Photo: ONGC via Bloomberg
Photo: ONGC via Bloomberg

Government to auction 70 discovered hydrocarbon blocks

Sixty blocks belong to ONGC and the rest to OIL; govt also debating incentive regime for hydrocarbonexploration

New Delhi: In an attempt to rekindle waning interest in India’s hydrocarbon sector, the government plans to auction around 70 blocks owned by public sector explorers such as Oil and Natural Gas Corp. Ltd (ONGC) and Oil India Ltd (OIL).

These so-called marginal fields were awarded to the state-owned firms on a nomination basis but remained undeveloped because they lie in tough terrain or had low reserves. They are currently being identified by the firms.

“The petroleum ministry has asked ONGC and OIL to draw up a list of the blocks," said a person aware of the development, requesting anonymity.

Sixty of these blocks belong to ONGC and the rest to OIL. The planned auction, reported by Mint on 14 August, comes at a time when the National Democratic Alliance (NDA) government is also working on offering exploration blocks under the tenth round of the New Exploration Licensing Policy (Nelp).

The government is also debating the incentive regime for hydrocarbon exploration, swinging between two contentious options—the existing cost-recovery model and the alternative revenue-sharing model.

Petroleum minister Dharmendra Pradhan confirmed the government plan, first proposed by the oil ministry in 2009. “We have asked Oil India and ONGC and a consultancy to evolve a transparent practice for bidding out these blocks," he said in an interview. “No one should allege tomorrow that we picked and chose (their allocation). It should be investment-friendly, have a profit-making agenda... Through transparent bid mechanism, ownership will be provided to the company providing technology. It should have an incentive to make investments."

India approved Nelp in 1997—it took effect in January 1999—to boost hydrocarbon exploration.

Under Nelp, the government allocates rights to explore hydrocarbon blocks through a bidding process and has done so in nine phases so far for 360 blocks, involving an investment of around $21.3 billion.

“Nelp-10 is for the new areas. These are for those blocks where discoveries have been made. For a company the size of ONGC, it is not viable. A small company may find it viable," Pradhan added.

While the government has revised the current price of natural gas to $5.6 per million British thermal unit (mmBtu) from $4.2 mmBtu, investor interest in the Indian hydrocarbon sector is dipping, with around 70% of basins remaining largely under-explored. The response to Nelp, too, has been tepid.

A senior ONGC executive requesting anonymity confirmed the development and said, “These are small discoveries and the process of identification of the blocks to be auctioned is on."

A senior executive at OIL who also didn’t want to be identified said, “We may be surrendering some blocks."

Queries emailed to spokespersons of ONGC and OIL on Monday remained unanswered.

The government’s plan to kick-start hydrocarbon exploration stems from broader concerns that India’s energy import bill of around $150 billion is expected to balloon to $300 billion by 2030.

State-run oil marketing firms bore an under-recovery of 1.4 trillion last fiscal as they sold fuel below cost of production. The 2014-15 budget estimated India’s subsidy bill at 2.6 trillion, or 2.03% of gross domestic product, with oil subsidies amounting to 63,500 crore. The under-recoveries for the first quarter of fiscal 2015 has been 51,110 crore.

Analysts welcomed the auction plan.

“In the mid-1990s, the government got a resounding response to its bids for development of medium- and small-sized fields—and got the investment and attention of international explorers. Now, to kick-start the investment cycle once again, the government should actively consider placing the blocks lying undeveloped for collaborative development," said Gokul Chaudhri, a partner at BMR Advisors, a consulting firm.

“You would not want just the larger companies for operating over here. You would want all kinds of players to make the industry really active enough. It has to become a much more broader industry, a much more deeper industry," said Vikash Kumar Jain, an investment analyst at investment and brokerage firm CLSA India Ltd.

“You can’t have a very selective environment for only very large companies in the deep water areas," Jain added.

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