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  1. Red tape stifles India’s energy dream; just 15% PSC discoveries yield

Red tape stifles India’s energy dream; just 15% PSC discoveries yield

India’s efforts to augment domestic hydrocarbon output and cut costly imports are stymied by the slow pace of converting...

By: | New Delhi | Updated: March 16, 2015 11:25 AM
Jubilant Energy, ONGC and GSPC, domestic hydrocarbon, Hydrocarbon production, Business News, hydrocarbon news

The total production from these discoveries, made under the last nine rounds of Nelp and even prior to that, is 1,95,820 barrels of oil per day (bopd) and 15.4 million metric standard cubic meters per day (mmscmd) of gas, barely enough to reduce India’s huge import dependency. (Reuters)

India’s efforts to augment domestic hydrocarbon output and cut costly imports are stymied by the slow pace of converting discoveries into producing assets, a situation resulting largely from hurdles posed by regulators, rather than developers’ ineptness.

According to data gathered by FE, while as many as 213 discoveries, comprising 107 for crude oil and 106 for natural gas, have been made in the 61 blocks awarded so far, just 31 (20 crude oil blocks and 11 gas assets) are currently under production. That reflects a dismal success rate of less than 15% and compares poorly with other countries with similar levels of discoveries.

The total production from these discoveries, made under the last nine rounds of Nelp and even prior to that, is 1,95,820 barrels of oil per day (bopd) and 15.4 million metric standard cubic meters per day (mmscmd) of gas, barely enough to reduce India’s huge import dependency to meet its increasing energy needs.

Energy-deficient India imported crude oil and petroleum products worth $163.77 billion in FY14 and the fledgling business of imported LNG is struggling for its high costs and want of purchasing power with many potential buyers.

Both the PSUs and private firms are adversely impacted by regulatory interventions. There are numerous incidents where explorers and the government have differences over the terms of production-sharing contracts. These lead to arbitration resulting in regulatory approvals pending for several years. For instance, explorers RIL and ONGC could not go ahead with monetisation of nearly 14 discoveries with natural gas reserves of about 3.6 trillion cubic feet (tcf), as the regulator insisted on drill stem test (DSTs) on them to be done first to  prove their commerciality.

Jubilant Energy, ONGC and GSPC, domestic hydrocarbon, Hydrocarbon production, Business News, hydrocarbon news

Petroleum minister in the UPA regime, M Veerappa Moily, had proposed to give one-year extension to redo tests, but NDA’s Cabinet approval is yet to come for the explorers to go-ahead.

“The low success rate of bringing oil and gas discoveries into production in India is more to do with the pending approvals by the government on projects and constant policy flip-flops rather than the technological competency (of the firms),” said Amol Kotwal, director (energy & environment practice) at Frost & Sullivan. Pending approvals from the government have ranged from delay in clearing exploration and production (E&P) drilling plans of operators, to providing approvals for contracts by relevant government stake-holders, resulting in delay of operators starting their E&P activity at their respective oil and gas fields (on-shore, off-shore), Kotwal explained.

In another case, RIL and its partners BP and Niko Resources have submitted an integrated development plan for development and production of 16 gas discoveries in the KG D6 block. But, the Directorate General of Hydrocarbon is yet to give its go-ahead for this proposal. Moreover, government has slapped total penalties worth $2.276 billion accounted till March 2014 for not meeting output targets from the KGD6 block in East Coast. The issue is under arbitration.

Meanwhile, a dispute has been going on in the Ravva field run by a consortium of Cairn India, Videocon Industries, Ravva Oil and ONGC over the profit-sharing ratio between the government and contractors, which was based on the post tax rate of return (PTRR) earned by the companies. The government is yet to decide on the revised gas price of Ravva field that expired on November 30, 2008.

“Globally, the rigour in geological and geo-scientific data acquisition, processing and interpretation (API) is being driven to be successful at the success of drilling in specific and in hydrocarbon discoveries in general. In India, companies are getting better at it. In addition, business and contractual issues are observed to be delaying the API and subsequent drilling activity,” said Deepak Mahurkar, leader (oil and gas) at PwC India.

Till now, the government has awarded 282 exploration blocks, which include 28 under pre-NELP and 254 under nine rounds of NELP auction. Petroleum minister Dharmendra Pradhan said that in order to accelerate the pace of E&P in the country, the government has taken various steps. These include offer of blocks under bidding rounds, encouragement of exploitation alternate energy sources such as CBM, policy for exploration of shale resources by PSUs, and identification of new blocks for exploration, among others.

“We expect the NELP exploration activity to be de-bottlenecked,” said Mahurkar of PwC, adding, “In the E&P industry, hiring technology services from not necessarily within the country is the norm. Companies who participate in E&P are expected to be ready to take high risks, including of high cost of services and contracts. Qualifying companies who will not be able to take such risks is a reflection of need for refining the bid qualification criteria.”

Other than 31 discoveries that have been translated to production, about 22 (14 for oil and 8 for natural gas) are under development. These belong to Jubilant Energy, ONGC and GSPC.

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