Historical Background of Oil Exploration in India
Historical Background of
Oil Exploration in India
5
5.1 Pre Independence 1866 - 1947 exploration activities started in the
dense jungles of Assam in North-East
5.1.1 The exploration of hydrocarbon in India India.
commenced in 1866 when Mr.
Goodenough of McKillop Stewart Co. 5.1.2 The first commercial discovery of
drilled a well near Jaypore in Upper crude oil in the country was, however,
Assam and struck oil. Mr. made in 1889 at Digboi. In 1893, rights
Goodenough, however, failed to were granted to the Assam Oil Syndi-
establish satisfactory production. By cate which erected a small refinery at
1882 the Assam Railway and Trading Margharita to refine the oil produced at
Company (ARTC), a company regis- Margharita. A new company known as
tered in London in 1881, with an Assam Oil Company (AOC) was
objective to explore the rich natural formed in 1899 with a capital of £
resources of Upper Assam, acquired 310,000 headquartered at Digboi to
rights for exploration over about 30 sq take over the petroleum interests,
miles in the same area. Sub-surface oil including the Makum and Digboi
72 Paper on “Review of E&P Licensing Policy” PetroFed
Historical Background of Oil Exploration in India
concessions and the rights from Company of USA) was engaged in
Assam Oil Syndicate. A 500 BPD exploration work in West Bengal. In the
refinery was set up in Digboi in 1901, year 1953, the first oil discovery of
supplanting the earlier refinery at independent India was made at
Margharita. Nahorkatiya near Digboi and then in
Moran in 1956.
5.1.3 In 1921, UK based Burmah Oil Com-
pany (BOC) which had a successful oil 5.2.3 In 1955, GoI decided to develop the oil
exploration record in Burma, bought all and natural gas resources in the
the shares from ARTC and was various regions of the country as a part
appointed commercial and technical of development of the Public Sector.
managers of AOC. By 1931, crude oil With this objective, an Oil and Natural
production has gone up to about Gas Directorate (ONGD) was set up
250,000 tonnes per annum and towards the end of 1955, as a subordi-
exploration activities were spread all nate office under the then Ministry of
over the Assam-Arakan region. Natural Resources and Scientific
Meanwhile another field was discov- Research. The department was
ered at Badarpur in the Surma valley constituted with a nucleus of geoscien-
and because the discovering party tists from the Geological Survey of
lacked the capabilities to exploit the India (GSI).
find, BOC provided technical know-
how, financial backing and managerial 5.2.4 In April 1956, the GoI adopted the
support. Industrial Policy Resolution, which
placed mineral oil industry among the
5.2 1947 - 1960 schedule 'A' industries, the future
development of which was to be the
5.2.1 After independence, the Government sole and exclusive responsibility of the
of India (GoI) realized the importance state.
of oil and gas for rapid industrial
development and its strategic role in 5.2.5 Soon, after the formation of ONGD, it
defence. Consequently, while framing became apparent that it would not be
the Industrial Policy Statement of 1948, possible for the Directorate with its
the development of petroleum industry limited financial and administrative
in the country was given top priority. powers as subordinate office of the
Government, to function efficiently. So
5.2.2 While BOC and AOC continued in August, 1956, the Directorate was
development of Digboi oil field and raised to the status of a commission
intensified exploration activities in the with enhanced powers, although it
North-East region, the Indo-Stanvac continued to be under the government.
Petroleum project (a joint venture
between GoI and Standard Vacuum Oil 5.2.6 ONGC started its systematic geo-
scientific surveys in areas considered
prospective on the basis of global
analogies. A thrust in exploration was
concentrated during the early years in
the Himalayan Foothills and adjoining
PetroFed Paper on “Review of E&P Licensing Policy” 73
Historical Background of Oil Exploration in India
Ganga plains, in the alluvial tracts of 5.3.2 ONGC's Geo-scientific surveys and
Gujarat, Upper Assam and Bengal exploratory drilling activities were also
Basin. Exploratory drilling was initiated spread out to U.P. (1962), Bihar
in the Himalayan Foothills in 1957 with (1963), Tamil Nadu (1964), Rajasthan
drilling of the first well Jawalmukhi-1 in (1964), J&K (1970), Kutch (1972) and
Himachal Pradesh. The year also saw Andhra Pradesh (1978). In spite of
drilling activities being taken up for the limited success in these areas, ONGC
first time in Cambay Basin which pursued its exploratory efforts and was
ultimately resulted in the discovery of successful in indentifying hydrocarbons
oil and gas in 1958. in Cauvery basin and Krishna Godavari
basins in the mid 1980s.
5.2.7 Meanwhile, Oil India Private Ltd. was
incorporated on February 18, 1959 for 5.3.3 Offshore exploration was initiated in
the purpose of development and 1962 through experimental seismic
production of the discovered prospects surveys in the Gulf of Cambay. De-
of Nahorkatiya and Moran and to tailed seismic surveys carried out in
increase the pace of exploration in the the western offshore in 1972-73
North-East India. It was registered as a resulted in the identification of a large
Rupee Company in which AOC/BOC structure in Bombay Offshore which
owned two-thirds of the shares and was taken up for drilling in 1974
the GoI, one-third. leading to India's biggest commercial
discovery, thereby establishing a new
5.2.8 In October 1959, ONGC was con- hydrocarbon province. Encouraged by
verted into a statutory body by an act the success at Bombay Offshore,
of the Indian Parliament, which en- exploratory efforts were expended
hanced powers of the commission systematically in the entire Western
further. The main functions of ONGC Offshore including Kerala-Konkan
subject to the provisions of the Act, basin and Eastern Offshore areas
were "to plan, promote, organize and leading again to large discoveries in
implement programmes for develop- the Western Offshore (Bassein and
ment of Petroleum Resources and the Neelam) and substantial accumula-
production and sale of petroleum and tions in the Eastern Offshore (Ravva,
petroleum products produced by it, and PY-3 etc.).
