Global Insight Perspective | |
Significance | The Indian government has approved the award of 52 oil and gas exploration blocks in the Sixth Round of its New Exploration Licensing Policy (NELP-VI). The Oil and Natural Gas Corp. (ONGC) looks to have had the greatest success in this round, the largest-ever acreage release in India, amid reports that it netted roughly half the blocks on offer. |
Implications | The persistent absence of major international players remains striking, given that their technical and financial muscle is increasingly needed to optimise India's upstream potential. Major new gas discoveries have raised expectations that E&P investments in India retain a convincing upside. |
Outlook | India now plans to conduct a round of the NELP every year, and 70 blocks have been earmarked for the 2007 edition, which could open as early as next month. With some 165 bids received for the 52 awards made today, heavy subscription is again to be expected. |
And the Winners Are…
The Indian government has announced that 52 new oil and gas exploration blocks have been awarded today, with the early indication pointing to a heavy cull by domestic players. Petroleum and Natural Gas Minister Murli Deora offered very little further information of this, the largest and best-subscribed upstream acreage release in the country's history (see "Related Stories"). However, while none of the companies involved has yet commented, Reuters and Upstream Online are among the outlets that have picked up early details of the Sixth Round of India's New Exploration Licensing Policy (NELP-VI), which provide a good indication of the winners and losers today.
As has been the case in previous rounds of the NELP, India's leading NOC, the Oil and Natural Gas Corp. (ONGC), appears to have done extremely well in the tender. Reports suggest that ONCG has scooped roughly half of the blocks on offer, having netted 25 titles in total. Early indications had indeed pointed to heavy gains for ONGC, a fact that was no doubt aided by the NOC submitting the largest number of bids. While there are no firm details of the locations of the blocks in question, the mix of onshore and deepwater blocks will only serve to underscore the NOC's position at the forefront of domestic exploration efforts. Indeed, there are grounds to expect ONGC has partnered up with other NOCs such as Indian Oil Corp. in more than one of the licences that have been awarded.
Elsewhere, private Indian concerns did quite well in their own right. Reliance Industries has been linked with seven deepwater blocks, located in the Bay of Bengal. Such a result would suit the conglomerate well, given the upside its exploration and production (E&P) efforts off India's eastern coast have already yielded. Essar Oil appears to have landed two onshore blocks in the north-east.
That is the bulk of the tally by domestic operators and though it may be short on specifics, what is quite apparent is that foreign investors have little to show for the bids mounted either alone or in the number of consortia that were linked with participation in NELP-VI. Cairn Energy and Santos are the only overseas companies cited in the early tallies that have been put together. They may have been awarded two blocks each. There is no report of any IOCs having secured a leading role through the NELP-VI, despite the fact that many such as BP, Total, Eni, Petronas and the BG Group were linked to the deepwater acreage in the Bay of Bengal in particular.
What's Next?
Upwards of 36 foreign companies were linked with the 165 bids submitted under NELP-VI, with headline-grabbing gas discoveries proving to be a particular draw. The overwhelming response received by this licensing round, combined with expectations of further untapped oil and especially gas potential, have garnered some bullish expectations in India. Evidently, officials want to strike while the iron is hot and then keep on striking. It has been suggested today that India intends to conduct a new NELP round on an annual basis. No time is being wasted in giving those investors that missed out today another chance to secure a piece of India's upstream sector. The Seventh Round of the NELP (NELP-VII) could be open by next month, after the slight delay in closing NELP-VI. Reports suggested that some 70 blocks will be on offer, making NELP-VII the largest exploration acreage offering in India's history. Like NELP-VI, the new round will cover a mix of on- and offshore blocks, and like NELP-VI, the response is expected to be considerable.
Outlook and Implications
This round has followed the precedent set early on in the NELP process to favour domestic operators. It may well be that a number of different IOCs will participate alongside domestic operators in the awards that have been made. One can see later equity investments and strategic partnerships looming as well. However, as proven all too clear in the deepwater developments afoot in the Bay of Bengal, virtually all of India's leading upstream players require either the technical or financial muscle of IOCs to actually tap the commercial potential of the acreage to which they hold the rights. By waiting for these arrangements to be settled, as opposed to handing the lead to foreign players in the first instance, the Indian government may be ensuring tight domestic control over the course of development, but that is coming at a cost incurred in commercialisation lags. That scenario does not mesh with the urgency with which India's supply-side picture needs to improve. The government's apparent sensitivity to that need has been underscored by the trend towards annual NELP rounds. The country's already-heavy import dependence demands the next step towards upstream optimisation be taken and for a more cosmopolitan and aggressive development strategy to define the next NELP.
Related Stories
India: 14 November 2006: Latest Upstream Acreage Awards Expected in India by December
India: 19 September 2006: Early NELP-VI Tally Points to Domestic Windfall in India
India: 15 September 2006: NELP-VI Proves Major Upstream Temptation for India as 165 Bids Counted
India: 12 April 2006: Petroleum Minister Optimistic over Foreign Participation in India's Forthcoming Exploration Licensing Round
India: 24 February 2006: Sixth Round of India's New Exploration Licence Policy Kicks Off