INDIA OILFIELD SERVICES MARKET TO REACH USD 7.8 BILLION BY 2020
-Vipul Tiwari, Consultant - Energy & Power TechSci Research

In the backdrop of falling crude price, global oilfield services market is anticipated to decline in the future. Simultaneously, decline in number of wells drilled during 2014-15 is expected to lead to a decline in E & P activities in India, which will eventually lead to decline oilfield services market in the country. The article highlights the current and future prospect of Indian Oil Field Services market in detail.

The market for oilfield services in India has a great potential for the future with improving demand from oil and gas sector, strong expansion of industrial, infrastructure and service sectors, and anticipated stabilisation of crude oil prices by 2017. Based on service type, oilfield services market in India is segmented into drilling and completion fluid services, coiled tubing services, pressure pumping services, wireline services, Oil Country Tubular Goods (OCTG), well intervention services, completion equipment & services and drilling waste management services. Oilfield services depend on a number of factors such as operating oil and gas wells, deviation in global crude oil prices, political volatility and regulatory framework of the country, etc.

Global oilfield services market is anticipated to decline in the future, due to reduction in drilling activities and decreasing crude oil prices. The world rig count declined by 1,526 from 3,658 in December 2010 to 2,132 in April 30, 2015. This dramatic fall in world rig count led to the decline in global oilfield services market.

Since 2012, the oil and gas sector in India witnessed a decline in demand, despite higher production of crude oil. This has ultimately reduced crude oil prices in India and further, negatively impacted growth in E & P activities. Moreover, decline in number of development wells drilled during 2014-15 is expected to lead to a decline in E & P activities in the country. This decline in E & P activities impacted oilfield services market to a great extent.

With the implementation of New Exploration Licensing Policy (NELP), number of blocks being allocated under different bidding rounds of NELP has increased and ensured a healthy competition between private and national oil companies such as Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL), which accounted for a lionís share in the oil and gas exploration and production market. These NELPs help companies attract private and foreign investments, which contributed to growth of exploration and production market in India. Also, 100 per cent FDI has been allowed in oil & gas exploration activities in India, thereby encouraging private sector participation and investments in the sector.

A total of 360 blocks have been offered under the 9 NELP rounds. Out of these 360 blocks, 282 blocks have been bid for, of which 261 blocks have been awarded, which include Production Sharing Contract (PSC) signing for 254 blocks. PSC signing for over 250 blocks is expected to boost E & P activities, and hence, oilfield services market in India during 2015-2020. As on 2014, 148 blocks were operational and remaining 106 blocks have been relinquished. Under NELP-X (which is to be held in March 2016), a total of 46 blocks are expected to be offered in 13 basins for exploration of oil and gas. These blocks would be based in basin of Gujarat-Kutch, Gujarat -Saurashtra, Mumbai, Kerala-Konkan, Cauvery, Krishna Godavari, Mahanadi-NEC, Andaman, Bengal, Punjab plain, Rajasthan, Cambay & Deccan Syneclise. Out of these 46 blocks, 17 blocks would be offered to onshore areas, 15 blocks to shallow water and the remaining 14 blocks to deep water areas. Allocation of blocks under NELPs is expected to boost exploration and production activities and drive growth in oilfield services market in India during 2015 -2020.

India's oil and gas exploration and production activities are forecast to grow at a CAGR of 2.37 percent during 2015-2020 and investments in the exploration and production division is projected to reach USD 27.25 billion by 2020. Oil and gas exploration sector witnessed significant growth over the past few years due to the implementation of NELP. Consequently, exploratory activities in several deep water and shallow areas, which were either unexplored or poorly explored, have been appraised through surveys and exploratory drilling.

Onshore oilfield services market in India accounted for a revenue share of more than 70 per cent in India oilfield services market during 2010-2014. Onshore oilfield services market in India was valued at USD 5.40 billion in 2014 and is projected to reach USD 5.71 billion by 2020, growing at a CAGR of 2.26 per cent during 2015-2020. Growth in the onshore oilfield services market can be attributed to the increase in number of onshore rigs from 88 in 2008 to 122 in 2014. Allocation of more onshore blocks under various NELP bidding rounds during the coming years is expected to propel growth in onshore exploration activity and drive India onshore oilfield services market.

