April 28, 2017

Small and Marginal field’s Auctions – A lot at stake for the Petroleum Ministry

After a gap of six years, India is launching oil and gas field’s auctions, this time already discovered marginal and small fields are offered for development. Much depends on the success of this round of auctions, one because it comes after a gap of many years, and two it is the first for this NDA government and under liberalized hydrocarbon regime.

India’s public sector E & P (Exploration & Production) companies Oil and Natural Gas Corporation and Oil India Limited had discoveries in the 67 marginal and small fields that are now being offered under the bid round, but relinquished them as they found production from these fields unviable given their overheads and cost structure.

Inheriting a controversial upstream hydrocarbon landscape, queered as it was with disputes over the Krishna Godavari Basin block of Reliance Industries, NDA government took time to untangle policy issues slowly, and was definitely not in a hurry to launch the next round of auctions which was almost ready for launch when UPA government went to face elections in May 2014.

While it has done a lot of good in terms of laying down a clear cut policy that has sought to clear hurdles over a decade old NELP (New Exploration and Licensing Policy) posed with a simpler and perhaps what could be quicker and easier for companies to work in HELP (Hydrocarbon Exploration and Licensing Policy), the global oil markets had gone into a tailspin with plummeting oil prices.

Cut in upstream investment all over the globe meant, India with what analysts feel doesn’t have an attractive geology for exploration would have found it difficult to attract fresh investments.

“The spirit behind the journey from NELP to HELP is to create administrative and fiscal systems which are a lot simpler and transparent” Dharmendra Pradhan, minister for petroleum and natural gas said.

It is clear from interviews and quotes of Pradhan, that his ministry clearly has understood the need to administer without interfering in every step of the exploration and development process, willing to take in suggestions and help industry.

If the intention alone would be enough to attract investments in a risky business like E&P is doubtful.

But, the willingness to take an extra step ahead to help was evident during the recent roadshow to showcase and address interested investors.

ONGC which held majority of the blocks, and which has built substantial infrastructure that could help new bidders to evacuate their produce did a detailed presentation on the available infrastructure.

We still don’t have a clear cut policy on sharing of oil and gas infrastructure, except for some pipelines that have been built on common carrier principle.

ONGC would handhold new players, and the infrastructure would be shared to the benefit of both, Pradhan confirmed.

New bidders also don’t have to shell out for costs ONGC and OIL had incurred in the past for their discoveries, but have to pay only a nominal asset value, Pradhan said.

This again is a welcome clarification for bidders. Some of the private sector players who are keen to invest in the marginal and small fields are happy that these two points have been clarified.

Minister has time and again tried to emphasize that the petroleum ministry’s policy is a continuation of the central principle of this government, minimum government maximum governance, skill development, entrepreneurial encouragement etc.,

These roadshows would also travel to North America and rest of the world. If Pradhan and his team from Directorate General of Hydrocarbons and the ministry can convince small time players be in exploration, technology or oil field services to partner in this effort, it would do a lot of good to our upstream sector.

A former DGH official said it is not in the good spirit to let ONGC and OIL to bid for these blocks which they had relinquished. His fear is that they would once again end up bagging most of the blocks, which would go against the policy of helping newer players into the upstream business. After all they had already spend around Rs.7000 cr in these fields and they shouldn’t be spending any more is his argument.

Yet, no government would like to see its bid round fail, and PSUs are the inevitable saviors. One good thing about this round is that emphasizing it again, the willingness of the giants be it in upstream or downstream to partner with private players.

If an ONGC and IOC can handhold smaller players that would be more beneficial and fruitful than creating some venture capital fund to help start-ups. E&P is a risky business and our PSUs who are already used as revenue spinners for the government shouldn’t be forced to make available cheaper capital in the name of supporting start-ups.

Overall a lot depends on how this round of bidding goes in shaping up the upstream sector under the new policy regime.

The ministry which has slowly and steadily brought about so many and welcome changes in the ministry has still not done one thing – like Comptroller and Auditor General (CAG)’s suggestion and total revamp of DGH. Before throwing open the larger acreages under open acreage policy, if the ministry does that, it would complete the picture.

Consultant – West Zone,  NewsNViews

Credit: Wiki for Pic.