to perform such other functions as the
Central Government may, from time to 5.3.4 ONGC went offshore in the early
time, assign to it ". 1970s and discovered a giant oil field
in the form of Bombay High, now
5.3 1961 - 1991 known as Mumbai High. This discov-
ery, along with subsequent discoveries
5.3.1 On July 27th 1961, the Government of of huge oil and gas fields in Western
India and BOC transformed OIL into a offshore changed the oil scenario of
Joint Venture Company (JVC) with the country. Subsequently, over 5
equal partnership. billion tonnes of hydrocarbons were
discovered. The most important
contribution of ONGC, however, is its
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Historical Background of Oil Exploration in India
self-reliance and development of core regulation of the petroleum industry at
competence in E&P activities at a one stroke. However, the Strategic
globally competitive level. Planning Group on Restructuring of the
Indian Oil Industry, the 'R' Group,
5.3.5 ONGC Videsh Limited (OVL) was headed by the then Petroleum Secre-
formed with a view to undertake the tary, Dr. Vijay Kelkar, felt the
overseas exploration and production switchover should be in a phased
activities on behalf of ONGC. manner.
5.3.6 On October 14th, 1981, OIL became a 5.4.3 Commercial hydrocarbon discoveries
wholly-owned GoI enterprise by taking were reported by OIL during 1990-91 in
over BOC's 50 percent equity and the Assam and Rajasthan. During 1993-94
management of Digboi oilfields ONGC's production from western
changed hands from the erstwhile offshore reached a low of 15.37 MMT,
AOC to OIL. For the time PELs outside prompting ONGC to enter into Joint
the North-East, were granted to OIL in Ventures for developing Ravva, Mid &
Offshore Orissa (Mahanadi) in 1978, in South Tapti, Mukta and Panna fields.
Mahanadi Onshore (1981), North-East
Coast Offshore (1983), Rajasthan 5.4.4 The JV initiative was fruitful inasmuch
(1983), Saurastra Offshore (1989) and as it increased the production from
Ganga Valley areas in UP in 1990. these declining fields by 5 MMT in
1994-95. during the same period 5
5.4 After 1991 important discoveries were made in the
Bombay, Krishna-Godavari and
5.4.1 The liberalized economic policy, Cauvery basins.
adopted by the Government of India in
July 1991, sought to deregulate and 5.4.5 A committee was constituted in 1992
de-license the core sectors (including under the chairmanship of P.K. Kaul,
petroleum sector) with partial former Cabinet Secretary, to examine
disinvestments of government equity in the need for restructuring of ONGC.
Public Sector Undertakings and other This Committee recommended setting
measures. Following this, ONGC was up of a body, with the name and style
re-organized in February 1994 as a of the Director General of Hydrocar-
limited company under the Companies bons (DGH), for discharging the
Act. regulatory functions of leasing and
licensing, safety and environment as
5.4.2 Post liberalisation, several committees also development, conservation and
were set up to examine various reservoir management of Hydrocarbon
proposals for restructuring and devis- resources. Accordingly, DGH was set
ing strategies to meet the challenge of up by a Government Resolution in
the new economic environment. April, 1993 through which certain
Among the most prominent reports advisory regulatory roles were en-
was the Sundarajan Committee Report trusted but no development role was
in February 1995 which favoured de- assigned.
PetroFed Paper on “Review of E&P Licensing Policy” 75
Historical Background of Oil Exploration in India
5.4.6 OIL also went overseas and acquired a 5.4.7 In 1997 the GoI, in order to accelerate
20 percent participating interest in the pace of exploration efforts in the
production sharing contract for the country, approved the New Exploration
Block 4 in Oman through a farm-in Licensing Policy (NELP) by providing a
agreement with TOTAL-FINA of number of attractive fiscal and contrac-
France. It also involved in the explora- tual terms. Till now, four rounds of
tion service contract for the Farsi block NELP have been concluded while the
in Iran along with OVL and Indian Oil 5th round is underway with the award
Corporation Limited. for 18 of the 20 blocks on offer being
announced in July 2005. The PSC for
the blocks are expected to be signed in
October 2005.
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India Attracting Global Upstream Investments
India Attracting Global
Upstream Investments
6
6.1 Introduction and deep water basins with an esti-
mated hydrocarbon potential of 28
6.1.1 Till the end of 1970s, E&P industry in billion tonnes of oil and oil equivalent of
India was dominated by the two gas remained largely untapped.
National Oil Companies (NOC) -
ONGC and OIL. With limited resources 6.1.2 India's 26 sedimentary basins add up
and technology exposure, exploration to approximately 3.14 million sq km
of oil and gas in the country was with 1.78 million sq km comprising of
confined primarily to onland and onland and offshore areas up to the
shallow water depths of 200 m bathym- 200 m isobath line. In deep water
etry by these two NOCs. Thus, a large beyond 200 metre isobaths, the
part of India's sedimentary area sedimentary area has been estimated
comprising of 26 sedimentary basins to be about 1.35 sq km.
PetroFed Paper on “Review of E&P Licensing Policy” 77
India Attracting Global Upstream Investments
6.2 Categorization of Sedimentary Basins
6.2.1 The sedimentary basins have been divided into four categories as a function of geological
knowledge of the basin as presently known, presence and/or indication of hydrocarbons
and current status of exploration.
