Tough terrain

Written by Pranav Nambiar | Updated: Jan 21 2014, 11:09am hrs
What is NELP

The New Exploration Licensing Policy (NELP) was a major initiative launched by the government in 1998 to accelerate the speed of hydrocarbon exploration and production in India by opening up the upstream sector to private participation. It attempts to create a level-playing field between national oil companies (NOCs) and private players by ending the era of nomination blocks. Since 1999, the government has held nine NELP rounds with several NOCs and private companies participating in the process.

In the first round held in January 1999, 48 blocks were on offer and for the first time production sharing contracts were signed which govern the agreement between the government and the consortium. There is no signing bonus and costs are recoverable from actual production. NELP allows up to 100% participation by foreign companies and offers incentives like tax holidays to attract bids. The bids are technically evaluated by the Directorate General of Hydrocarbons according to a previously specified bid evaluation criterion. That apart, there exists a royalty regime.

How successful has NELP been

Only three NELP blocks so far have seen any kind of commercial production so far. This is out of 254 blocks awarded to exploration companies in the nine rounds of NELP from which 128 discoveries have been made. An in-place reserve of about 745 million metric tonnes of oil equivalent has been accreted as on April 1, 2013, from these discoveries for which Declaration of Commerciality (DoC)/Field Development Plan (FDP) has been approved. Current oil and gas production from NELP blocks is about 6,938 barrels of oil per day and 14.14 million metric standard cubic metres per day, respectively, and the production is likely to increase in the future with the development of other discoveries. The first deepwater commercial oil production in the country commenced in September 2008 and the first deepwater gas production commenced in April 2009 from the block KG-DWN-98/3 (KG-D6) awarded to the consortium of RIL-NIKO under NELP-I bidding round.

What kind of investments have gone into NELP

Investments to the tune of around $21.3 billion has been committed on blocks given out under NELP, with more money expected to be infused in blocks allocated in the fifth, sixth and seventh rounds. In the ninth round held in 2011, which saw very little global interest, ONGC won 10 of the 33 blocks that received bids. In the eight round, ONGC won more than half of the blocks offered. Despite having about 3.14 million sq km of sedimentary basins recognised as possible sources of oil and gas, India has managed to conduct moderate exploration in only 22% of its sedimentary basins. The sedimentary area comprises of 26 basins, of which 1.35 million sq km area is in deepwater and 1.79 million sq km area is onland and shallow offshore.

How has the participation been in NELP rounds

The NELP bidding rounds have attracted many private and foreign companies in addition to NOCs. Before NELP, a total of 35 E&P companies (5 PSUs, 15 private sector Indian and 15 foreign companies) were working in India in nomination blocks, producing fields and pre-NELP blocks, either as operator or non-operator. After conclusion of nine NELP rounds, the number of companies has increased to 117. This includes 11 PSUs, 58 private Indian and 48 foreign companies. At present, 1.06 million sq km area is under active petroleum exploration licenses in 18 basins by national oil companies and private/joint venture companies. A total of 35,601 sq km area is under mining lease.

How many blocks will be offered in NELP 10

A total of 46 blocks (17 onland, 15 shallow water and 14 deepwater) are being offered under NELP 10 in 13 prospective sedimentary basins covering an area of 166,053 sq km. These include 17 onland, 15 shallow water and 14 deepwater blocks. The final number will be decided depending on how many inter-ministerial clearances are received but this could go up to 60. On offer are also areas that the government had reclaimed from RIL and Cairn India. The 10th round has the second highest blocks on offer.

What is different about NELP 10

The government could move from the current production sharing contract model that allows for cost recovery for operators to a revenue-sharing model based on the Rangarajan panel recommendations, although clarity is yet to emerge on the same. The Cabinet Committee on Economic Affairs is expected to meet soon to take a final decision. NELP 10 is also likely to be the last round of NELP before India moves to the Open Acreage Licensing Regime (OALP) where bids can be submitted for blocks at any time of the year. A new gas pricing under the Rangarajan formula will also become applicable that will be determined by a formula that takes a weighted average of LNG and major international hub prices. Currently, domestic gas is priced at $4.2/million metric British thermal units. Also, at present, oil and gas and unconventional hydrocarbons like coalbed methane (CBM) are under two different contract regimes. Starting NELP 10, all hydrocarbon sources including conventional oil and gas, CBM and shale will fall under a uniform licensing regime.