India is speeding up oil and gas search by offering 32 oil blocks under its first licensing auction during the government's second term in office, as it aims to cut dependence on energy imports, but tighter exploration budgets and a gloomy upstream outlook may slow the progress.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
Most analysts said the move would not only help take the country a step closer to energy security, but it would help to attract foreign and private investment because of upstream pricing reforms undertaken by New Delhi in its previous term in office.
"India can do more to ensure energy security by boosting its domestic oil and gas production. A successful auction under new rules in its latest round for oil and gas blocks would help the nation to move closer in achieving that, although it has struggled to attract foreign investors in the past," said Lim Jit Yang, advisor for oil at S&P Global Platts Analytics.
In its latest awards under the Open Acreage Licensing Policy, or OALP, New Delhi has awarded 32 oil and gas blocks.
State-run explorer Oil India won 12 blocks, followed by conglomerate Vedanta Limited winning 10 blocks. State-run Oil and Natural Gas Corporation won 8 blocks, while state-run Indian Oil Corporation won one block. Global major BP, along with its local partner Reliance Industries, also won one block in KG basin.
In January, India had offered 14 blocks under OALP Round 2 and a month later had offered another 23 blocks under OALP Round 3. The two rounds had offered 37 exploratory blocks covering an area of 61,000 sq km.
"These changes will move the needle, but are unlikely to be game changers as globally exploration budgets have shrunk and competition is fierce," said Alay Patel, principal upstream analyst for Asia-Pacific at Wood Mackenzie.
Based on data analysis, the OALP program allows the companies to carve out their own blocks after which they can send their expressions of interest.
"Oil India has ventured out of its core areas of Assam and Rajasthan. The company has picked up blocks in the onshore Mahanadi and offshore Andaman basins. ONGC has also re-entered the deepwater Mahanadi basin. Both companies are under severe pressure to increase exploration and boost output," Patel said.
"This also marks Reliance's maiden foray in the OALP regime. It has won an ultra-deepwater block located adjacent to its KG-D6 block in the Krishna-Godavari basin," he added.
The government hopes to attract more than $1 billion of investment for exploration and production in the blocks awarded to companies this week, oil minister Dharmendra Pradhan said. He assured successful bidders that the government would ensure to remove all hurdles so that the projects are not delayed.
The first round awarded 55 blocks, covering 59,282 sq km, almost a year after the formal launch in July 2017. In the first round, Vedanta had won 41 out of 55 blocks offered, while OIL and ONGC had won nine and two blocks, respectively. Three other small companies had each won one block.
"The first oil and gas from these blocks is expected before the year 2023," an official at the Directorate General of Hydrocarbons, the market regulator for the upstream sector, said.
OALP auctions have been taking place under the new Hydrocarbon Exploration and Licensing Policy, or HELP, approved by the government in early 2016.
HELP brought in an open acreage licensing policy that allowed prospective companies to offer expressions of interest in any area that is currently not under a production or exploration license.
The auctions are part of an overhauled exploration licensing policy that allows pricing and marketing freedom for operators and is a move to a revenue-sharing model, under which the government gets a share of the revenue from the moment production begins.
Before this round, the last auction for oil and gas blocks took place in 2010 under the New Exploration Licensing Policy.
"The latest auction rounds so far have been encouraging in comparison to acreages that have been offered in the past. The final success of these auction rounds would depend on the extent of recovery from the offered oil and gas blocks," Sabri Hazarika, energy analyst at Emkay Global Financial Services, said.
--Ratnajyoti Dutta, email@example.com
--Sambit Mohanty, firstname.lastname@example.org
--Edited by Norazlina Jumaat, email@example.com