Category Basis for categorization of Sedimentary basins in India
I Established commercial production
II Known accumulation of hydrocarbons but no
commercial production as yet
III Indicated hydrocarbon shows that are considered
geologically prospective
IV Uncertain potential which may be prospective by
analogy with similar basins in the world
Share of Categories of Sedimentry Basins in India (2005)
Total Cat I Cat II Cat III Cat IV
Offshore Cat I Cat II Cat III Cat IV
Onland Cat I Cat II Cat III Cat IV
0% 20% 40% 60% 80% 100%
Cat I Cat II Cat III Cat IV
Source: DGH
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India Attracting Global Upstream Investments
6.2.2 Till now, only 7 basins have been moderately or well explored. Out of the
totalsedimentary basin area in India almost 30 percent area remains unexplored while
another 19 percent is poorly explored as per DGH statistics released on on April 1st,
2004. Thus, many areas have been brought under active exploration compared to 1995-
96 largely due to the efforts of DGH which carried out regional surveys especially in deep
waters off the east and west coasts, the Andaman sea and some poorly explored areas
of the country. However, India's well density is a mere 11.76 wells per 10,000 sq km
against the world average of 1,000 wells per 10,000 square kilometre.
Source: DGH
6.3 Actions to
Exploration of Indian Sedimentary Basins (Area in sq kM) Turn Basins into Production Areas
Moderate to Well
Explored, 0.562,
18% 6.3.1
Unexplored, E&P activities in India need to be accelerated as the gap between indigenous production
0.942, 30% and demand is likely to widen in the future. The stagnating domestic production of crude
has increased the country's dependence on imports. This makes makes the economy
Poorly Explored, highly susceptible to fluctuations in international prices due to supply disruptions, political
0.582, 19% Exploration
and military events etc. As there cannot be any insurance against such events, the
Initiated, 1.054,
33% answer lies in intensifying exploration both within the country and looking for equity oil in
prospecting ventures abroad.
Domestic Crude Production vs Imports (in MMTPA)
100 80%
70%
80 81.99 90.43
78.71 60%
74.09
60 50%
57.8
40%
33.02 35.16 31.95 32.42 32.03 33.04 33.38
40 27.34 30%
20.69
20%
20
10%
0 0%
'90-91 '95-96 '99-00 '00-01 '01-02 '02-03 '03-04
Domestic Crude Production Imports % Imports
Source: MoPNG
PetroFed Paper on “Review of E&P Licensing Policy” 79
India Attracting Global Upstream Investments
6.3.2 Significant investments are needed to 6.3.4 The idea behind the national seismic
step up the level of domestic produc- grid was to extend the available
tion and accelerate the rate of reserve seismic data to the areas not yet
accretion. Among the various strate- covered and to upgrade data quality.
gies that can be adopted to reduce the Attempts to involve the private sector
demand-supply deficit is providing in seismic surveys through bidding
incentives to the private sector in rounds for speculative surveys were
exploration. The capital has to come in unsuccessful. However, joint venture
from the private sectorbe it indigenous speculative surveys with participation
or foreign. The private sector can of the DGH have been more success-
effectively contribute in terms of ful. DGH has also covered the entire
technology and financetwo critical Indian continental shelf up to a depth
inputs for a developing nation like of 3,000 m through satellite gravity
India. The chances of new discoveries surveys.
are enhanced when this occurs in a big
way. 6.3.5 GoI has stepped up its initiative of
enticing private investment into the
6.3.3 As ONGC and OIL face the challenge exploration and production of Oil and
of exploring more difficult areas and Gas. The most significant milestone in
the deep waters, the technology gap this regard has been the notification of
had become critical. Crude oil reserve NELP. Announced in the 1997-98
accretion during the 7th Five-year plan fiscal, the NELP took off in 1999. With
(1987- 92) exceeded the depletion and it, the Government hoped to eliminate
the reserves to production (R/P) ratio the country's growing demand-supply
went up even as the production differential and the resultant expensive
increased. The 8th Five-Year plan reliance on import of crude Oil.
(1992- 97) started on a poor note. The
accretion in the first three years was 6.3.6 The E&P licensing policy regime in
far short of target and the government India can be distinctly segregated into
decided to launch the accelerated two phases Pre-NELP and NELP and
programme for exploration (APEX), has been discussed in the following
which had a number of components chapters.
including:
A national seismic grid
Exploration in frontier areas and
deep waters
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History of Pre-NELP Licensing Rounds
History of Pre-NELP
Licensing Rounds
7
7.1 Overview 7.1.2 Failure to meet reserve accretion
targets prompted the Government to
7.1.1 The earliest effort at attracting foreign involve the private sector.Exploration
companies to invest was in the mid- bidding rounds started in 1979, but the
1970s under the then Union Minister early rounds were not successful. The
for Petroleum and Chemicals H. R. first four rounds took 12 years to come
Gokhale. ONGC and OIL were the (1979-91). The next five rounds came
major players. Except for Carlsberg of in two years (1994-95) and succeeded
the US and Reading and Bates of in generating some interest in the
Canada, the Government could not international oil industry. An innovation
farm out any of the areas to other was also introduced in the 9th round -
parties. The two also eventually pulled known as the JV round to reduce the
out without finding any oil but made risk for the private investors by associ-
their documentation available to the ating ONGC/OIL as partners in these
Government. exploration ventures. However, the
rigid decision-making structures of
PetroFed Paper on “Review of E&P Licensing Policy” 81
History of Pre-NELP Licensing Rounds
these National Oil Companies (NOCs) arising from the discovery of new
created problems of compatibility and hydrocarbon reserves in non-OPEC
reduced the attractiveness of this countries particularly Norway, U.K. and
innovation. Mexico. Falling oil prices narrowed the
profit margins of the oil companies
7.1.3 To raise the interest of foreign compa- compelling them to be more selective
nies in the E&P sector, the govern- in their choice of new international
ment decided to award some small ventures.
