Oil Psus have role to play in frontier basins

Santanu Saikia

UNION Petroleum Minister Ram Naik loves to believe that private sector participation in oil exploration is a huge success. He has reasons to be optimistic. For, in the first round of the NELP (New Exploration Licensing Policy), as many as 22 blocks were awarded in a record period of seven months. This seems to be a commendable performance especially in the light of the fact that a mere 25 blocks were auctioned away in the previous 10 rounds of bidding in as many years.

But a deeper analysis shows that the government has not made much progress in opening up exploration blocks to private participation. Take, for example, the fact that in the last 11 rounds of bidding there was not a single private sector presence in the frontier exploration basins of the country. They are present only in the crowded crude-producing basins of Assam, Bombay High, Krishna-Godavari basin, Gujarat and Rajasthan.

These basins have known reserves of crude and have no real surprises in store. The private and the two public sector national oil companies (NOCs) are left to jostle for a slice of the same quantity of crude reserves.
The entire exploration exercise of the petroleum ministry comes out in poor light, especially when 19 of India’s 26 basins suspected to carry reserves have not seen much prospecting, leave alone any output. Private participation is unlikely in these frontier basins because of the anticipation that prospectivity is poor. And no amount of fiscal sops will nudge a company to risk an investment unless it is confident of prospecting oil.

International oil exploration giants usually identify a portfolio of exploration blocks spread over the world in which they intend to invest money. Most of the on-shore frontier basins will not fall under their global priority list. There is no denying the need for active exploration in the frontier basins. Real surprises may well be in store and a field of the size of Bombay High or even bigger could crop up in these basins. The country’s effort to take a quantum leap in crude production is entirely dependent upon how successfully and quickly the new basins can be tapped.

The minister might have no option but to fall back on Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) to open up the frontier blocks. OIL has already done some work in Mahanadi basin while ONGC has been working in the Ganga, West Bengal, Uttar Pradesh, Himachal Pradesh and Madhaya Pradesh basins. No private company will be willing to do this kind of work. And instead of wooing private companies through road shows around the world, it would be appropriate if Indian Oil Corporation (IOC) and Gas Authority of India Ltd. (GAIL) are roped in alongside ONGC and OIL into a wholly public sector initiative on the frontier basins.

The way to go about it can also be quite simple. The frontier basins can be split up into blocks and the NOCs can be told to select a block or two of their choice from these basins. They should be offered NELP terms and a timetable to finish their exploration schedule. And it must not matter if they take the most prospective blocks. For, the government’s intention should be to kick start exploration in the frontier areas rather than to adhere to a bidding process which may not yield results. Once a block shows prospect, private participants will come flocking in to the adjoining blocks in the next bidding round.

The NOCs are large and inefficient by global standards. But they still produce the bulk of India’s crude output. And, at the end of the day, they are the ones to push the frontiers of exploration in the country.