India looks west to build homegrown production
Shri Ram Naik, India's Minister of Petroleum and Natural Gas, is on a self-described 'oil mission' to reduce his nation's heavy dependence on oil and gas imports by boosting indigenous production. India's 1-billion-plus population is expected to consume $17.5 billion of energy this year.
India's heavy reliance on foreign oil and gas imports to meet the ballooning domestic consumption needs of its 1 billion-plus population is expected to climb to $17.5 billion this year as demand grows by 6-7%.
The country produces only 30% of its total petroleum requirements. Shri Ram Naik, the Minister of Petroleum and Natural Gas, is on a mission to reduce this dependency by boosting indigenous production.
Naik, who was in London last week leading a ministerial delegation showcasing the second round of India's New Exploration Licensing Policy (NELP II) blocks, outlined the country's drive to transform its oil and gas sector and build domestic production.
India's future supply and demand scenario makes plain the long-term problem. Although in 2001-2002 it will produce 30 million tonnes of petroleum�against demand in the region of 110 million tonnes�by 2009-2010, although domestic production will have increased to around 40 million tonnes, demand will have leapt to an estimated 185 million tonnes.
The government has fashioned what it calls the India Hydrocarbon Vision 2025 to give direction to a domestic petroleum industry faced by this dire outlook. The broad aim is to complete a comprehensive appraisal of all of the country's hydrocarbon basins and carry out "intensive and extensive" exploration of these basins with a view to optimizing recovery.
To accelerate its drive, the ministry has streamlined the license bidding process�cutting out the "red tape-ism" that has long been a deterrent to foreign investors�and launched successive licensing rounds with the aim of attracting greater exploration interest from Western oil companies.
"In the last 2 years we have made substantial procedural changes in our operations, and the red tape that presented such hurdles to investors has been thrown in the dust bin," emphasized Naik, speaking at the NELP II presentation organized by consultants IHS Energy Group.
Proof of this shake-up, he said, could be seen in the fact that the Indian government had signed 27 production sharing contracts for blocks awarded in last year's NELP I round in 7� months�compared to historical turnarounds for PSCs of 3-4 years.
"The speed and efficiency in the sector that produces energy for the country, we are moving quickly to improve," he said, adding that the ministry had also solicited the views of 43 sector companies on "improvements" that could be made to the model PSC before NELP II.
Twenty-five blocks are up for bid as part of NELP II, including, for the first time, eight in the deepwater acreage off the West Coast of India and three in the states of Assam and Gujarat. Data packages have been digitized to "facilitate examination and analysis" by bidding companies, also a first.
The acreage on offer includes both new blocks and blocks offered in earlier rounds that have been "upgraded" with new information or data reprocessed to "help better define the play," Naik noted. He added that the deepwater West Coast blocks are near large Bombay High field, responsible for 50% of India's yearly hydrocarbon production.
Naik's desire to show that "the era of red-tape is over" in India is helped by the recent exploration successes of UK independent oil company Cairn Energy PLC on acreage picked up in the first round of NELP. Early in January the company made its third gas find in 3 months�Gauri�on Block CB-OS/2 off Western India, not far from its recent Lakshmi gas discovery.
Two zones in Gauri tested gas at a rate of 39.2 MMcfd, while a third flowed oil at a stabilized rate of 1,039 b/d. Cairn estimates this latest discovery, which lies on trend with and to the southwest of the producing Hazira field, to hold 100-300 bcf of gas equivalent.
A 3D seismic survey of Cairn's earlier Lakshmi and Ambe finds will be enlarged to take in Gauri.
The government's campaign to encourage foreign investment interest also was helped by Indian conglomerate Reliance Industries Ltd.'s decision last October to invest $750 million in its partnership with Canada's Niko Resources Ltd.
That investment was part of plans to explore the 12 blocks it was awarded in NELP I, and Tullow Oil PLC's earlier "strategically important" joint venture deal with Larsen & Toubro Ltd., through which the UK-listed company picked up stakes in four blocks in the Krishna-Godavar Basin, one in Cambay Basin, and two in the Assam-Arakan Basin.
