,” said B.M. Bansal, director for planning and business development at IOC. If the company is not able to secure a partnership for deep-water blocks by then, it will only bid for on-shore and shallow-water offshore blocks.
Getting a deep-water exploration and production (E&P) partner for the next round of Nelp is very important for IOC as a majority of the blocks to be offered by the government are expected to be in the west coast deep waters. In fact, Petrobras is the leader in deep-water exploration worldwide. The government allocates the rights to explore blocks through a bidding process. It has done this in six phases until now (Nelp-I to Nelp-VI), and will soon offer 70-80 blocks for exploration in Nelp-VII.
“IOC has a capability gap... in the deep-water blocks. Deep-water E&P work requires significant expertise and to execute these projects one needs higher level of efficiency and technology. From a risk-mitigation perspective, it makes great sense to partner with someone who has the requisite expertise,” said Arvind Mahajan, executive director at accounting firm KPMG.
IOC currently has a total of 17 blocks (both domestic and overseas) in its exploration and production portfolio, of which 8 blocks were awarded through the previous Nelp rounds. The company has not been successful in finding oil or gas in any of its blocks awarded through Nelp so far. “So far we have not been successful in finding oil or gas. We expect that to change and are hopeful of finding gas in our Mahanadi block as some gas has been identified,” Bansal added.
IOC is yet to decide on the number of blocks it wants to bid for in Nelp-VII. “It can be anything between two and 10. Nothing has been firmed up,” Bansal said. Acquiring equity stakes in hydrocarbon blocks has become a key area of focus for IOC as it wants to ensure an assured supply for its refineries and become an integrated player in the oil and gas business. “Being present in the E&P sector will help IOC to cushion against volatile crude prices,” Mahajan said.