New Delhi/Mumbai: India’s latest round of auctions of oil exploration blocks received 76 bids for 36 of the 70 blocks on offer, a number the government labelled reasonable and which oil industry executives claimed was low, attributing the lack of interest to uncertainty arising from the government’s policies on pricing and taxation.
Explaining three possible reasons that could have put the latest round under a cloud, Maulik Patel, sector analyst at KR Choksey Shares and Security Pvt. Ltd, said: “Some of the companies could be in financial doldrums. Besides that, there is uncertainty sprouting from the ongoing RIL-RNRL lawsuit and the interpretation of the policies keeps changing. All this is going to make investors edgy.” Patel also added that over time the “cream of the blocks could already have been auctioned” in earlier rounds of auctions.
The government, however, seemed satisfied with the response.
“The response of the exploration and production industry has been encouraging in the context of the global financial situation and responses to similar offers in many other countries,” the petroleum ministry said in a press statement.
State-owned Oil and Natural Gas Corp. Ltd, or ONGC, as part of a consortium, bid for 25 blocks and won 17.
The latest round of auctions, the eighth, under India’s new exploration and licensing policy or Nelp happened in the backdrop of the global economic slowdown and a bitter legal battle between estranged brothers Mukesh Ambani and Anil Ambani whose companies Reliance Industries Ltd, which operates the prolific D6 block in the Krishna-Godavari basin, and Reliance Natural Resources Ltd, respectively, over the freedom to price and distribute oil and gas. Reliance Industries has cited its inability to sell gas at a price lower than that prescribed by and to buyers other than those approved by the government. Reliance Natural Resources claims it is entitled to gas supply from Reliance Industries under the terms of a family pact between the brothers. The government’s position is the same as that of Reliance Industries.
Potential bidders were also put off by the government’s decision last year to offer a tax incentive only for the production of oil and not for natural gas. The auctions were started to boost oil and gas exploration and reduce the country’s dependence on hydrocarbon imports. India imports around 70% of its energy needs.
Mint had reported on 10 August that the petroleum ministry would find it difficult to pitch the new blocks for hydrocarbon exploration to global investors even as it vigorously defended the government’s rights to regulate price, quantity and buyers of natural gas in the high-decibel lawsuit between the Ambani brothers.
“This is surely not a good response. There has been a confusion and lack of clarity over the gas pricing issue and tax concerns,” said R.S. Sharma, chairman and managing director, ONGC.
RIL, which was awarded the block in the Krishna-Godavari basin off India’s east coast in 1999 as part of the first Nelp round, did not bid for any blocks in the latest auction.
While an external spokesperson for RIL did not respond to phone calls or to a message left on his cellphone, Anil Ambani in a communication to the Prime Minister blamed the changes in the production-sharing contract (PSC) made by the petroleum ministry as the sole reason for poor response. A production sharing contract is signed between the government, which owns all natural resources, and the private explorer and producer given the rights to explore for and produce this resource, usually oil or gas, in a particular region.
However, petroleum secretary R.S. Pandey denied that there had been any change in the contract.
“Right since Nelp-I, the kind of freedom or the lack of it is the same. There is merely touching up since Nelp-7.”
Pandey added that “40% of the blocks were re-cycled”, meaning they were those that had been already auctioned to bidders who had returned them after failing to find any oil or gas.
However, V.K. Sibal, director general of hydrocarbons, admitted that the row over gas supplies had hurt Nelp-8. “(The) downturn, bad publicity and misinformation combined together affected the bids.”
A total of 76 bids were received for 36 blocks out of 70 blocks offered under Nelp-8 and 26 bids for eight blocks out of 10 offered under the fourth round of the coal bed methane (CBM-IV) policy. Single bids were received for 20 blocks under Nelp and one block under CBM. Of the 36 blocks to be awarded, eight are deep water blocks, 13 shallow water blocks and 15 on-land blocks.
Small blocks saved the day for the government with 10 so-called S-type blocks receiving 37 bids.
Thus far under Nelp, 71 oil and gas discoveries have been made in 21 exploration blocks with in-place hydrocarbon reserves of at least 600 million tonnes of crude oil equivalent. The total committed investment in the Nelp rounds for exploration so far is around $10 billion, of which $5.3 billion has already been spent.