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Rig shortage may force govt to auction fewer exploration blocks

Rig shortage may force govt to auction fewer exploration blocks
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First Published: Sat, Jul 14 2007. 12 08 AM IST
Updated: Sat, Jul 14 2007. 12 08 AM IST
New Delhi: India’s long-term objective of tapping all its oil and gas resources in the interests of energy security may suffer a hit in the short term with the government deciding to lease out fewer exploration blocks than initially planned in a coming auction. The reason: shortage of deepwater rigs, needed for offshore exploration. The seventh round of auctions under the New Exploration Licensing Policy (Nelp) is scheduled for August and according to a senior official in the petroleum and natural gas ministry, it may have half as many blocks as planned.
“Depending upon rig availability, there will be a change in the number of blocks finally offered in the next round. There is a very strong possibility that if the rigs are not available, we can’t offer the western blocks,” said the official, who did not wish to be identified.
The government had originally planned to offer around 70 blocks in the seventh round of Nelp. More than 30 of these blocks are off the west coast, in 90-100m deep water. There is limited availability of geological data on these blocks and there have been no demonstrated successes in or around them, making them high-risk.
Prayesh Jain, an analyst at stock market research firm India Infoline, said the government’s decision was the right one in a market with a shortage of rigs. “The firms that get these blocks even if they are offered won’t be able to meet their work commitments and will eventually relinquish them,” he said. Jain said these blocks could be auctioned later. “Three or four years down the line, the rig situation is expected to be better with rigs currently under construction coming to the market,” he said.
The shortage of rigs has already raised the exploration costs. A deepwater rig commands a daily rental of around $300,000 (Rs1.2 crore) while an ultra deepwater rig may command a rental of $400,000, excluding service costs. India has among the largest number of outstanding drilling commitments in the world. 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 over 8% this year. They add that exploration efforts, if successful, could decrease the outgo of foreign exchange. Currently, India imports almost 70% of its oil and gas requirement. Crude oil prices have risen about 143.3% to $73 per barrel over the past three years.
The seventh round of Nelp, scheduled for April, was delayed on account of pending clearances from the ministry of environment and forests, as well as the ministries of coal and defence, as reported by Mint on 7 May.
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First Published: Sat, Jul 14 2007. 12 08 AM IST