India is currently the third largest energy consumer globally. With a rapidly rising population, the country is likely to become one of the largest contributors to energy demand growth in the world. As per BP Energy Outlook 2020, India’s oil consumption is expected to double to 10 million barrels by 2050 under the business-as-usual scenario. Further, its gas demand is projected to rise from 68 billion cubic metres (bcm) to 357 bcm under the rapid scenario.
At present, India is heavily reliant on imports for meeting its domestic energy requirements. More than 80 per cent of the country’s crude oil requirements and around 50 per cent of its natural gas needs are met through imports. This makes the economy vulnerable to the volatility of global energy markets. Therefore, ramping up domestic production has been a key priority area for the government, which has set a target of reducing import dependence by 10 per cent by 2022.
Over the past few years, the government has unveiled a plethora of reforms to accelerate exploration and production (E&P) activities in the country. The Hydrocarbon Exploration and Licensing Policy (HELP) was approved in March 2016, replacing the erstwhile New Exploration Licensing Policy. HELP represents a paradigm shift from the production sharing contract regime to revenue sharing contracts. It has also liberalised the regulatory scenario with features such as a single licence for both conventional and unconventional resources, pricing and marketing freedom, and reduced royalty rates for offshore blocks.
As part of HELP, the Open Acreage Licensing Policy (OALP) along with the National Data Repository (NDR) were launched in June 2017 in a bid to boost domestic production. The OALP allows bidders to access geoscientific data through the NDR to assess the prospects of any area and propose their own block for bidding. The Ministry of Petroleum and Natural Gas has so far completed five bidding rounds under the OALP. The development of the 105 blocks bid out under these rounds is expected to entail investments of around $2.37 billion. While on-ground activities had been progressing well in several OALP blocks, the Covid-19 pandemic has adversely impacted their development due to which the timelines for production are likely to suffer.
Progress under OALP
So far, a total of 94 exploration blocks have been successfully awarded under the first four rounds. The companies that have been awarded these blocks have either initiated exploration activities or are in the process of obtaining petroleum exploration licences. Further, the 11 blocks under the OALP Round V are currently in the process of being awarded.
The first OALP bidding round was launched by the government in January 2018. It received an overwhelming response with 110 bids for 55 blocks spread across 11 states covering an area of 59,282 square km. The blocks were awarded to six companies in October 2018. Vedanta Limited won the maximum number at 41 blocks and committed investments of $551 million for exploration activities. It was followed by Oil India Limited (OIL) which won nine blocks and the Oil and Natural Gas Corporation (ONGC) with two blocks. GAIL (India) Limited, Hindustan Oil Exploration Company Limited and Bharat PetroResources Limited won one block each. The first oil and gas output from blocks under OALP Round I is expected before 2023.
The second and third rounds of bidding were launched in January and February 2019 respectively. While, 14 blocks (covering an area of approximately 30,000 square km) were offered under OALP Round II, around 23 blocks (including five coal bed methane blocks) with an area of 32,000 square km were put up for bidding under the third round. The bidding for both the rounds closed in May 2019. After the completion of bid evaluation, revenue sharing contracts were signed with six companies in July 2019 for a total of 32 blocks covering an area of 58,998 square km. OIL emerged as the biggest winner of oil and gas blocks under the two rounds with an award of 12 blocks. It was followed by Vedanta and ONGC which received 10 and 8 blocks respectively. Reliance Industries (along with its partner BP Plc) and Indian Oil Corporation Limited signed contracts for one block each.
Further, to accelerate domestic production, especially in unexplored Category II and Category III basins, the government approved major reforms in HELP. OALP-IV, which was launched in August 2019, was the first round to be conducted under the revised HELP framework. Under the liberalised policy, there is greater focus on production maximisation with higher weightage given to work programmes as part of the evaluation criteria in Category I basins. Further, there is no revenue share for Category II and Category III basins unless there are windfall gains. Moreover, a simplified dispute resolution mechanism and a single-window system of application for online clearances are also being put in place.
The fourth round offered seven blocks spread across three sedimentary basins. They cover a total area of approximately 18,500 square km. The bidding round, which closed in October 2019, witnessed a tepid response and bids were received only from state-owned ONGC and OIL. In January 2020, all the seven blocks were awarded to ONGC.
Under the recently concluded OALP Round V, only 12 bids were received for the 11 oil and gas blocks on offer. Of these, seven bids were received from ONGC and four from OIL. Invenire Petrodyne Limted was the only private bidder to participate in the process. The fifth round, which opened in January 2020, was to initially close on March 18, 2020. However, the deadline was extended repeatedly due to the Covid-19-induced lockdown. The round eventually closed on June 30, 2020.
Further, the expression of interest (EoI) cycles for Round VI (ended March 31, 2020) and Round VII (ended July 31, 2020) were merged. The combined bidding round will be launched based on the EoIs received between December 1, 2019 and July 31, 2020.
Impact of Covid-19
The Covid-19 pandemic is likely to have a significant impact on the development of OALP blocks. In several blocks, activities pertaining to processing of geological data and seismic surveys were under way before the virus outbreak. However, almost all exploration activities came to a halt when the lockdown was imposed. Further, procedures for securing statutory permissions and clearances were impacted. The supply of specialised imported equipment has been affected and difficulties have been faced in labour mobilisation. However, with the phased unlocking of the economy, on-ground activities in various exploration blocks are resuming gradually.
The low level of crude oil prices has also led to extreme distress for upstream companies. Several players are planning on rationalising their capital expenditure plans. Besides, many operators have applied for force majeure relaxations for most of the blocks as they have been unable to proceed with their earlier plans. For instance, Cairn, a vertical of Vedanta Limited, sought an extension of the OALP exploration timeline as seismic surveys and related activities could not be carried out during the lockdown.
The way forward
While the OALP is expected to play a crucial role in accelerating activities in the E&P segment, the results are expected to be visible only in the next four-five years once domestic production from the recently awarded blocks comes online. Further, success will also depend on the timely and effective execution of the projects. The Covid-19 pandemic is also likely to impact the development of blocks and could affect the country’s self-sufficiency goals. Therefore, it is important for the government to provide relief measures for the upstream segment (by reducing royalty payments and other levies) and grant an extension in timelines for project completion. Going forward, the deployment of innovative technologies will play a key role in faster execution of exploration activities and reduction of costs.