Mumbai: International oil companies may respond coolly to the ninth auction of oil and gas blocks under the so-called New Exploration and Licensing Policy (Nelp) although domestic heavyweights such as Reliance Industries Ltd (RIL) and Oil and Natural Gas Corp. Ltd (ONGC) are expected to compete alongside smaller entities.
India is offering 34 blocks from 10 sedimentary basins in the auction. These include eight deepwater blocks, seven shallow water blocks, and 19 inland blocks. The total acreage of these 34 blocks is to the tune of 88,807 sq. m.
International oil firms such as Exxon Mobil Corp. of the US or Total SA of France may not be drawn to the auction because the blocks offered are small in size and most of them have been discarded by previous bidders, according to participants at a road show for potential bidders in Mumbai on Monday.
Out of 34 blocks, 19 are new and 15 that had no takers in the eighth round of Nelp are being recycled in the ninth auction.
New round: (from left) Minister of state for petroleum and natural gas Jitin Prasada, oil secretary S. Sundareshan and petroleum minister Murli Deora at a road show in Mumbai for the ninth Nelp auction.
“Nelp 9 will not attract international players as most of the blocks are small in size,” said Rajeev Kashikar, managing director and chief executive officer of König and Cie Asia Advisors Pvt. Ltd, the Indian arm of a German investment bank. “Reliance Industries would bid as it will be a backward integration for them.”
In order to reduce India’s dependence on hydrocarbon imports, the government started Nelp auctions in January 1999, allocating rights to explore blocks of oil and gas through auction. In 2009, India was the fourth largest oil consumer in the world after the US, China and Japan.
On 15 October, the ministry of petroleum and natural gas launched the ninth round of Nelp in Delhi. The last date for bidding under this round is 18 March 2011.
Cairn Energy Plc, BG Group Plc and BHP Billiton Plc are some of the foreign entities that bid in Nelp 8.
“I would think domestic majors stand to get a better chance in Nelp 9. Most of the global oil majors would have limited interest considering the size of the blocks offered under the new programme,” said Probir Rao, managing director and head of India investment banking and capital markets at Jefferies India Pvt. Ltd.
Sashi K. Mukundan, country head (India) at BP, said the company will evaluate the blocks on offer in Nelp 9. The company will be “will be interested in deepwater blocks”, he said.
Another executive at a leading Indian private sector oil company said the firm will be cautious about bidding because Nelp 9 has not offered many key blocks.
Minister of petroleum and natural gas Murli Deora was confident of a good response to the auction.
“We got a commitment of $1.1 billion (Rs4,873 crore) for Nelp 8 last year,” he said, noting that auction had coincided with an economic slowdown. “I am confident that we will get a commitment of more than $2 billion from the Mumbai road show.”
Nelp 8 received 76 bids for 36 of the 70 blocks on offer. Since India started Nelp auctions, 87 oil and gas discoveries have been made in 26 exploration blocks, Deora said. The government received $14 billion of bids in the previous eight rounds of auctions.
Greater clarity on tax issues and a longer duration for exploration being offered to bidders are likely to attract more domestic firms this time around.
New and smaller players will be drawn to shallow water blocks being offered off Gujarat, Maharashtra and Kerala that do not require as much technological expertise as the rest, said Madhabi Puri Buch, managing director and chief executive officer of ICICI Securities Ltd.
Dilip Khanna, partner (oil and gas practice) at audit and consulting firm Ernst and Young, also said the blocks on offer should elicit interest from established Indian oil companies as well as new entrepreneurs looking to enter the upstream business.
For instance, Hyderabad-based AMR Constructions Ltd, which is into mining, irrigation and construction, plans to enter the exploration business by bidding for shallow water blocks, said A.M. Reddy, chairman and managing director.
Analysts expect all leading public sector firm including ONGC, Indian Oil Corp. Ltd and Bharat PetroResources Ltd to bid in Nelp 9.
RIL chairman Mukesh Ambani made a surprise appearance at the road show. “At Reliance, we will continue to evaluate all opportunities,” he said. “We are enthusiastic about all our existing acreage. We look forward to adding to India’s energy security.”
Even as the government is promoting Nelp 9, it is planning a similar auction programme for shale gas. S. Sundareshan, secretary (petroleum and natural gas), said India will auction shale blocks by the end of 2011.
Minister Deora said India is likely to sign an agreement with the US for training and exchanging technological expertise to produce shale gas during US President Barack Obama’s upcoming visit to India. Shale gas is a natural gas produced from shale, which is fine-grained sedimentary rock.
Bloomberg contributed to this story.