and medium fields for development to
the private and joint sectors, respec- 7.1.6 Secondly, China threw open its off-
tively, and came out with two rounds in shore acreage to international compa-
1992 and 1993. These rounds evinced nies. The offshore areas of China had
tremendous response from foreign excited explorers ever since offshore
players. Also, in order to upgrade the exploration had become a technical
information on the hydrocarbon reality. Its offshore sedimentary basin
potential of India's unexplored sedi- offered the possibility of large new
mentary basins, the GoI offered blocks discoveries. Thus, when China re-
for geophysical surveys during 1993 to versed its policy of isolation and
1995. adopted an open door attitude towards
international exploration, there was
7.1.4 The following discussion chronologi- literally a scramble to take up acreage
cally traces the various Exploration in the country. In the process funds
rounds, Speculative Survey rounds which had been previously allocated to
and Development rounds announced India and South Asia in general were
by the GoI during the period from 1980 diverted to exploration in China.
to 1995.
7.1.7 Four companies responded to the
First Round of Exploration (1980) Government's offer for bidding for two
blocks. After negotiations, the Govern-
7.1.5 In 1980, GoI made a second offer to ment concluded an agreement in
the international industry. This offer is March 1982 with Chevron Oil Com-
now referred to as the First Round as pany of USA. This was a production-
it was the first such invitation in the sharing contract that stipulated if
1980s. During this round, 32 offshore Chevron had made a commercial
blocks were placed offered to the discovery, ONGC would have had the
international industry. The timing of the option to take up to 50 percent equity
offer coincided with two significant interest in the project. Chevron was
international developments which obliged to sell its share of crude oil to
adversely impacted the response of India at the international market price.
the industry. Firstly, the international A 56.375 percent corporate tax was to
market price of crude oil and products be levied on Chevron's profits. In
started showing signs of weakness. addition a 15 percent royalty was
This was because of the combined leviable on gross production. Chevron
impact of the decline in demand drilled three wells without success and
caused by the price rises of the 1970s relinquished its contract area in 1985.
and the addition to worldwide supply
82 Paper on “Review of E&P Licensing Policy” PetroFed
History of Pre-NELP Licensing Rounds
Second Exploration Round (1982) evaluated in January 1987 and the
various companies were called for
7.1.8 The Second Round was announced in negotiations in February. In December
1982. This time the Government 1987 four contracts were signed, three
placed on offer 50 onshore and with the Chevron-Texaco group and
offshore blocks. Unfortunately the one with IPC. All four contracts were
market had weakened even further by for exploration in the offshore east
then and no bids were received for the coast.
blocks on offer.
Fourth Exploration Round (1991)
Third Exploration Round (1986)
7.1.12 In 1991, due to the Gulf crisis and
7.1.9 In March 1986, GoI announced its disintegration of the Soviet Union, the
Third Round in which 27 offshore Government further intensified its
blocks were demarcated and placed efforts and started announcing bidding
on offer. The indicative terms of the rounds at regular intervals.
production sharing contract were
issued along with the announcement. 7.1.13 The Fourth round of exploration for oil
The Government followed up the and natural gas in India was an-
announcement with three presenta- nounced in 1991. GoI invited bids from
tions in Delhi, London and Houston companies to explore for oil and
during which a delegation from the natural gas in 72 blocks out of which
Government, ONGC and OIL outlined 39 were offshore and 33 were onland.
the main provisions of the proposed A number of foreign companies did
contract and provided briefs on the participate in this round. These compa-
geophysical and geological activities nies include Albion India Inc., Coplex
carried out by the two national oil (India) Ltd., Vaalco Energy Inc.,
companies in the blocks offered. Rexwood-Oakland Joint Venture and
Pan Energy Resources from USA,.,
7.1.10 The framework of the contract offered Niko Resources Ltd., Canada, Shell
in the Third Round was also of the India Production Development B.V.,
production sharing kind. The detailed The Netherlands, and Sterling Re-
terms and conditions were however sources N. L., Australia.
different from those offered in the
earlier two rounds. Inter alia, the First Development Round (1992)
Royalty charge of 15 percent was
withdrawn and Corporate Tax was 7.1.14 GoI came out with the First Round of
reduced from 56.375 percent to 50 bidding for development of small and
percent. medium sized oil and gas fields in
1992. These fields were discovered
7.1.11 Seven companies viz., Shell, Chevron- either by ONGC or OIL but could not
Texaco, Broken Hill Proprietary Britoil, be developed on account of financial
Amoco, Albion and International constraints of the companies.
Petroleum Corporation (lPC) made 12
bids for 9 blocks. The bids were 7.1.15 A total of 31 small-sized discovered
PetroFed Paper on “Review of E&P Licensing Policy” 83
History of Pre-NELP Licensing Rounds
fields were offered, out of which 10 onshore. Among the foreign compa-
were offshore and 21 onland. Of the nies who showed interest under this
above fields on offer, only 3 onland round included Samson International.
fields were discovered by OIL while the Ltd., Amoco India Petroleum Ltd.and
rest belonged to ONGC. The offshore Enron Oil & Gas India Ltd from the
basins in which the offered fields were USA, BHP Petroleum (India) Ltd.,
located included the Andaman, Australia and Phoenix Geophysics
Krishna-Godavari, Cauvery and Ltd., Canada.
