The preference for offshore exploration is growing among Indian oil and gas companies. This is especially true with large companies such as Reliance Industries Limited (RIL) and Oil & Natural Gas Corporation (ONGC). RIL, for instance, bid for mostly deep-water blocks in the sixth round of the National Exploration & Licensing Policy (NELP). They were awarded seven deep-water blocks. ONGC, however, bagged 12 deep-water blocks in that round. Given their preference, experts say the trend is not likely to change in the current round (seventh) of NELP. The Directorate General of Hydrocarbons (DGH) has called for bids and the last date for submission is April 25, 2008. On offer are 57 blocks under NELP-VII, of which 29 are onland, 9 are shallow offshore and 19 are offshore deep-water blocks.

Last year, too, onshore blocks were more than offshore deep-water blocks, though the margin between the two was less. Out of 55 blocks on offer then, 25 were onland, 6 were shallow offshore and 24 were offshore deep-water blocks. But the response was good with some $5 billion investment commitment made for some 52 blocks that were bid for by national and international companies during the sixth round. Offshore deep-water blocks, in particular, got some 52 bids out of the total 165 bids then.

What is driving companies offshore is the strike rate achieved there, over the last few years. Reliance Industries? 10-trillion-cubic-feet-gas discovery in the Krishna-Godavari (KG) basin off the east coast of India in 2002, which is one of the world?s largest gas finds, buoyed companies such as the state-owned ONGC to take up offshore exploration seriously in 2003. Since then a number of hydrocarbon discoveries, especially gas discoveries, have been made in the Krishna-Godavari, Cauvery and Mahanadi basins by both Reliance and ONGC even as significant onland discoveries such as the country?s largest oil find in Rajasthan was made by Cairn Energy in 2003. This then makes it exciting for players to want more offshore than onshore blocks.

Rohit Nagraj, an oil and gas analyst at Mumbai-based brokerage firm Angel Broking explains, ?Onshore oil blocks have been fairly explored and developed. If there is one area, which is relatively less developed, it is offshore.? This point is reiterated by SP Singh, general manager, exploration and production, Hindustan Petroleum Corporation Ltd (HPCL). He also holds additional charge of the latter?s oil and gas upstream subsidiary

Prize Petroleum as its chief executive officer. He says, ?The shift from onshore to offshore is definitely happening.?

It is expensive to take up offshore exploration, but that is not deterring players such as RIL and ONGC. Even companies such as HPCL, BPCL (Bharat Petroleum Corporation Ltd), GAIL (Gas Authority of India Ltd), GSPC (Gujarat State Petroleum Corporation) and OIL (Oil India Ltd) tied up with ONGC to bid for deep-water blocks in the last round of NELP.

HPCL, BPCL and OIL, in particular, have been partners with ONGC in earlier NELP rounds.

The expenditure can be gauged from the following data. The cost of digging an onshore well about 1,500 metres deep is about Rs 4-5 crore. If the well is a bit deeper at about 3,000-4,000 metres, the cost goes up to about Rs 30 crore. At 4,500 metres, it is about Rs 40-50 crore. In shallow waters, the cost of digging a well is over Rs 50 crore. In deeper waters, the figure goes up to at least Rs 200 crore. Naturally players lacking access to capital and technical collaborations cannot get into offshore exploration. As R S Sharma, chairman and managing director, ONGC, explains, ?Offshore exploration is not something that small companies can undertake. The risks are more, but the rewards are also much more.?

As easy oil becomes difficult to find, experts contend that good reserves can only be found if companies push themselves into difficult terrain. According to DGH, 46% of area on land has already been covered under NELP. Deep-water area covered under NELP, however, is merely 40%. This means that a sizeable chunk of India?s deep waters are still untapped. That is 50%, says DGH.

Exploration of this region then becomes critical, as India?s energy needs surge by the day. India produces 33 million metric tonne (MMT) of crude oil per annum. It?s merely a third of its consumption, which is 120 MMT per annum. The story on gas production is no different. India produces merely 90 million standard cubic metres per day (MMSCMD) of gas, which is a fraction of its consumption at over 230 MMSCMD.

Increasing the quantum of domestic production is important if India has to reduce its dependence on imports. India is the ninth-largest importer of crude oil in the world.

With crude prices hovering over $112 per barrel, importing oil and gas inflates the import bill of the country. Money spent on importing oil and gas, say experts, can be reduced if India?s hydrocarbon reserves are harnessed effectively.

That?s where the country?s deep waters become relevant, which, along with its shallow waters, comprise 56% of the total sedimentary basinal area available. The rest constitutes the onshore portion of the sedimentary basinal area available in India. Besides its bright prospects, there are certain other attributes attached to the country?s deep waters. ?Competition is less in deep waters,? says D J Pandian, managing director, GSPC, which is looking to explore the deep-water eastern region of its Deendayal (KG-OSN-2001/3) block in the Krishna- Godavari basin.

This is the same block where the company first claimed to have made a huge shallow-water gas discovery in 2005. Offshore blocks, say experts, tend to be large in size, increasing the possibility of finding hydrocarbon reserves. Onshore blocks, in contrast, could be limited by their size, making it difficult for extensive exploration work to be carried out. There are environmental and logistical issues with onshore blocks, which is less with offshore blocks. ?If an onshore block passes through a city, it could create problems. Even if it is near a city, it could create problems,? says Pandian.

Interestingly, the shift from onshore to offshore exploration globally has meant that it is not difficult for oil and gas companies in India to seek willing partners for their projects. Says Sharma of ONGC, ?No company in India has the capability to undertake deep-water exploration on its own. We need partners.?

ONGC?s partners for deep-water exploration, for instance, have included BG, Cairn Energy, Petrobras and ENI. Reliance, on the other hand, tied up with Niko Resources when exploring and developing the D-6 block in the Krishna-Godavari basin. Niko, incidentally, has been a partner with Reliance in other blocks too. So has been UK-based Hardy Exploration. It is unclear who the companies will align with for blocks offered under the current round of NELP.

Norms have been tightened in this round making it mandatory for domestic players interested in deep-water exploration to tie up with international companies that have the required experience and expertise in that area. ?Companies that get into joint ventures with experienced foreign firms will be preferred over those that do not have such tie-ups. Ten marks are assigned for this purpose. So, it becomes crucial,? says V K Sibal, director- general, DGH.

The apex body is expecting to repeat its previous performance this year following the response it claims to have got from road shows undertaken by it to promote NELP-VII. ?The response has been good,? says Sibal of DGH. ?The number of delegates attending has doubled. This makes us believe that the interest in the current round of NELP is definitely there.? SN Thakur, head of NELP at DGH, says, ?At least three companies have purchased the data per block, which is a good sign.? Companies keen on participating in NELP have to first purchase the seismic data released by DGH pertaining to the blocks. After studying the data and deciding on which blocks they want to go for, bids are eventually submitted by companies.

Experts opine that with the creation of a new category ?S? this year, where no prior experience in exploration and production is required, bids from new companies for the nine onshore blocks may come in substantially, taking the overall tally of bids in the current round to a respectable number. DGH, of course, is not saying anything about the bids submitted so far. It does indicate though that as more data on the potential of the offshore deep waters on the west coast of the country becomes available to it, it will offer them in forthcoming rounds of NELP.

?In previous rounds we offered deep-water blocks on the eastern side of the country. There were few blocks left that side, which is why the tally of deep-water blocks is less in the current round,? says Thakur of DGH. ?As data about the deep-water region on the western side of the country becomes available to us, we will start offering them in the rounds to come.?