Register Today! Webinar on June 16 | Geopolitics & Energy – Supply Risks on the Rise

Can India Restore Investor Confidence in its Upstream Sector?


BG and BHP were jointly awarded the MB-DWN-2010/1 deep water block in the Mumbai Basin on September 10, 2012. This brought awards made under India’s Ninth Round of the New Exploration Licensing Policy (NELP IX) to a close. Like its predecessor, the licensing round proved to be lacklustre in attracting interest from major international E&P companies. Although one can question the prospectivity of the blocks offered, there is no doubt that government policies and bureaucratic hurdles are taking their toll and damaging investor sentiment.

Unclear E&P policies remain a major deterrent for several companies. International players have voiced concerns about the Government’s interference in gas pricing and withdrawal of tax concessions. The Cairn-Vedanta transaction, which led to a year-long dispute with ONGC over the payment of royalty and cess from Cairn’s discoveries in the Barmer Basin, was particularly damaging to investor confidence. Excessive delays in ministerial clearance are now proving to be a further obstacle in the growth of the E&P sector.

The award process from NELP IX became a highly protracted affair. Objections from a number of different ministerial bodies greatly slowed the process. As a result, approvals for winning bids weren’t granted for 12-18 months. These excessive delays are also severely hampering exploration efforts in acreage that was already awarded in earlier rounds of the NELP. 52 exploration blocks (more than a fifth of all blocks awarded since the NELP’s introduction in 1999) are now awaiting clearance due to defence, environmental, maritime boundary and other issues.

Here are four examples of international E&P companies currently struggling with India’s red tape.

  1. BHP: BHP believes India’s West Coast deep waters have the potential to be the country’s next major hydrocarbon province. However, the company cannot explore its Mumbai Basin acreage until the Ministry of Defence grants access rights.
  2. Eni: When Eni signed its PSC for the RJ-ONN-2003/1 block, the company did not know the Ministry of Environment & Forests had declared 50% of the acreage a Desert National Park. The declaration made it impossible to satisfy the initial phase work commitment. They have been negotiating an exit from the acreage ever since. The company is also struggling to receive clearance from the Department of Space to drill its first well on the AN-DWN-2003/2 deep water block off the Andamans. The country’s East Coast Space Centre plans to launch rockets and satellites over the acreage.
  3. Cairn: Cairn is yet another company that has had to defer its exploration plans due to Department of Space bureaucracy. Because of its rocket and satellite programme, the Space Centre imposed expansive Restricted Area boundaries. Cairn placed its PR-OSN-2004/1 shallow water block in the Palar Basin under force majeure hoping the Department of Space would relax the boundaries. The company has identified three drilling locations on the acreage, but cannot proceed without greater access because the most promising location is within the Restricted Area. In addition to the Department of Space, Cairn is waiting for the Ministry of Defence to clear the force majeure blocks under their jurisdiction.
  4. Santos: The on-going maritime boundary dispute with India has forced Santos to suspend work and place both its NEC-DWN-2004/1 and NEC-DWN-2004/2 blocks in the Bengal Basin under force majeure. The company is waiting for clearance from the Ministry of Defence to proceed.

In addition to licensing changes and streamlining bureaucratic processes, improved NELP bidding criteria would go a long way to encourage private sector and foreign investment. Companies are finding hydrocarbons in geologically and technologically challenging environments using new and frontier technologies. A bidder’s ability to deploy and manage these technologies should be considered over “aggressive” work programmes submitted by state owned companies with limited chances of finding oil.

India’s Government is also moving away from offering blocks under the NELP in favour of an Open Acreage Licensing Policy (OALP). Under the new arrangement, companies are no longer restricted to a series of licensing rounds offering pre-defined acreage. Instead, they can apply for exploration acreage at any time. The government has created the National Data Repository (NDR) to facilitate the new process. Many expect the OALP to take the sector to an elevated level.

India’s rapidly expanding energy market is an attractive and exciting investment destination. However, between unclear E&P policies and questions about long-term fiscal stability, the country leaves much to be desired for potential investors. Expediting ministerial clearance, unhampering access to lease areas and untangling the country’s bureaucratic red tape are critical and fundamental changes India must initiate if it wishes to see its E&P sector grow.

Now it’s your turn. Should international investors take a second look at India, or hold off until the country’s energy sector becomes more robust and transparent? Leave your thoughts in the comments below.

The following two tabs change content below.