The government of India will introduce in 2008, a new bidding process for oil and gas exploration which will allow interested companies to list the blocks, or areas, where they would like to prospect, after which these blocks will be auctioned.
Under the existing process, companies can only bid for blocks the government puts up for auction and have no role in the selection of the blocks.
The government expects the process to encourage greater participation, especially from international oil majors, weed out blocks with little or no hydrocarbon prospects, and reduce risks inherent in any exploratory attempt.
The new process, called open acreage licensing (OAL) has been in the making for a year, and will function along with the existing process, the new exploration licensing policy (or Nelp), according to senior officials in the government who did not wish to be identified.
They added that unlike Nelp, the new process would be operational throughout the year. The process will start in 2008 because “the integrated data repository will be ready by December 2007,” said a senior official in the ministry of petroleum and natural gas who did not wish to be identified.
The integrated data repository will contain data on India’s hydrocarbon potential across all its ‘basins’ as hydrocarbon-possessing land are called. Open acreages are simply areas that are yet to be licensed or leased for exploration by the government to explorers. India has total oil and gas reserves of 28-32 billion tonnes across 3.14 million sq. km and 26 basins. Of this, only 1.09 million sq. km have been carved up into blocks that have been licensed out for exploration.
With the data in hand, the government hopes, companies will have the flexibility to choose where they wish to explore. Based on their interpretation of data, companies will ask the government to carve up exploratory blocks. The government will do this, but then invite global bids for the block. The government expects this process to increase the bid-value of the blocks. The official at the ministry did not reveal the date when the OAL process will kick off or the number of blocks the government hopes to license out through this.
“Greater amount of data will reduce the risk associated in the E&P work and also help in terms of pricing of the blocks. Lack of adequate information has led to limited foreign participation,” said Arvind Mahajan, an executive director at accounting firm KPMG. “OAL will make the exploration process in India hassle-free,” added Vikram Singh Mehta, chairman, Shell Group of Companies in India.
The lack of data has been one reason for limited interest in blocks being auctioned under Nelp. The new process addresses this by ensuring the availability of more data, making the market (or interested companies) carve out the blocks themselves, and allowing the market (or companies) set a price for the blocks through competitive bidding.
Data presented in the integrated data repository will need to be studied and processed further before companies decide where they want blocks carved up, but Mahajan said that this should not be a problem because most companies “are in a position to do better modelling on the data provided” than the government itself. “This approach will help them in providing better flexibility in identification of the blocks,” he added.