Mumbai: India will switch to a round-the-year mechanism for accepting exploration bids in less than 18 months, graduating from the current regime of periodic auction of government-nominated blocks.
Calling the switch to open acreage licensing policy, or OALP, “a natural progression”, V.K. Sibal, the regulator for hydrocarbon exploration and production, or E&P, activities, said the regulatory body—the Directorate General of Hydrocarbons, or DGH—will get the information database ready by December and have the entire mechanism in place by 2010.
“By the second half of 2010, OALP should” be in force, Sibal said. Canada and the UK are among the countries that offer acreage for E&P on an open basis, he added.
Though it is too early to assess the impact of this change on government revenues, the new licensing regime will eliminate micro-management by the regulator of the block auction process under the current new exploration licensing policy, or Nelp, besides giving greater flexibility to operators.
Thinking ahead: Director general of hydrocarbons V.K. Sibal. PIB
Incidentally, India has just started its eighth Nelp round in which 70 blocks are on offer. The petroleum ministry will hold roadshows in Houston, Calgary, London, Perth and Brisbane to sell these blocks over the next six weeks. The seven rounds, starting 1998, have offered 256 blocks till now with a total committed investment of $11.9 billion (Rs57,477 crore), according to minister for petroleum and natural gas Murli Deora.
Not many sector experts are excited by this impending policy initiative and a few of them said they will wait and see if the change is effected. Though the OALP concept has been on DGH’s drawing board for years, the regulator has specified a firm deadline for the first time.
A prerequisite for the transition to OALP is a national data repository.
This will act as a public pool of crucial raw information on geological and geochemical characteristics, a key information input for those looking for potential hydrocarbon reservoirs.
The new regime means “any explorer can bid for any unallocated area at any time”, with the blocks not being predefined, according to a working paper on the issue by the Association of Oil and Gas Operators in India, or AOGO, an industry body with 22 members.
“These (blocks) are user-defined by the first party envisaging interest in the area,” the paper adds, implying any operator can scrutinize the data pool to chalk out its own block outline.
The regulator will assess the bid made by this operator, call in any competing bids and, finally, decide whether to grant it or not.
This is in sharp contrast to the current Nelp system in which the regulator draws up a a list of certain number of blocks at certain intervals, provides geological information and goes around pitching these to global E&P operators.
“OALP permits every company to study and specialize in certain geographies if they so wish, making the entire country open for E&P. Right now, companies are limited to what the DGH puts out,” said Ashu Sagar, AOGO’s secretary general.
This regime gives operators “flexibility in block location, size and project financing” by creating multiple opportunities that “can be staggered over time instead of making over-aggressive bids in Nelp rounds”, said a Mumbai-based analyst at a domestic brokerage, who did not want to be identified.
“Also, companies can extend their block boundaries if they find that the hydrocarbon channels in their designated blocks are extending to nearby underground rock layers, and the adjoining areas are open,” said Sagar, adding that this open acreage policy has been languishing for a long time and will be hard to implement unless “there is a champion in the administration for implementing this system, and a computer system for storage and retrieval of data is set up”.
Critics of Nelp say the initiative has not seen any significant participation from global E&P operators in the last two rounds, with Mukesh Ambani’s Reliance Industries Ltd and state-owned Oil and Natural Gas Corp. Ltd winning at least half of the blocks and nearly three-quarters of acreage put under the hammer.
This too could change with OALP, with smaller or newer players entering when they have the resources to do so.
But the big operators might need more incentive than that. “We don’t know what percentage of the total area with potential hydrocarbon reserves in the country has already been handed out under the Nelp rounds and, by implication, what’s left,” said a Mumbai-based analyst with a global brokerage and investment bank, who did not want to be identified.
According to Sibal, about 830,000 sq. km of potential hydrocarbon reserves are left and can be explored under OALP.