Bombay basins. Onland blocks were in
the Gujarat and Assam basins. 7.1.19 In order to upgrade the information
available on the hydrocarbon potential
7.1.16 GoI offers 12 medium-sized fields 6 of the unexplored sedimentary basins
offshore while 6 onland to be devel- in the country, GoI announced the offer
oped by the companies in joint venture of blocks for carrying out speculative
with ONGC/OIL. Offshore fields offered geophysical and other types of sur-
included the Ravva, Panna, Mukta, Mid veys. In the First Round, a total of 35
and South Tapti and the R-Series. blocks 21 offshore and 14 onshore
Onland fields included fields in were put on offer.
Arunachal Pradesh, Assam and
Rajasthan. 7.1.20 Also in 1993, GoI invited offers from
companies to participate in the devel-
Fifth & Sixth Exploration Round/ Second opment of medium sized and small
Development Round/ First Speculative sized oil & gas fields in India.
Survey Round (1993) Eightmedium-sized and 33 small-sized
fields were on offer. The medium-sized
7.1.17 The Fifth Round of bidding for explora- fields were to be developed in joint
tion of oil & natural gas in India was venture between the companies and
announced in 1993 in which a total of ONGC/OIL while the small-sized fields
45 blocks were offered 29 offshore were to be developed by companies on
and 15 onland. Rexwood-Oakland JV, their own with no participation by
USA, Command Petroleum Holdings, ONGC/OIL. Of the 33 small size fields,
Australia, Vaalco Energy, USA partici- 4 were offshore while the balance 29
pated. was onland fields. Of the 8 medium
sized fields 2 were offshore Ratna &
7.1.18 Again in the same year, as part of the R-Series and Bassein Oil Rim while 6
continuous round-the-year bidding were onland located in the Cambay
scheme for exploration acreages, GoI and the Upper Assam basins.
announced the Sixth Round of bidding
for exploration of oil & gas in India. Seventh & Eighth Exploration Round/
Twenty-three blocks from those offered Second Speculative Survey Round (1994)
in the Fifth Round of bidding were
offered again in this Round. In addition, 7.1.21 The Seventh Round of bidding for
23 other blocks were put on offer exploration of oil and natural gas
making a total of 46 blocks on offer, blocks in India was announced by GoI
with 17 of them being offshore and 29 in 1994. A total of 45 blocks were
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History of Pre-NELP Licensing Rounds
offered out of which 27 of them were types of surveys with the participation
onland and 17 were offshore and 1 of its nominee, the Directorate General
onland block extended in offshore. of Hydrocarbons (DGH). A total of 20
Under this round companies like blocks were placed on offer with 16
Rexwood-Oakland, Enpro India Ltd, being offshore and 4 being onland.
Geo-Enpro Petroleum Ltd., Phoenix
Overseas Ltd. and Enron Oil & Gas 7.2 Exploration Rounds
India Ltd participated among others.
7.2.1 As discussed in the above section,
7.1.22 In the same year the GoI announced during the pre-NELP period, a total of
the Eighth Round of bidding for the nine rounds of bidding for exploration
exploration acreages. A total of 34 took were held by GoI including the last
blocks were offered out of which 19 of Joint Venture (JV) Round. The first
them were onland and 15 were off- three rounds were announced between
shore. 1979 and 1986 while the fourth round
was announced in 1991 when India
7.1.23 GoI announced the Second Round of opened its door for foreign investments
offer of blocks for carrying out specula- in a number of industries. After the
tive geophysical and other surveys. In Fourth Round, GoI adopted a system
this round, a total of 12 blocks were on of continuous round-the-year bidding
offer 11 onland and 1 offshore. with exploration blocks being offered
every six months. Under this scheme,
JV Exploration Programme / the Fifth to Eighth Rounds of bidding
JV Speculative Survey (1995) were held during January 1993 to July
1994. Bidding for JVEP was held in
7.1.24 The last of this series of rounds was September 1995.
the Joint Venture Exploration
Programme (JVEP) for the exploration 7.2.2 The exploration blocks under the pre-
of oil and natural gas in India an- NELP rounds were identified for offer
nounced by GoI in 1995. Under this in consultation with ONGC and OIL,
programme the successful company/ who were the licensees. Notices were
consortium was to form an unincorpo- published in national and international
rated joint venture with ONGC/OIL. A dailies/journals inviting offers for the
total of 28 exploration blocks were identified blocks. Companies were
placed on offer (23 of which were given about five to six months to
under licence to ONGC and 5 to OIL), submit their bids. The bids were invited
with 10 of them being offshore and 18 under international competitive bidding
onland. system. Information docket/data
packages were prepared by ONGC/
7.1.25 The first two speculative survey rounds OIL for each block on offer.
were unsuccessful, prompting GoI to
announce a Joint Venture Speculative 7.2.3 The main criteria for evaluating of bids
Survey Round in 1995. Under this were the technical and financial
round the blocks were offered to carry capability of the bidding company/
out speculative geophysical and other consortium, work programme and the
PetroFed Paper on “Review of E&P Licensing Policy” 85
History of Pre-NELP Licensing Rounds
commercial terms offered to the terminate the contract at the end of
government. The bids were evaluated each commitment phase.
by ONGC/OIL/DGH. The evaluations Cost recovery of up to 100 percent
were considered by the Empowered was allowed. The percentage of
Committee of Secretaries (ECS) annual petroleum production
comprising Petroleum Secretary, expected to be allocated for
Finance Secretary and Law Secretary. recovering costs was required to
The C&MDs of ONGC and OIL also be indicated.
assisted the committee as technical
members. The recommendations of Companies had to indicate the
the ECS on the award of blocks were minimum exploration work they
placed before the Cabinet Committee planned to carry out in each
of Economic Affairs (CCEA) for commitment phase.
consideration and approvals. The The sharing of profit was to be
blocks were awarded to the successful based on a sliding scale tied to
bidders after obtaining CCEA approv- post-tax rates of return or multiples
als. Successful companies or consor- of investment recovered. Multiples
tiums had to sign Production Sharing of investment recovered was
Contracts (PSCs) with GoI and ONGC defined as the cumulative cash
or OIL. flow since the commencement of
the project operations divided by
7.2.4 The terms and conditions of the 9th the cumulative investment in the
Round of exploration, which was the project.
