Recent Developments: New initiatives to drive exploration activity

New initiatives to drive exploration activity

The past year has been quite eventful for the oil and gas sector. With several policy moves, the government set the stage to revive activity in the space.

Indian Infrastructure briefly examines some key developments in the sector…

  • Moving towards creation of a refinery giant: Pursuing its plans to create a refining behemoth by amalgamating key state-owned refining companies, the government, in July 2017, gave its nod to offload its entire 51.11 per cent stake in Hindustan Petroleum Corporation Limited (HPCL) to the Oil and Natural Gas Corporation (ONGC). ONGC will be exempted from making an open offer to other shareholders of HPCL in the transaction, which is expected to be completed in a year’s time. Post-acquisition, the combined market value of the two entities is estimated to be about $42 billion, comparable with Russian energy company Rosneft (worth $56 billion). The proceeds from the deal will cover about 40 per cent of the government’s divestment target of Rs 725 billion for the current fiscal year (2017-18).
  •  National Data Repository (NDR) and Open Acreage Licensing Policy (OALP): As a part of the Hydrocarbon Exploration Licensing Policy, the NDR and the OALP were recently launched in June 2017. While the NDR is a database of detailed information on sedimentary basins (to be utilised in carrying out exploration and production in the future), the OALP allows companies to cherry-pick their own areas for exploration (after accessing the NDR). The repository, which has been prepared by the Directorate General of Hydrocarbons, will open up 2.8 million square km of the country’s sedimentary basins, helping accelerate exploration and production activities in the country. The OALP came into effect on July 1, 2017, on an “expression of interest” basis.
  • The bidding round under the new regime is expected to take place in a month’s time. Bid evaluation will be based on the minimum work programme and revenue sharing model. The contracts are likely to be awarded to the winning companies by April 2018 and are expected to be signed by May 2018.
  • National Seismic Programme: In October 2016, the government launched the National Seismic Programme in Odisha. The programme aims to undertake a fresh appraisal of all sedimentary basins, especially where no information or scanty data is available at present, to gain a better understanding of the country’s hydrocarbon potential. Under this programme, ONGC and Oil India Limited (OIL) have been entrusted with the task of conducting 2D seismic acquisition, processing and interpretation across the country.
  • Planned policies for enhanced oil/gas recovery: India’s ageing hydrocarbon fields are resulting in output levels that are far lower than their potential. The international benchmark of recovery of oil from a reservoir is 35 to 40 per cent and that of gas is 55 to 70 per cent. In India, the current recovery factors of ONGC and OIL for crude oil are as low as 27 per cent and 23 per cent respectively. In the case of natural gas, recovery rates for ONGC and OIL are 54 per cent and 43 per cent respectively. To improve recovery rates, the government is planning to come up with new policies on enhanced oil recovery and production enhancement contracts.
  • Other policy moves in the offing include the Shale Oil and Gas Policy for New Exploration Licensing Policy (NELP) and pre-NELP blocks, the next set of production sharing contract reforms, and a fresh bidding round under the Discovered Small Fields Policy (introduced in May 2016). The centre has also highlighted the need for the adoption of new technologies by oil and gas players that will take them ahead of the traditional growth curve. Investment requirements in the internet of things have also received attention from the government.