When Cairn India starts pumping crude oil from the parched land of Rajasthan tomorrow, not only will history be created in the desert state but another evidence of the government’s privatisation efforts paying off in the oil and gas sector will be unveiled.
From 2008, several fields that were given to companies outside the nomination regime have come into production. The most talked of these has been Reliance Industries Ltd’s (RIL’s) D-6 in the Krishna Godavari basin and, now, Cairn India’s Mangala field in the Barmer basin.
Mangala is the biggest crude oil discovery after Bombay High which has been brought into production. It is also the first onshore discovery of such a size in the past 22 years.
While the Barmer block was given to Cairn prior to the New Exploration and Licensing Policy (Nelp), with government-owned Oil and Natural Gas Corporation as its 30 per cent partner, the Krishna Godavari block was allotted to RIL in the first round of bidding under Nelp.
Some of the other blocks given out under pre-Nelp and Nelp regimes and gone into production in the last two years include two in the Cambay basin operated by Gujarat State Petroleum Corporation and another in the same basin operated by Niko Resources.
Privatisation of oil exploration and production started in the 1990s. That these privatised fields have gone onstream augurs well for the investment climate in the country, especially since it comes when the country is trying to attract investment under the eighth Nelp round.
“It is good news for India. It indicates India’s shift towards a more attractive and stable regulatory framework, making it easier for investors to increase exploration,” said Christof Ruhl, group chief economist and vice-president, BP Plc.
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Director General of Hydrocarbons V K Sibal, who has been touring the world for Nelp roadshows, terms these finds the “biggest public relations” initiative for India.
“The government liberalisation under pre-Nelp and Nelp has finally paid dividend,” said Sibal.
Barmer’s fields could boost the country’s oil output by about 20 per cent from the current 680,000 barrels a day (bpd), with the Rajasthan basin estimated to have 1 billion barrels of oil reserves. Initially, Mangala will produce about 30,000 bpd of crude from two wells, but it will be gradually ramped up to 125,000 bpd.
RIL’s D-6 started producing crude oil last year and is now pumping around 11,000 bpd, in addition to about 28-30 million metric standard cubic metres a day (mmscmd) of natural gas that started flowing out in April this year. What lies at the root of these discoveries is the intensive exploration activity.
“We have seen, time and again, how crucial it is to provide a framework which utilises and unleashes the forces of competition, for any given country to benefit from exploration. Companies which compete against each other are more likely to generate success in exploration. A stable and reliable investment environment where many companies are free to bid is therefore most likely to succeed,” said Ruhl.
Former director general hydrocarbons Avinash Chandra, who oversaw the framing of Nelp and the launch of its first four rounds, recollected how he pressurised Shell, that had rights to the Barmer block prior to Cairn, to perform or exit.
“Within a year of Cairn taking over, there was a discovery,” he said. The Cambay basin, north of which lies the Barmer basin and Bombay High to the south, is the country’s biggest producing area.
“While the east coast has the biggest gas reservoir, bigger than even the North Sea, the western side is rich in crude oil,” he added.
On how the perception of India’s hydrocarbon potential changes with these developments, Ruhl said: “Time will show about prospectivity. But I do think it is an important milestone — not so much because it will affect expectations about prospectivity, but because it affects expectations about investment possibilities in the subcontinent.” According to him, the general perception about India was still that it is difficult to invest here, and that the barriers to investment are high.
“This limits the options of generating better prospects for prospectivity, so to speak, and it limits the options for energy policy,” he added.
Ruhl cites the examples of Mexico and Brazil. About 25 years ago, they were both similar, with limited investment opportunities for outsiders. Then Brazil opened its country to international competition.
Now Brazil has a national oil company which, although still majority state-owned, is among the very best in the industry in terms of technology and in finding new resources in deep water. Mexico has nothing of the kind, and has not even put its toes in the Gulf of Mexico.
“Clearly, prospectivity in this example depends on natural endowments — it always does — but also on generating the right capabilities. And the way to do this is through competition,” said Ruhl.