JV Round, were as follows:
For Natural Gas, the joint venture
ONGC or OIL was to have a had the freedom to make arrange-
participating interest of 25-40 ments for marketing the gas.
percent in the joint venture, thus There were no production or
sharing exploration costs. signature bonuses.
In the case of crude oil and All data gathered during the course
associated gas the contract was of operation under the contract
on a production-sharing basis for was the property of GoI.
25 years, from the date of com-
mencement of the contract (with a If the joint venture opted to pro-
possible extension of 5 years). For ceed to the second commitment
non-associated gas, the contract phase, it had to relinquish 30
was for 35 years from the date of percent of the original area of the
signing. block. Similarly, if it opted for the
third commitment phase, the joint
The exploration period was for a venture had to relinquish a further
maximum 6 years divided into 1-3 40 percent of the area. At the end
commitment phases, with no of the last commitment phase, the
single commitment phase exceed- joint venture had to relinquish all
ing 2 years. The company or areas except those in which
consortium had the option to
86 Paper on “Review of E&P Licensing Policy” PetroFed
History of Pre-NELP Licensing Rounds
hydrocarbons had been discovered No private company in a consor-
or a development plan had been tium that had been awarded a
prepared. However, negotiations block for exploration could unilater-
for certain blocks were allowed. ally withdraw from the consortium.
Further, government approval was
The joint venture was not required required for induction of any new
to pay royalty or cess and was player in the consortium.
exempt from customs duty on all
operations under the contract. The companies were required to
adhere to the original schedule,
Foreign companies were free to and the government had the right
remit amounts due to them under to revoke the contract if the
the contract out of India. companies did not follow the
Soft loans were available for the schedule.
exploration of blocks.
*
* Given to Chevron in Saurashtra Offshore where 3 wells were drilled. Chevran exited from the block in 1983.
PetroFed Paper on “Review of E&P Licensing Policy” 87
History of Pre-NELP Licensing Rounds
being advertised and later withdrawn at
7.3 Analysis of foreign invest-
the instance of a NOC. These factors
ments in Exploration rounds reduced the commercial attractiveness
of the blocks offered. If an acreage had
7.3.1 Before entering into a contract, an been extensively explored (e.g. by the
exploration and production (E&P) NOCs) without success it would not be
company has to balance the risk and considered attractive. Much of the
reward of the venture and compare it acreage offered in rounds seemed to
with other ventures around the world be on offer because it had already
that are competing for scarce re- been unsuccessfully explored.
sources. Companies will only bid on
attractive acreage. The fiscal terms are 7.3.5 The incentive structure was designed
generally of secondary importance. after a study of practices followed by
Attractive acreage has to be made other countries such as China and
available and be seen to be attractive. Indonesia. The bidders, however, felt
Success needs to be demonstrated. better incentives were necessary in
India to make up for the higher per-
7.3.2 Despite favourable terms and condi- ceived risks. Many improvements have
tions given to major countries world- indeed been made in the NELP.
wide the 9 bidding rounds conducted
thus far have met with poor response. 7.3.6 A very important factor was the delay
The reasons for such a performance in making and implementing the
have been discussed in the following exploration policies. The award of
paragraphs. production sharing certificates (PSCs)
required clearances from several
7.3.3 The stipulation that the prospective ministries, leading to inordinate delays.
investors should participate in biddings Though there was an empowered
seems to have put off many. committee of secretaries, it had limited
success in cutting through bureaucratic
7.3.4 There was a perception that the blocks red tape. While it should normally take
with high prospects were reserved for a few months to award these contracts
the NOCs and only the high-risk areas after the receipt of bids, in practice it
were offered to private investors. The took 2-3 years. Further, the awards
NOCs continued to hold on to the were followed by lengthy negotiations
blocks they were awarded on a nomi- prior to signing of the contract. In all,
nation basis. They also played a the procedural delays disappointed
decisive role in the delineation of the even the most determined bidders.
blocks. Though it was recommended Even after the contract was signed,
that, where feasible, an exploration many approvals, including the all
block should include a producing field important exploration licence, were
or an area with oil/gas finds, there required. These also took years to be
were instances where this was not realized.
done and the producing areas were
deliberately left out of the blocks. 7.3.7 A disturbing point that has been made
There were also instances of a block is that the agencies that were not
88 Paper on “Review of E&P Licensing Policy” PetroFed
History of Pre-NELP Licensing Rounds
associated with the negotiation of the specified time limit from this effective
PSCs but had to be approached date. However, there was no corre-
subsequently for various approvals sponding penalty on the government if
were not prepared to treat the PSCs as it did not provide approvals in time.
binding and sought to reopen matters
that were negotiated and settled. Some 7.3.11 Exploration blocks were not of the size
state governments have been of the expected by international operators
view that they have the right to select (the threshold size for exploration and
the awardees as the exploration developments considered to be of the
licence has to be issued by them. order of 100-300 million barrels and
These issues have not yet been fully 20-50 million barrels, respectively).
resolved which could cause problems
in awarding blocks in the future. The 7.3.12 The bidding process was handled by a
blocks already offered would not be group called the Exploration Contract
affected by this problem. Monitoring Group (EXCOM), which
formed a part of ONGC. The bidders
7.3.8 The current PSCs allow ONGC to perceived this to be against their
obtain up to 40 percent equity risk-free interest.
in a successful discovery. The remain-
ing 60 percent of the production is split 7.4 Speculative Survey Rounds
between the government and the
contractor, with the government 7.4.1 In 1993, GoI offered blocks for geo-
receiving between 20-50 percent. On physical and other surveys to upgrade
the remaining portion, up to 48 percent the information on hydrocarbon
income tax is paid. The overall revenue potential of India's unexplored sedi-
received by the contractor is less than mentary basins. After completion of the
18 percent, over a period of 25 years. work, GoI was to offer these blocks in
the subsequent rounds of exploration.
