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Oilcos’ spends on exploration down to trickle

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SummaryHas India’s dream of stepping up indigenous oil and gas production come a cropper? If the big global oil majors not participating in the New Exploration Licensing Policy wasn’t bad enough, new data from the oil ministry show an alarming fall in exploration wells being drilled.

Has India’s dream of stepping up indigenous oil and gas production come a cropper? If the big global oil majors not participating in the New Exploration Licensing Policy (NELP) wasn’t bad enough, new data from the oil ministry show an alarming fall in exploration wells being drilled. While 157 production sharing contracts were signed under different NELP rounds between 2005 and 2011, the number of exploration wells drilled has fallen from 60 in 2005 to nil in each of the four years between 2008 and 2011. As a result, exploration spending in NELP blocks has seen a drastic drop, falling from $4 billion in 2007 to a mere $4.7 million in 2011.

The reasons for the sharp fall in exploration drilling range from not getting permissions from defence and space agencies to environmental issues and the companies choosing to abandon blocks found to be less promising. In three of Cairn India's exploration blocks, the company was forced to declare force majeure when, after more than a year in one case, the company found it could not access the block as part of it fell under the navy's exercise zone and another part under the army's firing zone. In some cases, delayed permissions from the Directorate General of Hydrocarbons (DGH) is also being seen as a hurdle.

Apart from waning interest in exploration, companies have also found that several oil and gas blocks were not worth the additional investments. “After the completion of the minimum work plan, there were many blocks that were not feasible for drilling and are not considered as good blocks. Therefore, we relinquished most of these blocks,” AK Hazarika, director (onshore) of ONGC told FE.

A senior government official said that global energy majors such as BG Group, which recently exited from blocks in the Krishna-Godavari basin and in Mahanadi, have access to hydrocarbon assets across the world that have a better discovery rate. Once they exploit them, they would turn to assets in India, the official said. Besides, they also have the option to take stakes in projects such as BP's recent acquisition of a 30% stake in 23 blocks held by Reliance Industries.

“Exploration is a difficult business, especially if it is deepwater drilling. Companies have changed strategies and are prioritising certain blocks for the hydrocarbon hunt,” said BN Talukdar, Oil India's director (exploration).

Some experts attribute the decline in exploration spending to the high cost of capital and the

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