The tepid response to the eighth round of the New Exploration Licensing Policy questions its overwhelming merits Bids have been received for only 36 of the 70 blocks, offered for exploration in the eighth round of the New Exploration Licensing Policy (NELP). The government remains sanguine about the response, considering the global financial situation. But the fact is that it was a damp squib. V.K. Sibal, Director General of Hydrocarbons, had foreseen this outcome. He had not expected any of the blocks to get more than two bids, as the Ambani brothers' spat had cast a negative pall over potential investors. The government has received 76 bids for 36 blocks under the present round. Reliance Industries Limited (RIL) bid for only one coal bed methane (CBM) block, compared to its fairly aggressive response in earlier rounds. The company had won 45 concessions in previous rounds, ONGC played the angel in white, accounting for 25 bids that came in for 36 blocks. Australia's BHP Billiton and UK's British Gas and Cairn Energy were the only notable foreign companies that bid. The number of blocks offered for exploration was the largest in this round, and the response was poor, contrary to the optimism expressed by officials like R.S. Pandey, secretary, ministry for petroleum and natural gas, after the road shows held in Mumbai, London, Houston, Calgary, Perth and Brisbane. AN SEA Out of these 70 blocks, 24 were deepwater, 28 in shallow water and 18 on land. The total area under offer is 0.16 million sq km and these blocks were in Assam, Manipur, West Bengal, MP, Haryana and Gujarat. Even so, the NELP has been fairly successful as a policy, if one were to consider the number of discoveries made in earlier rounds. "There have been a total of 71 oil and gas discoveries made so far out of the 203 blocks awarded under various rounds of NELP. These discoveries are at various stages of appraisal, development or production," says Sibal. During 2008-09, NELP'S contribution to production was 0.334 million tonnes (mt) of oil and oil equivalent of gas. This is, however, expected to increase substantially in the coming years, with a projected production of 29 mt during 2010-11 and 35.2 mt by 2015-16. By comparison, Bombay High, which was discovered in 1974, with production beginning a year later, produces only 10 mt per annum. "The ministry of petroleum and natural gas invites suggestions from operators and investors prior to the launch of every round, with a view to improve upon the next one," says Pandey. "There is no doubt about hydrocarbon prospects in India, as there have been over 100 discoveries in the past 10 years in the country, two-thirds of which were under various rounds of NELP." In order to attract more investors, changes were made in the present round. For instance, bid evaluation criteria were simplified. Besides, technical SEDIMENTARY BASINS IN INDIA Category-I basin (Proven commercial productivity) Category-ll basin (Identified prospectivity) Category-Ill basin (Prospective basins) capability criteria for deepwater blocks were modified and the weight given to total marks in NELP VII was reduced from 30 to 25 in NELP VIII. Relinquishment norms were simplified in NELP VIII. Henceforth, bidders can continue to keep 100 per cent of the blocks area after the initial exploration period of four years, if they commit to a further programme of drilling exploratory wells. Prior to the road shows, Murli Deora, minister for petroleum and natural gas, said the government had proposed a seven-year tax holiday on commercial production of oil and natural gas under NELP VIII. Though quite a few foreign companies have a presence in exploration and production (E&P) in India, others like Exxon Mobil, the world's largest oil company, are yet to register a response to NELP. Sibal thinks a reason for this could be that their sole focus is on 'producing assets'. During the road shows, representatives of other majors did demonstrate interest in the opportunities India had to offer. "They are aware of the success story that NELP is and the attractive returns harvested by RIL or Cairn Energy," says Sibal. Global response has been poor, says Subir Raha, former chairman, ONGC. "Exxon, BP, Shell, Chevron and others have not responded. Others like the BG group, Eni and Gazprom responded through jvs because intrinsically, the oil and gas resources in India - 0.4 per cent and 0.6 per cent, respectively, of the world's total - do not justify their full-fledged mobilisation. Also, given that more than 15 per cent of the global population lives in India, and per capita annual consumption of oil and gas is barely one-third the global average, India will never be self-sufficient," he points out. Obtaining self-sufficiency in oil and gas can be a goal of only relative importance. Seven of the G8 countries are net importers, which shows that economic prosperity is not hamstrung by oil and gas imports. Japan is a 100 per cent importer. Yet, the economy of a number of net exporter countries, such as Nigeria, is in a shambles, says Raha. Prior to NELP, the E&P sector was dominated by ONGC and Oil India Limited (OIL). The PSUS did their share of exploration activities, leading to some sizeable discoveries, including that of Bombay High. But E&P had to be accelerated to meet growing energy needs. When the pre-NELP bid rounds evoked a lukewarm response, NELP was introduced in 1998 with improved fiscal and contractual terms. The production sharing contract (PSC) was drafted accordingly, keeping in view the rights and obligations of contractors and government, and taking into consideration the optimal management of India's oil and gas resources. Also, before NELP, says Raha, ONGC-discovered oil-producing fields -Panna, Mukta and Tapti, Ratna, Rawa and others - had been 'privatised for peanuts' by the government under Chandra Shekhar as PM. "With NELP, there is now a level playing field for ONGC." Yet, Raha does not mention that ONGC had found these wells too small to devote any attention to them. The government had to address other issues as well: approval systems had to be streamlined and proper monitoring was required. Also, the myth that India was low on hydrocarbon prospects had to be dispelled. So, road shows were launched to showcase India as a potential hydrocarbon destination. Other efforts, says Sibal, included installing data rooms at various places around the world for prospective bidders to make their assessment. There was periodic revision of fiscal and contractual terms, keeping in mind both the interest of the government and other stakeholders. Foreign companies did not have to abide by any specific security