However, these votes of confidence in the promise of India's oil and gas industry were offset by Enron Corp.'s decision last year to sell its India portfolio as part of its "annual rebalancing of assets" program.
Enron should have no trouble selling its producing Panna, Mukta, and Tapti fields, and exploration block CB-OS/1, dismissed by Minister Naik as "part of Enron's worldwide policy to withdraw from upstream." In a recent report on the region by Edinburgh-based analyst Wood Mackenzie Ltd., Cairn, Tullow, and Reliance are all seen as potential buyers, with the Indian company in "pole position" because of its long-standing field partnerships with Enron.
Yet Enron's planned withdrawal does underscore the mixed view the international oil industry takes of E&P in India, despite it being home to "one of the fastest growing economies in the world (with an) energy requirement that is increasing in pace with that growth."
Cleaning the slate
WoodMac's principal consultant for the Indian subcontinent, Paul Fieldsend, believes the Indian government's attempt to "wipe the slate clean" of a history of bureaucratic footdragging and poor quality acreage will advance its campaign to attract foreign oil companies.
"That previous licensing rounds had resulted in it taking years and years to sign PSCs had put off (many foreign oil companies) to an extent," said Fieldsend. "Similarly, there had been questions over the quality of the acreage being offered in the past. I do think (the Indian government) has managed to put much of that behind them."
Yet he is "not overly convinced" that the 25 blocks on offer in NELP II�like those in the preceding round�are going open an oil exploration rush, despite the fact that the "terms of the licenses are appealing."
He said, "I think the fact that the NELP I round wasn't successful in drawing in any majors means that those larger oil companies are either still wary of the levels of bureaucracy in India or that they still don't rate the exploration plays that are available."
Fieldsend acknowledged that the recent exploration successes of independents such as Cairn "could stimulate more interest," especially if the deepwater well the independent is set to spud this week on Block KG-DWN-98/2 in the Krishna-Godavari basin makes a important discovery.
"This was the hot block from the NELP I round, and if Cairn is successful then that could also help make NELP II more interesting to more companies," he pointed out.
Though deepwater India won't rival the US Gulf of Mexico or Offshore West Africa as a top offshore region, Fieldsend said exploration will increase soon because of the "significant work program" planned by Reliance for the blocks it picked up in NELP I.
He said while the Indian government's bureaucratic reform us laudable, the quality of offered acreage is still the big issue and one that will determine whether foreign companies take the plunge.
"I am not wholly convinced many companies are going to come in to India until such time as we see company X making a significant discovery and kicking everything off," he suggested. "The deepwater offshore areas that are being offered haven't had much exploration conducted on them before and it is going to take the discovery of a 100 million bbl field before we see a change to that fact."
Fieldsend said the other factor that could make a fundamental change to the future of E&P in India�and potentially result in reserve upgrades�is the willingness of state-owned Oil & Natural Gas Co. to give up for development some of the vast acreage languishing in its portfolio.
"Look back at when the various fields that are now operated by Enron, Cairn, and Niko were put up for bid, there was quite a bit of interest generated at the time," he noted. "And following being signed to the foreign operators, in almost every case�Panna, Mukta, Tapti�the developments the oil companies have undertaken have all resulted in significant reserve upgrades, and in production going into the Indian economy that would not have happened otherwise for some time.
"There are bound to be plenty of other opportunities out there where employing new development techniques could prove up significantly higher reserves," he added.
Fieldsend said that if the Indian government had streamlined the fourth to eighth licensing rounds and the joint venture 1995 round, and administered them "in a timely manner," as it has the NELP rounds, the exploration and development of those licenses would now be bearing fruit.
He said now it will be 5-10 years before these latest license offerings stand a chance of making a difference to India's production. Domestic petroleum demand, however, will not wait for these developments to come on stream.