U.S. firms nab Indian exploration contracts

Almost immediately after the U.S. announced the imposition of economic sanctions against India in response to nuclear weapons testing (OGJ, May 25, 1998, p. 19), India awarded the bulk of a set of production-sharing contracts (PSCs) to U.S.-based oil firms. U.S. companies were offered PSCs on 11 of the 18 exploration blocks cleared by the government. Four of the 18 blocks are offshore; the rest are onshore. One company each from Australia and Ireland also were among the winners, while the rest

June 8, 1998

4 min read

U.S. companies were offered PSCs on 11 of the 18 exploration blocks cleared by the government. Four of the 18 blocks are offshore; the rest are onshore.

One company each from Australia and Ireland also were among the winners, while the rest were from India.

The awards were part of India's bid to expedite overseas investment in the hydrocarbon sector. A short list of prospective awardees had been drawn up during the regime of the United Front government, but the actual signing had been held up until after the transition of power to the Bharatiya Janata Party (BJP).

Among the U.S. companies short-listed for these contracts are Oakland Oil Co., Samson International, Medallion Oil Co., and Joshi Technologies Inc.

The PSCs

The exploration blocks cover an area of around 50,000 sq km. U.S. companies alone would be exploring 31,610 sq km of this total, in Gujarat and Tripura states, and off India's coast.

The western offshore areas offer three concessions, with a total area of 9,865 sq km, while the eastern offshore area covers 7,000 sq km.

Medallion has joined with Assam Co. Ltd. to explore 1,800 sq km in Assam and Nagaland. Command Petroleum Ltd. of Australia has a similar arrangement with Videocon International Ltd., Aurangabad, India, to explore 7,000 sq km on the eastern coast.

The contracts will bring in about $40 million in the first phase, of which $25 million is overseas investment.

Although the petroleum ministry had been deliberating over these pending PSCs for some time, the urgency to attract private investment to India has now become evident. Ministries like petroleum and power are moving swiftly to clear projects, some of which have been on the back burner since 1994.

Long-standing roadblocks to these developments have included issues involving sales tax payment, audit practices, and subcontractor liability. The speed with which they have suddenly been cleared is thought by some to be a result of the U.S. sanctions.

The effect of the sanctions on U.S. companies' ability to follow through with these PSCs is now in doubt.

Since the fourth round of bidding for exploration blocks, production sharing contracts have been signed for nine blocks (five offshore and four onshore), covering an area of 100,000 sq km, in the states of Gujarat, Andhra Pradesh, Rajasthan, Maharashtra, and Madhya Pradesh.

Most of the U.S. companies winning PSCs are not sure whether the sanctions imposed by the U.S. and some other developed countries would apply to them and have asked their headquarters for clarification.

"We are awaiting advice from our head office," said Occidental Petroleum Corp.'s Bill Sweetland.

The BJP government has stressed that the sanctions would not affect project schedules and that other funding arrangements have already been worked out.

The petroleum ministry has also said that it would not face any serious problem in arranging imports of crude oil and petroleum products, since these are "commercial purchases" and fall outside the purview of the sanctions imposed.

Other U.S. investment

Meanwhile, several other U.S. firms are vying for contracts in India. These include Unocal Corp., Enron Corp., Occidental, and ARCO.

Enron has a 2,450-MW power project planned at Dabhol in Maharashtra, and intends to invest around $5 billion in India's energy sector over the next 10 years. And two major service companies, Western Geophysical and Halliburton Co., have major business interests in the country.

Unocal has been shifting a large chunk of its worldwide investments to Asia and is aware that it is in its interests to step up activities in India, which is fast emerging as the region's biggest energy buyer.

Apart from planning to lay a gas pipeline from Turkmenistan to Pakistan, and possibly on to India (OGJ, Feb. 9, 1998, p. 37), Unocal is also attempting to sell natural gas discovered in Bangladesh to Indian companies.