India: ninth round of oil and gas auctions only receives limited interest from overseas

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5 April 2011, Oil, Gas

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The New Exploration Licensing Policy (NELP) in India has been instrumental in attracting investors to explore the country's hydrocarbon resources. According to Datamonitor's Global Oil and Gas Analyzer, India's oil and gas production has grown at a cumulative annual growth rate of 2% since the inception of NELP in 1999.

The government is considering replacing NELP with its proposed Open Acreage Licensing Policy as of 2012. With this is mind, the ninth round of bidding (NELP IX) has been significant for new players. For example, while established companies like Cairn Energy placed bids for two blocks and won nothing, the lesser-known Ishar Gas Oil and Sankalp Oil and Natural Resources both won three blocks each. Another new entrant, Chinar Commerce, also won two onshore blocks. The current bid round also saw a novel collaboration between the state-owned Oil and Natural Gas Company (ONGC) and Oil India Limited (OIL), which is likely to help both companies manage the huge costs involved in the exploration business.

The muted response from foreign investors will no doubt have come as a disappointment for the government, which was hoping for an influx of foreign capital and a greater number of technology collaborations in hydrocarbon exploration in India. The expectation of greater participation from foreign companies was high, primarily due to BP's recent $7.2bn deal to acquire a 30% stake in 23 blocks from Reliance Industries.

The Indian government's frequent revisions of its policies, particularly its decision to remove the tax holiday from the exploration of oil blocks in the current round, may have discouraged foreign investors from participating. The ongoing uncertainty surrounding the Cairn/Vedanta deal might also have been instrumental in deterring foreign oil and gas majors from bidding.

NELP IX may not have seen an increase in foreign participation, as anticipated by the Indian government; however, it has still generated a strong response, receiving bids for 33 of the 34 blocks on offer, as opposed to NELP VIII, during which only 36 of the 70 oil and gas blocks were auctioned. The current round also witnessed the return of energy majors like Reliance Industries, which ignored the previous round, to boost the hydrocarbon reserves and help reduce India's dependence on energy imports.

Source: Datamonitor

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