As India gears up to close its ninth round of bidding under the New Exploration Licensing Policy (NELP) on March 28, expectations over its outcome have reached a new high.
The Directorate General of Hydrocarbons (DGH), the upstream regulator and manager of the bidding rounds, is optimistic of receiving record bids. What builds this optimism is the recent $7.2-billion deal between London-based BP Plc and Mukesh Ambani-promoted Reliance Industries (RIL). Although there is the Cairn-Vedanta deal, it is still held up at the government's doorstep.
British oil major BP picked up a 30 per cent stake in 23 of RIL's blocks, including its flagship asset, the Krishna Godavari basin on the east coast, on February 21. It is BP's largest investment in exploration in Asia. "The response has been good. Post the deal, exploration and production companies have shown great interest. The deal could not have come at a better time," a DGH official said.
BP till last month had only one block in India, which it had picked up after participating in the bidding rounds of the seventh edition of NELP. BP bid in a consortium with RIL and was awarded a deepwater block in the KG basin, where it is the operator. Although sector analysts share the DGH official's optimism, industry players and experts are not as enthused.
"BP's commitment to India is big for sure. But this may not become a trend. International exploration majors look at huge acreages even if that means investing anywhere around $50 billion. India is not the West Asia to offer them such a potential. The BP-RIL deal is the first and only kind of investment in the space," a former DGH official who was part of the earlier NELP rounds said.
The official adds with the government proposing to withdraw the seven-year tax holiday to domestic crude oil production from NELP blocks awarded post-March 31 — a measure introduced in 1999 to attract private investment under NELP — it remains to be seen how the ninth edition of NELP will fare.
Natural gas producers are already excluded from this benefit. Withdrawal of tax benefits, however, is not the only concern industry players voice. It's the availability of blocks they say which determines participation from international players.
According to the ex-DGH official, post NELP 6, the recycling of blocks has deterred international participation. For instance, in NELP 9, a total of 34 blocks are on offer of which only 19 are new. In NELP 8, out of the 70 blocks offered, only 36 received bids and 33 areas were awarded.
"Why did BP not participate in previous rounds of NELP and win these blocks that it has got now from RIL? Having access to the most significant gas basin in India, the KG basin, will secure BP's place in the fast-growing Indian gas market. Majority of the acreages in the country are held by only two companies — the state-run Oil and Natural Gas Corporation (ONGC) and RIL. So, any company that wishes to participate in the country in a similar manner as that of BP, the only option for it would be ONGC," said an official of an international E&P company on conditions of anonymity.
India has so far awarded 238 blocks under the NELP bidding rounds. The country currently has over 5.08 billion barrels of proven oil reserves and over 1,074 billion cubic metres of natural gas reserves.
For Ian Blakeley, VP Asia, DI International, an information services company, India continues to be an emerging market with unexplored acreage where the West Coast is yet to be extensively explored – particularly the sub-basalt plays.
"Several international E&P companies, including BG, Eni, MOL, Petrobras, Santos and Statoil, subsequently began to take a closer look at India after exploration success by RIL and Cairn in recent years. And BP in particular, is expecting energy consumption in India to grow by more than 4 per cent per annum over the next two decades, with demand for gas rising more than 5 per cent," Blakeley said.
So, large farm-in deals may be the way forward for the sector but how far will the big players venture solo in India remains to be seen.
As Blakely said: "With virtually all offshore acreage in the east coast being taken up by ONGC and RIL through successive rounds of NELP, several international E&P companies have chosen to gain a foothold in the east coast through farm-in deals and asset swaps with ONGC."
