India has an estimated 3.14 Mn sq. Km of sedimentary area, comprising of 26 basins. The E&P operations are spread over 19 of these 26 sedimentary basins, bringing nearly 2.15 Mn sq. km of the total area within the boundaries of exploration activity. However, there is still an overwhelming 130 Bn. Barrels of Oil & Oil Equivalent Gas (out of the total 200 Bn Barrels) tagged under the “Yet-to-find” category, with only 70 Bn. Barrels having so far been converted to “In Place Volumes”. The primary reason is that, only 22% of the total sedimentary area is “Moderately to Well Explored”, leaving nearly 78% of the area pending to be explored. Broadly putting this in business terms, the Indian “yet-to-find” Oil & Oil Equivalent Gas (OEG) market is nearly USD 14,000 Billion scale (@ 110 USD/bbl) and is waiting to be tapped.
Prior to the NELP, which was initiated during 1999, the country’s E&P industry was restricted to PSU’s, namely- ONGC (1956) and OIL (1959). However, the NELP (under the DGH) has till-date witnessed nine rounds of E&P bidding where 254 blocks have been awarded, covering an area of 1.5 Mn. Sq. Km (~ 48% of the total sedimentary area). The challenge, among others, faced by the Indian E&P sector is the limited response from private and international E&P companies (may be read as, companies that are technically advanced and highly skilled in carrying out operations in deep and ultra-deep offshore regions), something that the government has been desperately trying to change till present day (referring to Indian PM Mr. Manmohan Singh recent call out, at the 2014 Petrotech Conference, to foreign and Indian companies to drill in India as crisis for energy is looming large on Indian skies).
Till date, the NELP has been operating under the framework of Production Sharing Contract (PSC) mechanism, which allows for a cost-recovery by the contractor (engaged in E&P) first before paying the government its share. However, the highly publicized and extensively dragged turmoil in the domestic gas supply scenario due to the under-production from KG-D6 asset (under RIL’s control) has been so alarming and drastic that the government has decided to come-out with a new and apparently fool-proof mechanism of engaging a contractor for performing E&P in India.
Based on the recommendations of the Rangarajan Committee Report (on PSC mechanism in Petroleum Industry), the government has decided to do-away with the prevailing PSC provisions and shift to a Revenue Sharing Model that would require E&P companies to share a biddable quantum of Oil & Gas production with the government from the very first day of production, with the upcoming NELP-X auction. The new mechanism has, however, raised more questions than answers. The industry, by large, is of the view that although non-controversial the move makes contract unattractive to the companies investing heavily in carrying out exploration in deep and ultra-deep offshore blocks. In such an event the various sops, such as: extended tax holiday and longer contract tenure, being contemplated by the government in order to attract investors and set the trend for future, could look diminutive to the companies opposing the move.
At InfraInsights, we believe that the apparent opportunities (read NELP-X) need to be taken with a grain of salt, when the sector as a whole is currently faced with a number issues and challenges.
InfraInsights upcoming report on NELP-X is thoughtfully designed to give a panoramic view of the Indian Oil & Gas sector and help investors take decision on Go or No-Go for the upcoming NELP bidding.
- Executive Summary
- Outlook on India’s energy balance and primary energy supply source mix
- Outlook on India’s Crude Oil and Natural Gas demand
- Outlook on India’s Crude Oil import and import mix historic trend
- Price curves of Crude Oil and Natural Gas in India
- Understanding of the requirement of Crude Oil based on the current and evolving refining capacity in the country
- Outlook on India’s long-term planning for Crude Oil tie-up
- Indian E&P sector: Historic outlook on policy framework, NELP bidding, type of blocks, companies who had participated, success rate, discovery, production curves, etc
- Broad outlook of state-wise and basin-wise Oil & Gas fields in India
- Broad outlook of unconventional gas in India
- Broad analysis of the success/failure of NELP, in terms of attracting private (domestic and international) players interest and outlook towards Indian E&P business
- Case Study: Select major E&P companies in India, discussing: entry into the Indian E&P sector, growth & evolution, allotted blocks, status of discovery, financial health, etc
- Critical analysis of PSC vs Revenue Sharing Mechanism highlighting key advantages and shortfalls
- Critical analysis of blocks on offer in NELP-X
- Geographical mapping and high-level analysis of NELP-X blocks vis-à-vis existing blocks (offered in NELP and Pre-NELP stage), in order to understand:
- Level of E&P activity in the nearby blocks/regions
- Understanding the E&P companies already present in the region
- Understanding of type of discovery and success rate in the nearby region
- Proven reserve size and production profile (if available) in the nearby region
- The above analysis will support in gauging (at a further level, though still at a very preliminary stage) the likely profile of the blocks on offer in NELP-X, in order to give some idea to the interested bidders, in addition to the technical information already made available by the DGH
- Critical analysis of consumer market of Oil & Gas in India, including their price elasticity
- Infrainsights view-point
- Conclusion
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