<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[DATA SCARCITY: Lack of
relevant data puts off global oil
firms (Bloomberg)
India has had a chequered history of attracting world majors to explore oil and gas in the country. Six New Exploration Licensing Policies (NELPs) have gone by. The government is preparing to announce the seventh next month. The question on everybody’s mind is: Will NELP VII see a change of heart among world majors such as Exxon-Mobil, Shell and Chevron that have stayed away from bids so far?
Incidentally, this round is crucial from the bidders' point of view because it will exhaust pretty much all the blocks on the West coast. The East coast has already been awarded. That would leave a majority of on-land and a bit of shallow water exploration blocks available for bids. India has so far awarded 162 blocks totalling 2.15 million sq. km of its 3.14 million sq. km sedimentary area for exploration.
Though the Directorate General of Hydrocarbons (DGH) is confident of attracting big names in NELP VII, the industry isn't so sure. The exploration and production business is beset with a high degree of risk — risk of not finding commercially exploitable hydrocarbon reserves. “Countries such as India with a relatively poor record of hydrocarbon prospectivity and scanty geological data come low on the investment preference of the ‘biggies’,” says Deepak Mahurkar, associate director of PricewaterhouseCoopers.
By all accounts, global majors have also stayed away due to scarce geological data provided on the blocks. “True, we have limited data,” says V.K. Sibal, director general of hydrocarbons. “Geo science is an inexact science, it is evolving, but then exploration and production is a high-risk, high-return game.”
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Mahurkar, however, points out that though US companies have not bid in big numbers, Europeans have. “It’s a myth that India has not attracted big companies,” says Sibal. The number of bids from foreign players is evident from the numbers. NELP VI saw 17 countries and 36 companies participating in it, including big names such as British Gas and Cairn Energy (which has successfully found oil in Rajasthan) from the UK, Santos from Australia, Sabre Energy from Canada, Petronas from Malaysia and Total from France.
The road shows planned in Singapore on 29 March and in Perth on 30-31 March will be an indication of the change, if any. For the first time, the government is offering small blocks in this round. But companies say that the proposal to offer small blocks would certainly attract many foreign players, but not the big ones. Sources in the Ministry of Petroleum and Natural Gas say there will be more changes. They are being fine-tuned, which is one of the reasons why the launch date has been delayed from 11 April to 25 April.
Relinquishment can be mandatory as per policy or voluntary. Many a time, companies relinquish a block without having conducted proper tests and may even be willing to bid for it again in subsequent rounds.
The government has been worried about aggressive bids — which are difficult to justify with known geology of the block — by domestic companies. Sibal, however, says that domestic companies will bid aggressively. It is only natural, since oil is also a product, no one would allow a foreign player to take away part of the 3-4 per cent market share held by them, he says, adding, “The ability of foreign players to take risk is very low.” Further, oil fields have a life of 40-45 years with reserves of 20-30 per cent, but returns even after that do not dry out suddenly.
A spokesperson of a global energy major says, “An open acreage system is the only solution.” Open acreage allows companies the flexibility to select blocks of their interest from the available acreages. Further, companies can bid for the blocks round the year. The open acreage system is adopted to significantly increase the pace of oil and gas exploration activity in a country. This ensures that bidders are not tied down to a few months, like in India between March-June, when NELPs are announced.
Analysts say Indian acreages come in headlong conflict with other global opportunities (in Alaska, Venezuela and South Africa) at a specific point of time. “We do not know what India’s reserves are,” says an executive of an international oil major. The DGH says the prognosticated resources are 205 billion barrels from just 15 basins. The reserves in place since 1947 till 1 April 2007 are 66 billion barrels. So the gap of 139 billion barrels is an opportunity.
The success of NELP VII is critical for the government. The industry had loosely termed its predecessor NELP VI as the “round of re-cycled and relinquished blocks” because as many as 18 fields were not bid for in NELP V and were again being put up for bids in NELP VI (blocks previously put on offer and not bid by any company, when re-offered in subsequent rounds — with or without additional data — are termed as re-cycled blocks). However, with 52 of the 55 blocks offered in NELP VI taken up, it proved to be one of the most successful auctions ever. The three remaining blocks will be offered in NELP VII.
If NELP VI was any indication of how the bids are expected to come, just the minimum work programme investments from the 57 NELP VII blocks is expected to be above $7 billion. India has managed to establish reserves in only 15 of its 26 sedimentary basins. In order to bring new acreages under active exploration, the government would need to undertake extensive data acquisition activities in the relatively unexplored sedimentary basins of the country.
m.rajendran@abp.in
(Businessworld Issue 25-31 March)