7.3.9 Acreage is assessed by inspecting Until 1996, GoI announced three such
data. All data has to be freely available rounds with the last round called the
and of good quality. A reasonable time Joint Venture Speculative Survey
has to be allowed for the assessment Round (JVSSR), 1995, with a provision
of the data. Industry has to know what of risk participation by DGH of up to 50
acreage is available. There was no percent.
comprehensive map showing all open
acreages, or areas for which the NOCs 7.4.2 The companies could enter into a
have already put in an application to speculative survey contract by signing
explore. The data dockets for the a profit-sharing contract with GoI
various blocks offered during the through their nominee, DGH. The
bidding rounds had insufficient data contract could be for any type of
and were overpriced. geophysical survey and companies
were free to bid for any number of
7.3.10 The 'effective date' was the date of blocks, on their own or by forming a
signing the PSC. There are penalties if consortium. The participation in these
work does not commence within a rounds, however, was very low be-
PetroFed Paper on “Review of E&P Licensing Policy” 89
History of Pre-NELP Licensing Rounds
cause of the high perceived risk and as well as all the processed, re-
the long time taken to settle negotia- processed and interpreted data is
tions. to be given free to the government.
The price of data packages and
7.4.3 The terms and conditions of JVSSR any subsequent change have to be
were as follows: agreed upon by the government.
Companies have to indicate the
Provision for cost sharing by GoI/
minimum work programme and the
DGH up to 50 percent.
expenditure that would be incurred
Data acquisition, processing and to complete it. Further, the com-
interpretation work to start within pany has to indicate profit-sharing
six months of obtaining the petro- with the government, which has to
leum exploration licence. The work be based on a sliding scale, after
should be completed within 24 cost recovery.
months from the date of signing
In the case of taxes and duties, the
the contract. The total period for
Income Tax Act, 1961 is to apply.
sale of data is up to seven years
Companies are entitled to customs
from the announcement of subse-
duty exemption on goods imported
quent exploration round, in case
for use in petroleum operations
the block is not awarded.
under the contract.
The acquired speculative survey
Foreign companies are free to
data can be sold to any interested
remit amounts out of India, which
hydrocarbon exploration company
are due to the company under the
in India. The original data acquired,
contract.
90 Paper on “Review of E&P Licensing Policy” PetroFed
History of Pre-NELP Licensing Rounds
7.5 Analysis of foreign were received in response to GoI's
First Round of development of me-
investments in Speculative
dium- and small-sized oil and gas
Survey rounds fields.
7.5.1 The first two speculative survey rounds 7.6.4 Companies or consortiums could
failed to generate any response from participate in the development of
companies and as a result GoI decided medium- and small-sized fields offered
to go for a joint venture round in 1995. under the various rounds. The terms
A contract was signed in 1997 when and conditions of the last round are
DGH formed a joint venture with stated below:
Western Atlas, USA, to undertake 2-D
seismic survey in the deepwater areas The joint venture to be formed for
of Bay of Bengal. This was the first development of a medium-sized
joint venture to be formed under the field could be an incorporated
joint venture round for speculative venture with equity participation of
surveys announced in October 1995. up to 51 per cent and the interest
Western Atlas acquired more than of ONGC or OIL being 40 per cent.
10,900 standard line km of data in the ONGC or OIL had no participating
eastern offshore region. or carried interest in the case of
small-sized fields.
7.6 Development Rounds
On signing of a PSC between the
company or joint venture and the
7.6.1 GoI offered the development of small
government, the sharing of profit
and medium sized oilfields (having
had to be indicated in the offer,
proven reserves and discovered by
based on a sliding scale tied to
ONGC or OIL) to the private sector in
post-tax rates of return or multiples
August 1992. This was done because
of investment recovered. Further,
of limited finances available with GoI
the percentage of annual produc-
its resultant predilection to develop and
tion of crude oil and gas expected
produce in medium and bigger fields
to be allocated for cost recovery
with better oil recovery prospects.
purposes was to be indicated.
7.6.2 Two JV rounds for the development of As against the First Round of
already-discovered fields were an- development where the private
nounced by GoI. Since fields were players had to supply natural gas
already discovered by the NOCs, the to GoI, the Second Round allowed
risk element as opposed to the explo- private players to market their
ration bid rounds was minimal and natural gas. However, the domes-
hence the response was much better tic market was accorded the first
than the exploration rounds. priority to market the natural gas
produced from any field. Arrange-
7.6.3 These development rounds evoked ments for marketing the gas
much enthusiasm, especially for the produced were negotiable between
medium sized fields. A total of 117 bids GoI and the company. The pricing
PetroFed Paper on “Review of E&P Licensing Policy” 91
History of Pre-NELP Licensing Rounds
formula for gas was based on 7.7 Analysis of Foreign
internationally accepted principles.
Investments in Development
A signature and production bonus Rounds
was to be paid.
Royalty, cess and other applicable 7.7.1 The offer of small-sized and medium-
levies were also to be paid. sized fields in India by the GoI received
overwhelming response from the
Companies were subject to a companies as can be seen from the
corporate income tax rate of 50 number of bids submitted against the
percent of the taxable income. blocks on offer.
