Accelerating Activity

Significant uptick in E&P expected with new blocks on award

India, the third highest energy consumer in the world, relies on imports for meeting about 50 per cent of its natural gas requirements. However, such heavy reliance on imports renders the economy vulnerable to volatility of energy markets. To overcome this and bridge the existing demand-supply gap, the government is undertaking investments to accelerate exploration and production (E&P) activities in the country. Achieving energy security is on top of the government’s agenda and the goal of reducing import dependence by 10 per cent by 2022 has been set.

To achieve the target, several policy reforms have been introduced to provide a conducive environment to investors and oil and gas companies. Introduction of the revamped Hydrocarbons Exploration Licensing Policy (HELP) with relaxed bidding criteria, focus on works programme instead of revenue share, freedom in marketing and pricing of coal bed methane (CBM) exploration, and cap on revenue sharing for Category I basins has helped generate renewed interest in the upstream segment. Further, the Open Acreage Licensing Policy (OALP), the Discovered Small Fields [DSF] Policy, the introduction of the National Data Repository (NDR), etc., have improved the domestic production scenario by driving investments in the upstream segment.

At present, four rounds of bidding under the OALP have been completed and 94 blocks have already been awarded. A significant investment of $20 billion-$25 billion has been committed for undertaking exploration and drilling activities in these blocks in the next four to five years. Further, two rounds of bidding have been completed under the DSF Policy. Once production begins from these blocks, the country is expected to witness a slight increase in domestic gas production. However, in order to ensure a sustained growth trajectory, it is necessary to maintain a favourable policy and regulatory environment to attract greater investment in the E&P segment and ensure timely completion of pipeline connectivity projects.

Policy update

OALP: The Ministry of Petroleum and Natural Gas (MoPNG) has so far completed four rounds of bidding under the policy, which was launched in June 2017. A total of 94 blocks covering an area of 139,782 square km have been awarded for exploration. Under the policy, companies in the E&P segment can select exploration blocks on their own, without having to wait for commencement of any formal bidding process by the government. The company can then submit an application to the government for further evaluation and if the block is found suitable for award, the government may invite competitive bids for it.

In January 2018, the first round of bidding was launched and in October 2018, 55 blocks (covering an accretion of 59,282 square km) were awarded to six companies. Vedanta won the maximum number at 41 blocks, followed by Oil India Limited (OIL) which won 9 blocks. It was followed by the Oil and Natural Gas Corporation (ONGC) with two blocks and one block each was awarded to Indian Oil Corporation Limited, Reliance Industries Limited and Bharat Petroleum Corporation Limited (BPCL). Petroleum exploration activities have commenced in these blocks and operators are in final stages of obtaining petroleum exploration licences (PELs). The first production from these blocks is expected before 2023.

Simultaneously, in January and February 2019, the second and third rounds of bidding, respectively, were launched. In the second round, 14 blocks with an area of 30,000 square km were offered for exploration while 23 blocks including five CBM blocks (covering a total area of approximately 32,000 square km) were put up for bidding. Of the 14 blocks offered in the second round, 8 are on land, 5 are in shallow water, and 1 is in ultra-deep water. In the third round, of the 23 blocks, spread across 12 sedimentary basins, 19 are on land, 3 are in shallow water and 1 is in deep water.

For both the rounds, in July 2019, revenue sharing contracts were signed with six companies for a total of 32 blocks (the remaining five blocks found no bidders) covering 58,998 square km. The six companies are Vedanta Limited, OIL, ONGC, Hindustan Oil Exploration Company Limited, GAIL (India) Limited and Bharat PetroResources Limited.

To further boost production, the government, on August 27, 2019, launched the fourth round of bidding under the revised HELP framework wherein the revenue share of the government has been capped at 50 per cent for Category I basin, with no revenue share for Category II and III blocks unless there are windfall gains, among other features. In this bid round, seven blocks, with an area of approximately 18,500 square km, were offered for exploration. As of November 2019, bids from two state-owned oil producing companies – ONGC and OIL – were received and have been awarded.

Meanwhile, for the fifth round of bidding, the last date for submission of expression of interest was November 30, 2019 following which the sixth round commenced on December 1, 2019. Bids under the round can be submitted by March 31, 2020 and contracts are expected to be awarded by June 2020.

DSF Policy: Approved in September 2015, the policy aims to scale up domestic production by monetising small fields that had been locked in for years due to reasons such as isolated location, small size, prohibitive development costs, technological constraints, unfavourable fiscal regime, etc. Under the policy, a single licence for all types of hydrocarbon explorations is issued without any restriction on exploration activity throughout the contract period, besides other features.

So far, two bidding rounds have been conducted under which 53 contract areas have been awarded. In the first bidding round, launched on May 25, 2016, 46 contract areas (consisting of 67 oil and gas fields) across nine sedimentary basins were offered. Thereafter, in March 2017, a total of 30 contracts for 43 DSFs were signed with 20 companies, most of which were private players. After this, in February 2018, the government extended the DSF Policy to include unexploited areas that were earlier relinquished under the New Exploration Licensing Policy or were not part of DSF Round I. The second round of bidding was launched on August 9, 2018, as part of which 59 discoveries clubbed into 25 new contract areas were on offer. A total of 145 e-bids were received from 40 companies individually or in consortium with a number of new entrants and foreign companies from countries such as the US, the UK, Australia, Singapore and the UAE. Subsequently, through a detailed process of evaluation, 14 companies (individually or in consortium) were awarded 23 contract areas. Of these companies, eight are new entrants in the E&P segment. On March 1, 2019, the empowered committee of secretaries and group of ministers has approved the award of these contracts.

These fields are estimated to have 194.65 metric tonnes of oil and gas equivalent and since each contract area is bigger than the areas offered under Round I, the government expects to generate revenues of Rs 1 trillion over the next 20 years.

Quantum leap in resources

With the successful roll-out of the HELP/OALP regimes, together with the NDR, a massive addition to the exploration acreage has been achieved. The acreage, which stood at approximately 90,000 square km in 2017, increased to 210,000 square km after OALP III (as of July 2019) and is expected to touch 300,000 square km by the end of 2019, with Round V to be finalised in 2019. Apart from this, the capacity of hydrocarbon resources increased from 28,085 million metric tonnes of oil equivalent (mmtoe) in 1995-96 to 41,872 mmtoe in 2017, an estimated increase of 49 per cent.

Future scenario

Currently, Category I basins are the key potential areas where major exploration activity and interest of bidders has been seen. In the long term, the MoPNG anticipates that Category II basins in the Andamans, Kutch, Mahanadi, Saurashtra and Vindhyan regions will play a key role in meeting India’s gas demand as all low-hanging fruit of Category I will be utilised. The production from the Krishna-Godavari basin is also expected to pick up. In order to make exploration in Category II and III basins feasible, oil companies need to adopt technologies from the US and Japan such as hydraulic fracturing. Further, oil production is expected to see an increase with new acreage exploration, discovery of new fields and opening up of disputed blocks previously allocated to oil companies. That said, the key drivers to enable this sustainable production are an easily accessible data repository and conducive regulatory environment. Investments from deep-pocketed oil companies and foreign direct investments are also imperative for taking up capital-intensive drilling activities.

Based on a presentation by Ranajit Banerjee, Adviser, Strategic Planning and Finance, Directorate

General of Hydrocarbons, at a recent India Infrastructure conference

 

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