Malaysia-based investment bank CIMB Thursday maintained its "underweight" rating on India's oil and gas sector, describing the government's New Exploration Licensing Policy (NELP), the 10th round of hydrocarbon blocks' auctions being overdue, as "the lost dream."
Last month, Petroleum Minister Dharmendra Pradhan said that only 2-3 oil fields from the nine previous rounds, where government had entered into production sharing contracts (PSC) with explorers, had reached production stage.
The government plans to replace the PSCs, where the explorer recovers all his cost before sharing profits with the government by a simpler, transparent revenue-sharing system.
The petroleum ministry is plumbing for a system that avoids hands-on bureaucratic supervision and rules out allegations of "gold plating" costs because the government would get a specified revenue irrespective of the amount of money spent on developing the field. Exploration companies, however, find the existing PSCs more lucrative.
The government last month announced the new price of $5.61 per unit for domestic natural gas.
The Mukesh-Ambani led Reliance Industries (RIL) will not immediately be able to avail the new price as it remains locked in an arbitration with the government over alleged shortfall in production from its Krishna-Godavari basin fields.
"By excluding these blocks (RIL) from premium gas pricing, the Indian government may have hampered their production potential," CIMB said, explaining the basis for its rating.
"The low formulaic gas pricing of $5.6, lack of roadmap to free pricing, and the government's failure to recognise high failure rates in E&P (exploration and production) in assessing 'reasonable profits' may fail to boost exploration," the report said.
The ninth NELP round was held in October 2010.
