Falling crude prices and the global credit crunch have jeopardised India’s efforts to attract more investment in oil exploration and production (E&P), with several domestic and international companies opting to sell part of their participating interest in E&P projects.
Around half-a-dozen companies are currently in talks with exploration and production majors — mainly state-owned Oil India and Oil and Natural Gas Corporation (ONGC) — to farm out part of their stakes. Both Oil India and ONGC said they are evaluating a number of proposals.
These moves raise doubts about the success of the next round of E&P contracts under the New Exploration Licensing Policy (Nelp) VIII that is slated to begin next month and is already facing controversy over taxation issues.
Among those looking for a partial exit are Australia-based Santos, which has interests in two blocks in the Bay of Bengal under Nelp VI, and Canada-based Canoro Resources, which holds a few blocks in Assam.
Santos spokesperson Christian Bennett confirmed that the company is looking at selling part of its stake in its two Bay of Bengal blocks. An email sent to Canoro Resources’ India office went unanswered.
Meanwhile, UK-based Tullow Oil has recently wound up its operations in India. Tullow had two onshore blocks in India in the Cambay Basin off the Gujarat coast and Assam. Tullow’s website said all the three wells have been unsuccessful and the company is seeking the best options to “capture the value of this acreage,” including divestment.
Meanwhile, even state-owned gas producer and transportation company Gail Ltd is also looking at trimming its E&P expenditure and could farm out its stake in a block in Tripura that it was awarded under Nelp IV, a senior official said. Gail holds 80 per cent in the block and Jubilant Energy, based in Netherlands, owns the remaining 20 per cent stake.
“E&P companies in India have found it tough to access third party equity, a problem that continues in this bad market,” said Dilip Khanna, Partner Transaction Advisory Services, Ernst & Young. “Some players who entered Nelp VI and VII—diversifying from their core businesses— are trying to see how they can reduce their exposure to E&P. This will lead to consolidation where other consortium partners in the block or E&P players could consider picking up their stake,” he added.
“Players who diversified from their core businesses into exploration were attracted to the sector when the crude oil price was at its peak. But they are now finding it difficult to meet the exploration needs and thus looking at withdrawing or selling their stake to other players,” added a senior Oil India Official.
First-time entrants include companies ranging from power to finance like Mercator Petroleum, GVK Oil and Gas, Jindal Steel, Omkar Natural Resources, Vasundhara Natural Resources and Valdel Investment.
Under Nelp production-sharing contracts stake sale or farming out is subject to government approval. V K Sibal, Director General of Hydrocarbons, however, said, “We have not received any communication from any players in this regard. Every partner is meeting his commitment. A production-sharing contract is the best instrument to take care of such issues.”
These partial exits, however, add to the poor performance of the first seven rounds of Nelp that began in 1997. Since then, the government has awarded 206 blocks, but none of the oil majors participated. So far, 68 discoveries of oil and gas have been made in 19 blocks, establishing in-place reserves of 500 million tonnes of oil and oil-equivalent gas. The committed investment on exploration is envisaged at $8.3 billion, out of which about $4.5 billion has already been incurred on exploration and about $1.5 billion on development of discoveries.
India, which remains of the world’s fastest growing economies, still imports nearly 75 per cent of its annual oil requirement.
Companies wishing to exit, however, may find it difficult to get good valuations. According to Ernst and Young , the valuation of E&P companies in India has come off around 50 per cent, from their 52-week highs, making the major E&P players cautious and choosy. Meanwhile, Noida-based Ensearch Petroleum’s Canadian Partner has approached Oil India to sell its 75 per cent stake in its block in the central Asian country of Georgia. Ensearch Petroleum, which holds 25 per cent, confirmed the development. Essar Oil also confirmed to Business Standard that it is looking at divesting or farming out its interest in few of its blocks overseas. The company mainly has interests in Australia and Vietnam.
“Players who diversified from their core businesses into exploration were attracted to the sector when crude oil price was at its peak. But they are now finding it difficult to meet the exploration needs and thus looking at withdrawing or selling their stake to other players,” added a senior Oil India Official.
First-time entrants include companies ranging from power to finance like Mercator Petroleum, GVK Oil and Gas, Jindal Steel, Omkar Natural Resources, Vasundhara Natural Resources and Valdel Investment.
Under Nelp production-sharing contracts stake sale or farming out is subject to government approval. V K Sibal, Director General of Hydrocarbons, however, said, “We have not received any communication from any players in this regard. Every partner is meeting his commitment. A production-sharing contract is the best instrument to take care of such issues.”
These partial exits, however, add to the poor performance of the first seven rounds of Nelp that began in 1997. Since then, the government has awarded 206 blocks, but none of the oil majors participated. From these, 68 discoveries of oil and gas have been made in 19 blocks, establishing in-place reserves of 500 million tonnes of oil and oil-equivalent gas.
The committed investment on exploration is envisaged at $8.3 billion, out of which about $4.5 billion has already been incurred on exploration and about $1.5 billion on development of discoveries.
India, which remains of the world’s fastest growing economies, still imports nearly 75 per cent of its annual oil requirement.
Companies wishing to exit, however, may find it difficult to get good valuations. According to Ernst and Young , the valuation of E&P companies in India has come off around 50 per cent, from their 52-week highs, making the major E&P players cautious and choosy. The trend overseas is higher for some of the independents and somewhat less for the global majors
Meanwhile Noida-based Ensearch Petroleum’s Canadian Partner has approached Oil India to sell its 75 per cent stake in its block in the central Asian country of Georgia. Ensearch Petroleum, which holds 25 per cent, confirmed the development.
Essar Oil also confirmed to Business Standard that it is looking at divesting or farming out its interest in few of its blocks overseas. The company mainly has interests in Australia and Vietnam.
“Ever since the meltdown we have been looking at divesting stake in some of the E&P blocks. We have approached a couple of domestic E&P majors for this,” said a senior official from Essar Oil.