Rising investments from ONGC and increasing rig count is projected to propel growth in India offshore oilfield services market at a faster rate of 10.82 percent during 2015-2020, compared to onshore oilfield services market in India. India offshore oilfield services market is projected to reach USD 2 .16 billion by 2020 from USD 1.29 billion in 2014. ONGC accounted for the highest share in operating offshore rigs in India with 39 rigs as of 2014. The total offshore rig count in India as of 2014 was 59 rigs compared to 50 rigs in 2013, registering a Y-o-Y growth of 18 per cent. Increase in number of oil discoveries in southern region of India and rise in number of offshore exploration wells being drilled across the region is anticipated to drive India offshore oilfield services market during 2015-2020.

India oilfield services market is being driven by high per capita energy consumption, fluctuations in crude oil prices, increase in GDP, and growth in the number of blocks coming under operational phase. Increase in per capita energy consumption implies to rising demand for oil and gas, which is anticipated to be addressed by increase in number of E & P activities, thereby driving growth in India oilfield services market. Developments in industrial, infrastructure and service sectors is anticipated to drive GDP growth in India and thereby boost energy demand in the country. All these factors are projected to increase oil and gas production and propel growth in India oilfield services market during the ensuing years.

In 2014, Gujarat, Rajasthan and Assam garnered the highest share in India oilfield services market, as these states have maximum oil and gas exploration and production activity in the country. Western region dominates India oilfield services market due to huge investments from major E & P companies and rise in drilling activities in the region. Around 7,032 and 362 wells are proposed to be drilled in Gujarat and Rajasthan, respectively by 2020.

ONGC and OIL, the two national oil companies along with 30 private and joint venture companies are engaged in oil and gas exploration and production (E & P) activities in India. Some of the major private oil and gas companies operating in India include Essar Oil Ltd, Reliance Industries Ltd (RIL), Adani Welspun Exploration Ltd, Cairn Energy India Pty Ltd, BHP Billiton Pty Ltd, and British Gas Exploration and Production (India) Ltd.

ONGC is the largest oil and gas exploration and production company in India, followed by Oil India Limited (OIL). In 2014, ONGC accounted for a total of 112 rigs, which includes both onshore and offshore rigs, whereas OIL had only 15 rigs, including onshore and offshore drilling rigs. ONGC made 14 new oil and gas discoveries in FY14. Oil exploration in India has increased over the years and resulted in an increase in the number of drilling activities. ONGC intensified its exploration activities focusing on long-term growth. During 2010-2014, the rig count in India witnessed rapid growth indicating increase in exploration and production activities to reduce dependence on imports. This increase in the number of drilling activities is anticipated to fuel growth in India oilfield services market over the next five years .

Investment plans of companies such as ONGC, OIL and Hindustan Oil Exploration Company Limited (HOEC) in the public sector, and Reliance India Limited (RIL) and CAIRN India in private sector is expected to push revenue growth in India oilfield field services market during the coming years. Further, Government's decision of moving from Production Sharing Contract to Revenue Sharing Contract regime is expected to drive growth in India oilfield services market. Auctioning of 69 idle oil and gas fields of stat -owned ONGC and Oil India to private companies on new Revenue Sharing Model is forecast to further boost the market for oil and gas exploration and production in the future. Various PSU companies dealing in oil and gas exploration and production activities in India are planning to invest heavily in E & P activities and this is projected to drive growth in India oilfield services market during the coming years.

As the number of development wells is increasing and is estimated to reach 549 by 2020, more development and drilling activities are scheduled for completion during 2015-2020. Also, investments worth USD 2875.8 million are being made in NELP-IV to NELP-IX, suggesting that exploration activities are forecast to increase. India drilling services market is projected to increase from USD 2.77 billion in 2015 to USD 3.40 billion by 2020.

Due to regulatory delays, companies such as BHP Billiton Ltd and Santos have exited exploration blocks that were awarded to them under NELP rounds. BHP was awarded 10 blocks, of which six blocks were allocated in the seventh round and three blocks in the eighth round of auction under NELP.

The company decided to relinquish 9 out of 10 blocks due to its inability to carry out exploration operations in these blocks, delay in defence approval and timely clearances. Santos, Australiaís third-largest oil and gas producer, was awarded two blocks in south-eastern part of Kolkata in the sixth round of NELP. The company plans to exit these two blocks due to their maritime boundary dispute with Bangladesh and defence restrictions. Government is trying to persuade BHP Billiton Ltd. and offering partnership with ONGC. Oil and Natural Gas Corporation has considered the idea of purchasing majority stakes in blocks awarded to BHP Billiton Ltd, and receiving timely approvals. Due to exit of BHP Billiton Ltd and Santos from the oil and gas sector, which was confronted with regulatory and pricing issues and lack of marketing freedom, is forecast to have a negative impact on the sector and thereby affect foreign investments in the sector.