Reliance Industries Ltd (RIL), the company that has made the most oil and gas discoveries in areas auctioned since 1999, today said the next auction, scheduled in the coming few weeks, is unlikely to attract much interest from global players.
The 8th bid round under New Exploration Licensing Policy (Nelp) is being held under the shadow of a global credit crunch and low oil prices as well as crisis of confidence in the policy regime offered by India.
“Previous Nelp rounds saw people bidding like crazy. They treated exploration acreage like real estate,” RIL President (International Business) Atul Chandra said at a conference organised by Infraline.
The previous seven rounds were dominated by state-owned explorers Oil & Natural Gas Corp (ONGC) and Oil India Ltd.
These firms made enormous investment and exploration commitments to win the blocks. “Today they are finding it difficult to meet the commitments made,” he said pointing out that low oil prices are not commensurate with the steep rise in oilfield service rates.
“The next Nelp round is not going to be very attractive because of low prices,” he said.
Earlier Petroleum Secretary R S Pandey had said how many blocks will be offered under Nelp-VIII had not been finalised. “The exercise is still on. We are in the progress of identifying blocks and securing clearances for them,” he said.
“We want to test the waters particularly in view of the global financial meltdown,” he added.
Also there are fiscal issues impacting the Nelp round. The finance ministry has withdrawn tax breaks for gas production and it is only available for crude oil discovered.
This, despite the fact that more gas, like the giant KG-D6 field of Reliance Industries, has been discovered in Nelp blocks and gas is a cleaner fuel and, unlike crude oil, has negligible carbon footprint.
Also MAT and service tax have been imposed on exploration and production. Simultaneously, the government has taken away the promised marketing freedom for natural gas as was evident in case of Reliance’s KG-D6 field.
The government not only took upon itself the right to fix price or gas but is now even dictating which customers Reliance has to sell the gas to.
The fiscal issues are likely to play havoc on the next round of Nelp, said Gokul Chaudhri, Partner, BMR Advisors. Participation in the previous Nelp round was impacted because of tax issues and the next round “will be a disaster”, he added.
