The Union government has put up 57 blocks for bids from firms seeking to prospect for oil and gas at an initial estimated investment of $3.5 billion (Rs13,790 crore) and for the first time has actually included a batch of nine small blocks to encourage participation by smaller Indian firms.
The initial estimated investment is based on the government’s estimate of how much these firms will have to invest in these blocks. The actual amount these companies invest could be higher. The bids will be decided on the basis of several parameters, including the amount the firms commit to invest, and the specifics of the production-sharing agreement they are willing to enter into with the government.
The seventh round of new exploration licensing policy (Nelp-7), which covers an area of 171,000 sq. km, takes cognizance of the global shortage of deep water rigs and reduced the number and proportion of offshore blocks on offer.
(left) M.S. Srinivasan, secretary, petroleum and natural gas ministry with petroleum minister Murli Deora at the launch of the seventh round of global bidding for exploration blocks under Nelp
However, it has effected a change in the criteria on the basis of which the government will award the 57 blocks. Of this, 19 are deep water blocks, nine are shallow water blocks and 29 are “on-land” blocks. Of these, 39 blocks are among those that could not find takers in the earlier rounds, or are those that have been relinquished by earlier contractors. And nine among these are small blocks.
“Smaller companies have been representing to us as they feel that they get marginalized by big corporations and it is for them that these (nine) blocks have been carved out. These small blocks will have carved out areas of 100-200 sq. km. Though small in nature they will be prospective enough,” said M.S. Srinivasan, secretary, petroleum and natural gas ministry.
The offshore blocks are located in Gujarat-Saurashtra, Mumbai, Kerala-Konkan, Andaman-Nicobar, Krishna-Godavari; the onshore blocks are in the Ganga valley, Rajasthan, Cambay, Bengal, Purnia, Assam-Arakan, Cauvery, Satpura-Rewa and Vindhya basins. Analysts say that since a large number are on-land blocks they will provide opportunities for onshore service providers in the country.
“We have made all the attractive changes. While for the on-land blocks, we have relaxed criteria to make almost anyone eligible, for deep sea, we want domestic companies to tie up with experienced foreign players,” said Union petroleum minister Murli Deora.
“...technical capability criteria has been waived in the case of smaller blocks. Indian companies partnering in a consortium with foreign players will be given additional marks in order to help them strengthen their technological expertise,” Srinivasan said.
Nelp was approved by the government in 1997 and launched in January 1999 to boost oil and gas exploration in the country. Under this, the government?allocates?the?rights to explore blocks through a bidding process and has done this in six phases, so far.
Analysts say energy security is a key to India’s ability to sustain growth in an economy that expanded by 9.4% last year and could grow by more than 8% this year. They added that exploration efforts, if successful, could decrease the outgo of foreign exchange.
Previous rounds have seen participation from private oil and gas exploration and production firms as Nelp provides a level playing field to them by providing fiscal and contract terms similar to those accorded?to?state-owned?oil firms.?The 162 blocks awarded through the earlier rounds have seen an investment commitment for exploration and production totalling $8 billion, of which $5 billion has been already spent.
The Centre plans to complete the bid process within the next six months and is hopeful of attracting bids from firms such as British Petroleum (BP), Chevron Corp. and Exxon Mobil Corp., which have so far chosen not to participate in Nelp. “I am hopeful that they would not make that mistake again,” Deora said.
The Centre had earlier plans to offer around 80 blocks of over around 300,000 sq. km in Nelp-7. “A shortage of rigs is one of the reason for the reduction of blocks,” Srinivasan said.
Mint had earlier reported on 14 July that the government could decide to lease out fewer exploration blocks than initially planned due to shortage of deep water rigs needed for offshore exploration. India has among the largest number of outstanding drilling commitments in the world. Demand for rigs globally has already raised exploration costs. The rentals for a deep water rigs, say industry analysts, have risen 60-70% over a period of three years to around $300,000, while the rental for an ultra deep water rig, excluding service costs, is $400,000.
Prayesh Jain, an analyst at stock market research firm India Infoline, said: “The government’s decision to offer more than 50% on-land blocks is due to the limited offshore rig availability. Three or four years down the line, the rig situation is expected to be better with rigs currently under construction coming to the market.”