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Next year could well turn out to be one the oil & gas sector has been awaiting for long.
A new pricing regime, one which natural gas producers have been seeking, would be in place effective April 2014. Along with this, the government will launch the tenth edition of the New Exploration and Licensing Policy (Nelp), after a hiatus of about two years. Also, to attract more investments into the sector, changes will be made in the contractual terms.
In January 2013, a report by the Rangarajan committee was made public. The committee's recommendations may see natural gas prices double from the current $4.2/million British thermal unit (mBtu) to $8.4/mBtu on April 1 2014.
The formula for gas prices wasn't the only recommendation in the report the government picked up. It is also implementing a revenue-sharing arrangement for the sector, moving away from the current profit-sharing contracts.
But industry experts are sceptical on the extent to which this will help attract more investment; they term it a retrograde step. "Bringing in a revenue-sharing arrangement is well intended. It eliminates the need for audits by the Comptroller and Auditor General and removes bottlenecks in managing the fields. But it isn't a very favourable risk matrix for a country such as India, which is yet to prove its geo-scientific potential. It may make investors run away," said Deepak Mahurkar, leader (oil & gas), PricewaterhouseCoopers, India.
Therefore, experts say Nelp may see global oil majors skipping India this year, too, given the intricacies of doing business here. To add to the sector's woes, this year saw BHP Billiton exit nine of the 10 blocks and decide not to review its plans, despite the government trying to woo it back. "When you are struggling to get investments into the country, you don't come up with retrograde steps. Any investor will want to recover costs before sharing profit. There is a lot of resistance among investors with regard to the possible policy change," said Debasish Mishra, senior director (consulting), Deloitte Touche Tohmatsu India. Even Reliance Industries Ltd, India's largest private sector refiner, has said it may not participate in exploration and production (E&P) ventures in India due to the government's flip-flops on policies relating to the sector. The company said with the government going back on its own policies and words in the last couple of year, in terms of price control and regulatory hurdles, there was a return to the "pre-1991 era".
"Unless it is demonstrated that irrespective of any government, the continuation of economic and sectoral policies will be respected, no investor will have confidence. We will have to take a call on whether to invest in future E&P bid rounds in India," said B Ganguly, president and chief operating officer (business operations, petroleum, E&P), RIL.
So far, Reliance has invested $22 billion in the Indian E&P space. However, it has been facing regulatory hurdles in the case of some of its E&P assets. This October, the company was asked to return five gas fields in the Krishna-Godavari basin off the Andhra coast. This followed the company fighting accusations of hoarding gas, after production from KG-D6 block's D1 and D3 fields saw a steady decline. Currently, the field produces about 10 million standard cubic metres of gas a day. Next year may provide clarity on these accusations.
Experts, however, are positive on Indian companies participating in the international E&P segment. "Assets of Indian companies in Mozambique and Brazil would turn out to be fruitful for India," said Mishra.
Various companies, including Coal India Ltd, Tata Mozambique, Essar Group, Videocon and Bharat Petroleum Corporation Ltd, have participating interest in the blocks in Mozambique.
Next year will also see India's foray into a new form of energy - shale gas. Though an exploration policy for this segment, approved in September, opened the space to government-owned Oil and Natural Gas Corporation and Oil India, industry experts aren't very positive. "I do not see any future for shale gas in India. There may be some token investments, but nothing that could be talked about," said Mishra.
India is the world's fourth-largest consumer of energy and could be sitting on as much as 96 trillion cubic ft of recoverable shale gas reserves.
The entire upstream oil & gas production business is set to see sweeping changes across all levels - new energy, changed contractual terms and a more certain pricing regime.