requirements, barring routine clearances. Under the PSC format, the trend of discoveries has been encouraging so far. "In spite of low drilling density in India, our discovery: success ratio has been quite impressive - 28 per cent in 2007-08. Of these, there have been world-class gas discoveries in the East Coast deepwater area and oil discovery in Rajasthan," says Sibal. India remains 'a highly unexplored country' and he is optimistic of more discoveries being made in several awarded blocks, once exploratory drilling is taken up after seismic surveys are done. "The areas unexplored are being offered through regular NELP rounds to boost exploration in the country," he adds. The fact is that the earlier Congress policy of reserving the whole country for exploration by the government (ONGC) was wrong. No single entity could ever have the financial or managerial resources to explore the whole country. Yet, even the Opposition ignored this key area of the economy. The giant gas discovery in the KG Basin will help double the present gas production in India from last year's level. Peak gas production from Reliance's gas discoveries from two wells, Dl and D3, will be at least 80 million metric standard cubic metres (mmscmd) for six years, with an envisaged field life of 13 years. There are several other gas discoveries in KG Basin made by RIL, GSPC Gas Co and ONGC, which when developed, will increase India's gas production. Oil production from D6 deepwater block, operated by RIL-NIKO, has already commenced. Peak crude oil production from the Mangala field in Barmer, Rajasthan, operated by Cairn Energy, where commercial production has begun, will be at the rate of 175,000 barrels of oil per day (bopd) for about three years, with an envisaged field life up to 2020. The actual field life may be more, though. "Increase in oil and gas production will help to reduce our import dependence," says Sibal. But he realises that growing demand and increasing consumption will offset this benefit. Cairn India's success in.Rajasthan "demonstrates the rich potential of India's exploration acreage, as well as the company's capability to explore and develop India's resources in a cost-effective and expeditious manner", says Rahul Dhir, CEO, Cairn India. "We are committed to enhancing India's energy security and look forward to reviewing the opportunities being offered under NELP VIII." By 2020, India is expected to use five times more cars and consume three times more fuel. Demand for oil and gas will increase significantly. Cairn India has been one of the most successful exploration companies in the country for more than a decade. With about 40 per cent success rate, it has made 40 discoveries in this region. In Rajasthan alone, Cairn India made 25 discoveries. Crude production from the Rajasthan fields is expected to generate revenues of Rs36,000 crore ($7.6 billion) in the form of royalties to the state government throughout the life of the project, while the government of India will earn around Rs46,000 crore ($9.5 billion) as profit from petroleum, assuming crude oil prices are at $50 a barrel. The royalty has the potential to be one of the largest revenue earners for the state government. Yet, the division in share between the Centre and states was not arrived at without significant bargaining. But industry experts say that though success in the KG basin and Rajasthan have brought Indian geology to world attention, more needs to be Sibal: India's a favoured destination for E&P done if the country has to be a significant player in the hydrocarbon world. "NELP has been an enabler," they say. "It must continue to enable more players to participate, reward stronger work programmes and facilitate extensive, effective and speedy exploration." Nonetheless, in contrast to the period up to 1997, when we had only two national oil companies operating in India, today we have about 50 E&P companies in India, including oil majors like BP, Santos, BG, Gazprom, and minors like Cairn, Naftogaz and Arrow Energy. The outstanding discoveries of oil and gas in offshore and on-land sedimentary areas of India have resulted in a paradigm shift in the way E&P companies across the globe view the hydrocarbon prospects of India. "Today, India is a favoured destination for companies to invest in E&P business. The fair and transparent procedures and practices adopted by the DGH have resulted in creating an E&P brand image that has been acknowledged and appreciated," says Sibal. In the past seven rounds of NELP, investment in the E&P sector in India has been to the tune of $9 billion and over 60 per cent of the area of sedimentary basins on-land and offshore has been brought under exploration. Yet, $9 billion is a small sum in the oil and gas business. Reliance alone will have to invest $4 billion in the KG Basin. Deora said the process of awarding NELP VIII blocks will be completed within four months from the time of receipt of the bid. With India's high import dependence - 75 per cent - for oil, exploration via improved terms under NELP and CBM is a national priority. "The past 10 years of this policy have delivered results that have made countries around the world sit up and take notice of the significance of India as an emerging oil and gas destination," says Deora. "With a large under-explored area, India offers an excellent investment opportunity at attractive terms, which are comparable with the best in the world," he adds. Currently, the area under exploration is 50 per cent of Indian sedimentary basins, says Jiten Prasad, minister of state for petroleum and natural gas. "During the 11th Plan, the target to be reached is 80 per cent of total sedimentary basins in India," he says. However, not everybody shares the optimism of DGH on NELP'S merits. NELP may offer one of the best terms and be the most transparent system anywhere in the world, says Ashu Sagar, secretary general of the Association of Oil and Gas Operators. "But today it has lost its focus on the extent and speed of exploration, which was its original objective." Sagar thinks administration of the PSC "leaves much to be desired. An impediment is mixed responsibility, where sovereign, regulatory, administrative and facilitating facilities are all muddled up." DGH is envisioning a move beyond NELP, towards an Open Acreage Licensing Policy (OALP) when acreages will be on continuous offer and can be awarded at any time to prospective bidders. A National Data Repository (NDR) is a prerequisite for offering blocks under OALP. DGH is seeking to establish an NDR for India, which may be operational by Ql 2011-12. However, NELP and OALP will run concurrently for some time, says Sibal.