India moves to launch long awaited licensing

India's Oil and Natural Gas Corp. (ONGC) is set to tie up with a consortium formed by Shell and Petrobras to undertake deepwater exploration off India. The new combine will participate in the first round of bidding for deepwater blocks.

ONGC earlier short-listed 12 foreign oil firms for a possible alliance in deepwater exploration under the New Exploration Licensing Policy (NELP). The short-listed companies included Shell, Petrobras, Total, Occidental, Amerada Hess, Enron, Chevron, Arco, Amoco, Japan National Oil Corp., Cairn Energy, and Hudy Oil.

ONGC's reason for veering towards Shell-Petrobras is because of the latter's experience in deepwater drilling and the resources at its command.

The Indian company is particularly impressed with the Petrobras technology, which, though not the latest, is the most cost-effective. And although ONGC officials would not say in so many words, the government-owned outfit would obviously be at home dealing with another national oil company.

Shell has already entered into an agreement with Petrobras and Marubeni of Japan for studying deepwater prospects in India.

"An alliance between us, Petrobras, and ONGC would be a winning combination," said Derek J. Corbishley, managing director of Shell India Production Development.

Corbishley said that ONGC's vital contribution to the consortium would be the expertise it has in drilling in India and the data on shallow waters that could be calibrated for deepwater prospecting.

"However, the final nature of the relationship between Shell and ONGC will depend on the bidding conditions laid down under the NELP," he added.

"Perhaps it could initially be a joint bid; and later, once production starts, it could be turned into a joint venture company with a proper production sharing contract."

Deepwater blocks

At a meeting in New Delhi, the empowered committee of secretaries-which has representation from the ministries of petroleum, revenue, environment, and commerce-could not make a decision on whether all 28 blocks should be offered in the first round of bidding in August or if they should be staggered over a number of rounds.

The 12 shortlisted companies were to be invited for detailed technical and commercial discussions with top ONGC officials before their names are recommended to the cabinet for approval.

ONGC has decided to take up the exploration of three blocks awarded to it on nomination basis (i.e. without open bidding), on its own. The three blocks are in the Cauvery offshore, Krishna-Godavari offshore, and Kerala-Konkan basins.

The tie-up with the foreign companies will be for all other deepsea blocks that ONGC might be awarded through international competitive bidding. The company has decided to float joint ventures with these foreign companies on a 50-50 basis.

Although the corporation will get only the administered price for oil produced by it from fields given to it on nomination basis, it will get international prices for oil produced after exploration in deep waters, under NELP terms.

"We first need to acquire the technology for deepsea exploration; and only then can we get into it in a big way," said Bikash Chandra Bora, ONGC's chairman and managing director.

The corporation intends meeting a large portion of its funds requirement from internal resources. Of the total requirement of Rs. 245 billion ($5.76 billion), Rs. 200 billion will be generated internally.

ONGC will only go in for equity expansion once discovery and developmental work on the deepsea projects take off, Bora declared.

Overall licensing, terms

The policy itself had been announced more than a year ago, by former Finance Minister P. Chidambaram in a 1997-98 budget speech, on Feb. 28, 1997. It is only now finding form and body.

At a meeting in New Delhi between the chief secretaries of state governments earlier this year, several contentious issues involving loss of royalty payments to states were thrashed out. The details of the formula worked out at the meeting, convened by Petroleum Secretary Probir Sengupta, are not yet available.

The policy, which had been cleared by the United Front government of H.D. Deve Gowda just before its fall, could not make much progress through 1997-98 since its detractors had termed it a "sell-out" to foreign firms.

They argued that the policy would take away some of the prime acreage held by Oil India Ltd. (OIL) and ONGC.

However, officials have been arguing that under the NELP both ONGC and OIL would get a level playing field by way of international prices for oil from new discoveries. So far, only private exploration companies have been getting international prices for their oil.

Under the policy, royalty payments will be fixed on an ad valorem basis instead of specific rates. Royalty payments for exploration in deep waters will be charged at half the rate for offshore areas for the first 7 years after commercial production begins.

The policy also allows freedom for marketing crude oil and gas and provides for a seven-year tax holiday for blocks in the northeastern region. ONGC and OIL will get the same duty concessions on import of capital goods under the new policy as private production sharing contracts. CESS levied under the Oil Industry Development Act 1974 has been abolished for new exploration blocks, and a separate tax code will be put in place to facilitate investment.

The policy does not point out whether ONGC and OIL will be compensated for the seismic data collected by them at great expense over the years. It is also silent on whether companies taking up exploration blocks would be required to hand over to the government data they collect.

Copyright 1998 Oil & Gas Journal. All Rights Reserved.