The prime minister has set a target to reduce energy imports by 10% by 2022. Considering India’s expected growth, it translates to doubling domestic oil & gas production.
For a 7-year horizon, it is a steep call. When the prime minister gives a call to Industry in a public forum, it assumes certain sanctity. The detailed plan of the ministry of petroleum & natural gas to meet this call is, however, not in the public domain yet. Let’s do a small critical-path analysis using optimistic time-lines to understand the macro picture.
We can divide starting production into three major stages:
(a) From the Notice Inviting Offers (NIO) to the start of physical activity on ground (SoPA)
(b) From start of physical activity to Declaration of Commerciality (DoC)
(c) Development from DoC to First marketable Oil (or Gas) Barrel (FoB).
NIO to SoPA has two phases—it typically takes 6-9 months from the date of the NIO for the contract to be signed, and roughly 12-24 months to get permissions to start seismic drilling—thus, the maximum time consumed is two-and-a-half years.
For SoPA to DoC, we need to provide for at least 36-48 months.
For Part C, the time provision could run from 2 years for production on land to 3 years for offshore production and 4-5 years for deepwater production.
Thus, by 2022, assets can be productive only as shown in the table . We can put to production the on-land assets for which we release the NIO this very year, or the past assets that can get various permissions and start physical work by 2018. For offshore sources, the cut-off will be that the current projects start physical work by 2017 latest. For deepwater, it can only be the current projects that start physical work in 2015, i.e., have FDP approvals.
The next question is: What needs to be done for the blocks/fields/ discoveries that can meet the above deadlines and can contribute to 2022 production? This group can be termed as the Mission Amrut Parv (MAP) Targets and would require immediate action and focused expediting. Solutions have to be found in parallel to ease doing business for the exploration and production sector to accelerate production.
Which on-land blocks can be auctioned by the deadline for the category, i.e., end-2015? The only blocks that seem ready to hit the market and make the deadline are the marginal fields and maybe the blocks earlier identified as part of NELP X. The marginal fields, being already “discovered” and therefore not pure exploratory, have lower risk, are less capital-intensive and are likely to be less sensitive to revenue-sharing contracts (RSC). A free-market pricing of gas (whose contours are still unknown), if implemented, will make the proposition attractive, and any proposal to get players to pay past costs will dim the shine. Assuming the best efforts are made, logistical issues and the expected reservoir size will be the key influences determining bidder profile.
The other blocks (identified for NELP X & later), being exploratory, are likely to be more sensitive to the contract regime. Even more significant will be the product pricing regime and whether the new gas will be “free” on the lines of “old gas”, which has ended up in a virtual APM, or genuinely free-market, as is generally understood. The risk-reward perception and “sanctity of contract” will determine the flavour of the bids. If the private sector response is less than enthusiastic, the major risk capital will have to come from one or two of the national oil companies, and their resources—financial, human and technical as well as management bandwidth. These will become additional critical factors to focus upon.
It is wishful thinking to assume that “shale hydrocarbons” will suddenly—before 2022—become a significant contributor to production. Even if we assume that another 150 blocks are successfully auctioned before the deadline, and apply the past success factors to the new blocks, it is unlikely that more than 5-15% of the new requirement can be met by the new blocks. This leaves a yawning gap of at least 85% from what the industry, and the country, would like to achieve. What then are the other MAP targets?
Fields in production,
Fields with DoC yet to be developed
Fields where DoC stage is incomplete
Contracted blocks where SoPA is held up
Declining and mature fields
Oil & gas fields, in the course of production, mature, age and decline. Substantial IOR, EOR and further exploration work needs to be done to maintain production. It should be a no-brainer that all stakeholders should be focused on these activities. However, if we look at the actual performance in India, shut-downs and abandonment are more likely for declining fields. Why should it be so? What actions are needed to reverse the trend?
Another curious fact of Indian upstream are the fields that, after discovery or even being declare commercial, get stuck and don’t become producing ones. It is not a new phenomenon. The fact that we are proposing to auction 69 discovered fields now—many years after their discovery—is a testimony to the fact that we are a uniquely hydrocarbon-deficient country, where practical solutions and national imperatives are not prioritised to increase hydrocarbon production, and where the losses are because of notional revenue & procedural calculations. We need to look at the ‘whys’ of this and resolve the same as a fair amount of hydrocarbons is languishing, thanks to this.
After signing a contract, SoPA would require an exploration license, environment and forest clearances, land acquisition or ROU, clearances from defence, space and port authorities. Actual exploration on the ground is only a matter of weeks. The visible part of activity is almost identical to drilling a tubewell. It, thus, has a small footprint on ground, environment and in time. Also, the repetitive similarity of issues (say, environmental) for drilling a well is well known to everyone. The actual approvals to drill wells take months, or even years, despite the fact that most of these can be arranged prior to auctioning of the fields, thereby reducing the time consumed to a few weeks at the most. However, the cumbersome approval route remains despite all the suggestions by industry and efforts by the government to improve the ease of doing business.
Declining and mature fields, as well as challenging fields, have a common set of problems. Challenges could be technical or commercial, but are often solvable. The key question that all stakeholders need to answer is: Should we, as a policy, leave the hydrocarbons underground (and justify it on many rational grounds—say, for energy security or use of latter generations) or should we extract the last drop that can be technically and economically extracted?
Unless the chiefs clarify their “mantra” and ensure actions and policies are in accordance to the stated objective, this industry shall remain in the wilderness and move in fits and starts.
The author is secretary-general, AOGO. Views are personal.