Unconventional Today, Conventional Tomorrow
Nitin Khetawat, Senior Consultant - Oil & Gas Practice PwC India

It is a well known fact now that all last New Exploration Licensing Policy (NELP) rounds for exploration & production of domestic hydrocarbon in India has not been a sizeable success as it was expected. Now the new Government is planning to relaunch the NELP X round with some changes. Further to make India a favourable destination globally for exploration and natural gas, the government plans to move to the Open Acreage Licensing Policy (OALP) regime, which would be setting up of a National Data Repository (NDR) for accessing reliable exploration and production data from Indian sedimentary. Now the question raises: 'is the establishment of NDR the only pre-requisite for introducing OALP for attracting investment into the E & P sector'?

The Indian Government formulated the New Exploration Licensing Policy (NELP) during 1997-98 to accelerate the pace of hydrocarbon exploration in India's vast sedimentary area of 3.14 million square kilometres. The idea was to provide a level playing field for private sector and PSUs. The policy generated a good amount of interest in exploration and production in India, from public as well as private. The investment commitment reached its peak in the sixth (2006) and seventh round (2007) of award of hydrocarbon blocks. Unfortunately the last two rounds have not been able to generate the same amount of interest. Since 2011, the Government is yet to announce the next round of award of hydrocarbon blocks.

A feature of the policy in vogue is that the Government offers onshore and offshore blocks with well-defined areas which are then put up for auction. The company which offers the best deal to the Government in terms of the work programme and the fiscal package is finally awarded the block. Under the current practice, industry has concern around the following items:
  1. Companies have to wait for an exploration round to be announced by the Government;
  2. Companies have to choose areas for hydrocarbon exploration amongst the blocks which are put on auction only.
An answer to the above challenges could be rolling out Open Acreage Licensing Policy (OALP). Such a policy would allow investors to carve out acreages perceived lucrative for hydrocarbon exploration. Companies would be free to bid for such areas at any time of the year. Such a regime would give flexibility to E & P companies in choosing the location and size of blocks. Small and mid-sized companies would be free to choose acreages soothing their appetite. An important pre-requisite for successfully rolling out OALP would be setting up of a National Data Repository(NDR)which would help companies in evaluating areas and demarcating the hydrocarbon prospective areas where they wish to undertake exploration activities. The main objective of setting up this NDR would be seamless access to reliable exploration and production data for Indian sedimentary basins which can then be utilised by firms in choosing areas which they want to bid for.

Present Status of the NDR
The Directorate General of Hydrocarbons (DGH) appointed Engineers India Limited (EIL) as the Project Management Consultant for this project. Further , the contract to build, populate and operate the NDR was awarded to M/S Halliburton early this year. It would take nearly a year to set-up the infrastructure required for hosting this NDR and a further year to feed data into the system. Once it has been established, India would join the league of countries which have an NDR and this would help it in competing with other countries in order to attract investments in hydrocarbon exploration sector.

Attracting Investors in Future Hydrocarbon Bidding Rounds
So, is the establishment of NDR the only pre-requisite for introducing OALP for attracting investment into the E & P sector? In reality it is a necessary but not sufficient condition to increase the interest of investors in the Indian E & P industry. A stable regulatory regime governing oil and gas exploration and production is of prime importance in order to improve the attractiveness of India as an E & P destination. Even OALP may not be successful in attracting the E & P supermajors to bid for Indian hydrocarbon blocks if the current challenges faced by the industry are not removed before the next hydrocarbon block is put up for auction. The Government has taken the right stand of removing the bottlenecks in the E & P industry before announcing the next round of award of hydrocarbon blocks. Some of the challenges faced by E & P companies and possible steps to address them have been detailed out below:
  • There have been instances of exploration being held up for want of clearances from different Ministries like Defence, Space, Environment, Forest etc. Companies have had to consider relinquishment even before mobilising exploration resources. Understandably, such a challenge can be overcome if Government departments synergise before offering blocks. To attract investments such a synergy would be welcome.
  • Currently oil and gas companies are not allowed to explore for any type of hydrocarbons in a block except for the one which it is awarded for, which means that in a conventional oil and gas block companies are not allowed to undertake E & P operations for unconventional hydrocarbons like CBM/shale gas and similarly in a CBM block they are not allowed to carry out E & P activities relating to non-CBM hydrocarbons. Industry believes that the unconventionals of today may become conventional few years from now; hence companies should be allowed to commercially produce any type of hydrocarbons which they encounter during its E & P operations. Recently the Government has allowed National Oil Companies ONGC and OIL to explore for shale resources in their existing onland nomination acreages. It is a welcome step and this dispensation should be extended to all players and for all types of hydrocarbons.
  • The role of the Management Committee has been a subject of intense debate in the E & P industry. As the Management Committee comprises of members both from the Government as well as the Contractor, often there is a stalemate on important decisions which tend to delay the E & P operations. One can count on fingers the number of NELP blocks where commercial hydrocarbon production has started, the reason for this being procedural delays. A country like India which is heavily dependent on oil imports to meet its demand cannot afford to delay domestic production. Procedural challenges need to be removed in order to ensure early monetisation of discoveries and reduction in our import bill. The exact role of the Management Committee needs to be put in black and white and standard operating procedures need to be laid down for different activities. Such steps would address the challenges resulting out of procedural delays.
It is essential that investor concerns like those listed above are addressed and the Government unleashes the true potential of Indian sedimentary basins in order to combat the rising import bill. Industry consultation on such matters could find the solution to many of the investors' woes. If right measures are not taken to address investor concerns, even the introduction of OALP may not be successful in attracting investors to India.