Deep water strongest lure in Indian round

Blocks on offer under India's nelp [328,603 bytes]

Deepwater blocks off India have attracted the strongest interest from foreign companies responding to that country's newly burnished exploration acreage offering.

Overall, India's New Licensing and Exploration Policy (NELP) has received a moderate response so far, with seven major oil companies buying data, according to sources at the Directorate General of Hydrocarbons (DGH), the government agency that regulates the upstream sector. Those companies were not identified.

Of the 48 blocks on offer under the NELP, it is the 12 deepwater blocks that have evoked the greatest response, with five companies purchasing data. Three companies have bought data for the 26 shallow-water blocks on offer. Only one company bought data for both shallow and deepwater blocks.

DGH expects to sell deepwater block data to three other companies that have submitted written requests for them. The 10 onshore blocks have received no response so far.

Deadline for submitting bids under the licensing round is May 18. Data rooms have been set up in New Delhi, Houston, and London.

After the first round of bidding, there will be open acreage bidding, under which any company can identify the area it wishes to explore. This area will then be put up for bid.

Road shows

India's Ministry of Petroleum and Natural Gas and the DGH unveiled NELP terms at road shows promoting the first licensing round under NELP. The round is the first Indian acreage offering to include deepwater blocks.

A.R. Sihag, director of the petroleum ministry, said, "There is declining self-sufficiency in petroleum supply in India." NELP was developed in order to halt this decline by promoting exploration of the country's sedimentary basins.

Sihag called NELP a "progressive regime." Oil executives at the Houston road show, organized by IHS Energy Group, appeared to agree (OGJ, Feb. 15, 1999, Newsletter).

In the licensing round, companies can bid for one or more blocks, either alone or in association with other companies. The successful company or group may then form an incorporated or unincorporated venture.

The winners will be required to enter into a production-sharing contract (PSC), which will be negotiated based on India's new PSC model. All transactions under the PSCs will be expressed in U.S. dollars. (Indian companies will remit payments according to prevailing national laws.)

NELP

India has for some time been working on developing its NELP terms (OGJ, Aug. 31, 1998, p. 70). It now considers its exploration licensing policy among the best in the world.

Key features of NELP are:

No signature, discovery, or production bonuses.
No mandatory participation by India's national oil companies.
Royalty rates pegged to international market prices.
No customs duty on goods imported for petroleum operations.
No minimum expenditure commitment.
Complete freedom to market production in India.
Added incentives for deepwater exploration and production.
Assignment of "infrastructure status," which allows for a 7-year tax holiday after start of commercial production.
Ability to assign participating interests to other firms.
Full repatriation of profits allow- ed.

Companies are required to bid for the work program commitment, the profit-sharing rate, and the percentage of annual production to be allocated towards cost recovery.

Profit-sharing is based on a pretax investment multiple, calculated as cumulative profits divided by costs incurred.

There will be an automatic adjustment in profit-sharing for marginal and small discoveries.

Exploration, development, and production costs, incurred before or after start of production, will be eligible for cost recovery. Royalties are also cost-recoverable, and as much as 100% of production can be assigned for cost recovery.

For tax purposes, accumulated losses can be carried forward for 8 years from start of commercial production. And companies have the option to amortize over 10 years accumulated exploration and drilling expenses incurred before the start of commercial production.

Bids will be assessed based on total government take, including biddable profit-sharing and cost recovery. No company will be prohibited from bidding based on financial or operations performance, but so-called weaker companies will be assigned a rating that will force them to bid "more aggressively," says Sihag.

Royalty rates are 12.5% for crude produced onshore, 10% for offshore crude, and 10% for all gas. Deepwater production (400 m) will enjoy a special rate of 5% for the first 7 years.

Arm's-length sale and import-parity principles will apply for valuation purposes, with valuation based on a comparable reference crude or crudes.

