India’s oil & gas industry struggles to attract foreign interest

Offshore India02 December 2013, LONDON, UK — India’s New Exploration Licensing Policy X (NELP X) license round, which will take place in January 2014, will struggle to attract major International Oil Company (IOC) participation, leaving the country underexplored and with an increasing dependency on foreign imports, says an analyst with research and consulting firm GlobalData.

According to Idris Shah, GlobalData’s Analyst covering Upstream Oil & Gas, IOCs have grown weary of the lack of a clear regulatory framework for approvals and resolving delays, which makes conducting business and long-term planning difficult. Currently, typical bureaucratic issues are solved on a case-by-case basis, with little or no evidence of due process.

In late October 2013, symptomatic of regulatory fatigue, one of the largest foreign investors BHP relinquished all licenses except the one non-operated position. Additionally, Statoil and Petrobras considered participating in blocks operated by India’s Oil and Natural Gas Corporation (ONGC) in 2010, but ultimately declined. Similarly, ConocoPhillips decided against exploring India’s deepwater areas with ONGC.

Recognising the need to generate more foreign investment, the Indian government made several overtures last year. A more attractive pricing structure for domestic market obligations was introduced in June 2012, based on a weighted average of American, British and Japanese benchmark gas prices from April 2014. This is expected to increase prices from $4.20 per thousand cubic feet (mcf) to between $6 and $8 per mcf.

Shah says: “To address the bureaucratic delays, India’s Directorate General of Hydrocarbons has proposed the creation of a single approval entity to help navigate the 70 or more approvals needed to begin exploration. There are also discussions of introducing a system whereby blocks are pre-approved for exploration before the round begins.”

GlobalData expects the IOC participation void to be filled with domestic operators such as ONGC, Oil India Limited and Indian Oil. However, Shah believes that a lack of domestic expertise will limit exploration and development of India’s deepwater areas, in which there are 25 blocks on offer in NELP X.

“The participation of foreign firms in the upcoming NELP X round will be a good barometer of the Indian policy shifts and whether more changes are needed to attract investment away from other areas of global exploration,” the analyst concludes.

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