New players save the NELP-VII show

1 Jul, 2008, 0242 hrs IST, ET Bureau

NEW DELHI: Oil at over $143 a barrel is big bucks anywhere in the world. But it’s a different story in India. The seventh round of bidding under the new exploration licensing policy (NELP) has been a near flop. But for a few new entrants like LN Mittal (one block with HPCL), BHP Billiton (seven blocks with GVK group), RIL-British Petroleum combine(one deepwater block) and the usual suspect ONGC, it would have been almost embarrassing for the government.

“The bidding was low and the response was lukewarm,” a senior official from the director general of hydrocarbons said. While 12 blocks, out of a total of 57, failed to get even a single bid, as many as 19 got just one bid. Big oil companies like ExxonMobil, Chevron, Total and Shell, among others, preferred to stay away.

As many as seven of the no-show blocks were in the deep water region. The response for the smaller fields, however, was relatively good.

“Response for gas expecting blocks are lukewarm because of lack of clarity on policy related issues,” said Director General of Hydrocarbons VK Sibal on the response and the bids. Exploration companies have taken a conservative approach and have bid cautiously, given the uncertainties in the tax regime, an analyst said.

The finance ministry, which has come under attack, for not extending a tax holiday to gas producing companies, went on the defensive and issued a statement, late on Monday evening as news of the bidding round poured in. The official statement only reiterated the finance minister’s reply to the debate on finance bill 2008.

“...There is no material difference in the content or substance of the old provision and the new provision. Subsequent to its introduction, bidding has taken place under NELP I to NELP VI and no request for amendment of the section was received from any quarter,” the statement from the central board of direct taxes said.

Strangely, public sector oil companies, did not share this view and were aggressive in their bids for profit share. “While private players bid profit shares — a share of the profits that companies give to the government after recovering their cost — between 70% and 75%, public sector giants like ONGC bid 85% to 95% in some blocks. What’s even more surprising is that these companies have projected a cost recovery of just 15% to 20%. At this rate, private oil companies can bid good-bye to India’s oil sector,” an energy analyst associated with the bidding rounds said.

Out of 19 deepwater blocks, GVK-BHP got seven blocks, ONGC bagged three blocks and Cairn has been lucky with one deepwater block and BP-RIL bagged one. There has been no takers for seven deepwater blocks. The bidding round (launched on December 13, 2007) was originally scheduled to be closed on April 11. The deadline was first extended to April 25, later it was changed to May 16 and finally to June 30.

The government offered 57 oil & gas blocks under NELP-VII. This included 19 deepwater blocks, 29 are onland blocks and nine blocks are in shallow water.

In previous six rounds, the government awarded 162 blocks. So far, the largest commitment of $3.32 billion investment was received in under NELP-VI where 52 blocks was awarded. Under NELP rounds, 49 oil and gas discoveries have already been made in Cambay onland, North East Coast and Krishna Godavari deepwater areas, accreting over 600 million tonnes of reserves.