No fresh NELP round till change in contract terms

Written by Siddhartha P Saikia | New Delhi | Updated: Jun 16 2014, 06:46am hrs
NLEPThe minister, sources said, ordered a listing of the roadblocks for each of the 166 active production sharing contracts (PSCs) signed under various NELP rounds.
Given that the previous nine rounds of the NELP auction over the last 15 years fared far from creditably in raising Indias hydrocarbon output, the next round would rather wait until the problems that plagued the earlier editions are fixed.

According to sources, petroleum minister Dharmendra Pradhan has decided not to go ahead with the planned 10th edition of the auction under the new exploration and licensing policy (NELP) till a review of the policy in the light of past experiences is completed. The minister, sources said, ordered a listing of the roadblocks for each of the 166 active production sharing contracts (PSCs) signed under various NELP rounds.

Pertinently, of all these contracts, only one KG-D6 operated by Reliance Industries (RIL) and its foreign partners BP and Niko Resources is producing oil and gas now. It is another matter that the output at the KG-D6 block that went into production in September 2008, has, after reaching a peak of 68 mmscmd in March 2010, fallen steeply to around 12 mmscmd now. The government and the operators are engaged in arbitration over alleged under-production by the latter.


What is the use of auctioning new blocks when the 166 blocks (for which PSCs are in place) are not able to produce oil or gas In two months, the ministry would complete a review and fix the roadblocks. Boosting domestic output is the priority before the ministry now, a top oil ministry official told FE. The government needs to decide on a fiscal regime cost recovery or revenue sharing before signing any new contracts, the official added.

Under the NELP regime, 360 exploration blocks have been offered so far and 254 blocks have been awarded. At present, 166 of the awarded blocks are active, while 88 have been relinquished. So far, 128 hydrocarbon discoveries have been made in 42 NELP blocks. Out of these, 82 are gas discoveries and 46 are oil discoveries.

India has to compete with other jurisdictions like East Africa, West Africa, Mexico etc to attract foreign explorers into the exploration and production sector. The plan of the new government needs to be put into place and communicated effectively to the international oil companies, said Dilip Khanna, partner (oil and gas practice) at EY.

Indias domestic crude oil output dropped to 37.76 million tonnes (mt) in FY14 from 38.09 mt in FY12; while natural gas output went down to 35.4 billion cubic metres (bcm) in FY14 from 47.56 bcm in FY12. The output KGD6 is hovering at around 12-13 mmscmd, with marginal crude oil output. Currently, fields offered on nomination basis several decades back and prior to NELP regime are only under production.

The government has found itself mired in its own bureaucratic hurdles and red tape as companies are not able to carry out exploration in blocks awarded to them. There have been cases where explorers bagged acreages under NELP but later found clearances from the defence ministry and the department of space (DoS) had to be obtained for commencing exploration. In case of a few other blocks, the price of hydrocarbon is not renumerative to commercially exploit them, while many others have faced rigidity of the production sharing contracts.

The disputes over PSCs between the government and the companies have also come in the way of exploration and production. The petroleum ministry now feels that these contracts should have been revised based on experience derived from efforts to operationalise them.

The ministry ended up in arbitration in 26 cases with private companies. Of this, 20 are still unresolved. There are many more cases where there are disagreements between regulator, the ministry and the explorers.

Four global companies BHP Billiton, Santos, ENI and BP, deicided to give back their blocks covering nearly 56,584 sq km area spread across 13 blocks after being denied access to the exploration areas by government agencies.

In the case of state-run ONGC, the current domestic natural gas price is not renumerative enough for the PSU firm to exploit the blosks awarded to it. For example, the company has found gas in the block MN-OSN-2002/2 in the Mahanadi Basin. Since the volume of recoverable gas is less (below 1 trillion cubic feet), the project is viable only at $10.72-$12.63/mBtu, while the domestic prices are fixed at $4.2/mBtu. Even after implementation of the Rangarajan formula-based pricing regime, which was to be effective from April 1 but was put on the backburner, the prices would be around $8/mBtu only at current level of reference prices.

In the case of the Gujarat State Petroleum Corporation s Deen Dayal west fields in the prolific KG basin, the firm is waiting for government for clarity on pricing. It expects to start production in FY15.

According to news reports, the firm has sought a minimum sale price of $ 8.5/mBtu , at a crude oil floor price of $65/barrel.

Auctioning of acreages under the NELP was unveiled in February 1999.