The exploration period under NELP lasts 7 years (8 for deepwater and frontier areas) and is divided into three phases. Phase 1 lasts 3 years (4 for deep water), and Phases 2 and 3 last 2 years each.

At the end of Phase 1, 25% of the contract area is to be relinquished. Another 25% is relinquished after Phase 2, although there is some flexibility in this requirement. And, after Phase 3, all areas except those producing or considered producible are to be relinquished.

Excess work done in a given phase can be set off against the work required in the next phase. There is also a provision for phase extensions of 6 months if the minimum work program is not completed. And there is a walk-out option at the end of each phase.

Once a discovery is made, 2.5-3 years will be allotted for appraisal.

India has also set up what it calls a site restoration fund scheme (SRFS). One hundred percent of contributions made to this fund-designed to finance remediation efforts following site abandonment-are tax deductible.

Offshore blocks

On offer under NELP are 48 blocks. Of these, 12 are in India's undrilled deepwater areas (see map, p. 25).

The deepwater blocks are in the Cauvery-Palar, Krishna-Godavari, and Mahanadi-Northeast Coast basins. Within these blocks, 4,026 line-km of 2D seismic has been shot, of which 1,053 line-km has been reprocessed. But no wells have been drilled.

"The results of the reconnaissance survey are very encouraging," says the Ministry of Petroleum and Natural Gas. DHIs (direct hydrocarbon indicators) have been observed on several seismic lines at different horizons."

The shallow-water blocks on offer are in nine basins that have been explored to varying degrees.

One block is available in the Kutch offshore basin. Twenty-two exploratory wells have been drilled in the basin, and three discoveries have been made-one oil and two gas. Hydrocarbons in place amount to only 3.16 million metric tons of oil and oil-equivalent (toe) of gas, although the basin's estimated resource, based on 50% probability, is 380 million toe.

One block is on offer in the Saurashtra offshore basin. Seventeen exploratory wells have been drilled in the basin, but no discoveries have been made. Saurashtra's estimated hydrocarbon resource is 280 million toe.

Four blocks are available in the Mumbai offshore basin. Seventy-four discoveries have been made in this basin, involving almost 4 billion toe of hydrocarbons in place. The basin has an estimated resource of 8.9 billion toe.

Six blocks are on offer in the Kerala-Konkan offshore basin. Ten exploratory wells have been drilled in the basin, but no discoveries have been made. Its estimated resource is 760 million toe.

Four blocks are available in the Cauvery offshore basin. Three finds have been made in the basin: two oil and one gas. Hydrocarbons in place amount to 18.2 million toe, and the basin's estimated resource is 270 million toe.

One block is available in the Palar offshore basin, where only three exploratory wells have been drilled. No finds have been made, but the basin's resource is estimated at 14 million toe.

Four blocks are on offer in the Krishna-Godavari offshore basin, where eight finds have been made, involving more than 100 million toe of hydrocarbons in place. Estimated resource for the basin is 555 million toe.

Three blocks are on offer in the Mahanadi offshore basin. Seven exploratory wells have been drilled, with no discoveries made. Estimated resource is 100 million toe.

Two blocks are available in the Bengal offshore basin. There have been 11 exploratory wells and no discoveries in the basin, which has an estimated resource of 115 million toe.

Onshore blocks

The NELP round includes blocks in four onshore basins.

One block is on offer in the Assam-Arakan basin, where more than 40 discoveries have been made. Hydrocarbons in place in the basin total 770 million toe, while its estimated resource is 3.04 billion toe.

Two blocks are available in the Bengal-Purnea basin. Forty-one exploratory wells have been drilled in the basin, but no discoveries have been made. Estimated resource is 465 million toe.

Three blocks are available in the Ganga Valley basin. Fifteen exploratory wells have been drilled there, but they yielded no finds. The basin's estimated resource is 230 million toe.

Twelve discoveries have been made in the Rajasthan basin, where four blocks are on offer. Hydrocarbons in place in the basin total 26.31 million toe, and the estimated resource is 380 million tons.