Ring fencing was allowed for
development costs. 7.7.2 However, the operators of the medium-
No private company in a consor- sized fields which were awarded the
tium that was awarded a field for fields for development in 1994-95
additional development could faced certain roadblocks. The PSCs
unilaterally withdraw from the provided that crude oil/gas sales
consortium. Further, government agreements would be drawn up within
approval was required for the 90 days. Ad hoc arrangements were
induction of any new player. made to buy oil/gas from these fields
as they came into production. The ad
Companies were required to hoc prices delayed the cost recovery
adhere to the original schedule and by the operators and resulted in a lot of
the government had the right to frustration amongst them. The teams
revoke the contract if companies engaged for negotiating the crude
did not follow the schedule. sales agreements were different from
the teams negotiating the PSCs which
created problems for the operators.
92 Paper on “Review of E&P Licensing Policy” PetroFed
Evolution of NELP
Evolution of NELP
8
8.1 Introduction acreage to the company with the best
work programme and fiscal terms.
8.1.1 The most important step that the
Government has taken in the process 8.1.2 The Union Cabinet announced NELP in
of stepping up E&P activity in the the 1997-98 Budget. But that was
country is the New Exploration and merely the first step; the follow-through
Licensing Policy, commonly called has been extremely inexpedient. The
NELP. This series of new, attractive course has had its ups and downs.
fiscal and contractual terms is de- NELP has not come through smoothly.
signed to attract international operators In fact the dithering of the Union
to the Indian oil sector. Oil companies Government has proven to be quite
from the private and the public sectors expensive. Two successive govern-
will be treated at par and all new ments took agesalmost two fiscal years
acreage acquired will be given market- to finalize the tax incentives promised
driven price of crude oil and natural to prospective investors. Meanwhile fate
gas produced. This will hopefully frowned. Crude prices tumbled to
enable the Government to award almost half.
PetroFed Paper on “Review of E&P Licensing Policy” 93
Evolution of NELP
8.1.3 NELP hung fire due to the lack of inter- investment in the high-risk, capital-
ministerial consensus on actions intensive business of oil and gas
necessary to operationalize the policy. exploration is difficult at the best of
These included the pros and cons of times but all the more so when oil
the new petroleum tax code the companies were reeling under the
compilation of attractive fiscal incen- impact of slackening global demand
tives for investors. For instance, North and the consequent fall in prices. With
Block shot down the Petroleum oil companies all over the world mostly
Ministry's proposal to exempt E&P reporting poor second or third quarter
companies from the minimum alternate results in 1998, wide-ranging cost cuts
tax (MAT). This was one of the six were certain to offset pressure on
recommendations in the new petro- margins. Hence, many of them would
leum tax code. The Revenue Depart- take a second look at their exploration
ment consented to accord 'infrastruc- priorities and slash budgets for high-
ture status' to petroleum companies risk new ventures. As it is, the probabil-
and all tariff concessions that go with it, ity of striking hydrocarbons in a low-
but not exemption from MAT. The potential country like India was seen to
Department also turned down the be extremely low.
suggestion that multinationals be
allowed to pay the same rate of 8.1.6 The way the Petroleum Ministry was
corporate tax as NOCs, when develop- conducting the exploration business
ing new exploration blocks. NOCs paid indicated that it had little interest in
35 percent tax and transnationals, addressing the basic concerns of
roughly 10 percent more. potential investors. First, it did little to
remove misgivings that only unattrac-
8.1.4 There were ambiguities in the clauses tive acreage was being offered to them
pertaining to taxation in the model even under the new policy.The Govern-
production-sharing contract drawn up ment did not provide potential investors
for NELP. Also, a clause, which offset a easy access to geological data of the
loss in one exploration block with blocks that it had, thereby denying
profits from another, needed to be them the opportunity of studying the
amended before the policy was blocks before bidding. Also, the
notified, as it could lead to a substan- Government was oblivious to the
tial revenue loss for the government. frustrating delays experienced by
Then, the Ministry of Law raised investors in starting work on the
objections to the bid evaluation criteria exploration blocks already awarded.
and the bidding format. Further, a Government decision on the
price of the crude oil or gas discovered
8.1.5 Numerous such snags delayed the and produced was interminably
NELP notification. The delay sent out delayed.
signals that the government was not
serious about opening up the hydrocar- 8.1.7 The Oilfields Regulation and Develop-
bons sector to private participation. It ment Act, 1948, was also awaiting
seemed to be doing very little to make amendment. The Royalty Amendment
NELP a success. Attracting foreign Bill to this Act would usher in a new
94 Paper on “Review of E&P Licensing Policy” PetroFed
Evolution of NELP
and more rational royalty regime for 8.1.10 The main features of NELP are :
new exploration blocks under NELP.
Since the Bill could not be adopted in Fiscal stability provision in the
Parliament, an Ordinance was passed. contract
This enabled the Government to fix
Finalisation of contract on the
different rates of royalty for different
basis of Model Production Sharing
kinds of exploration terrains, depend-
Contract (MPSC)
ing on the different cost and risk
factors attached. The new royalty rates Petroleum tax guide to facilitate
for onland areas are 12.5 percent for investors
oil and 10 percent for gas. Offshore,
Possibility of seismic option in the
the rate is 10 percent for oil and gas,
first phase of the exploration
except for deep-water discoveries
period
(beyond 400 m bathymetry), which are
at 5 percent for the first seven years of NOC's to compete for acreages
production. The Lok Sabha finally
No payment of signature, discov-
passed the Oilfield Regulation Bill in
ery or production bonus
December 1998.
No Customs duty on imports
8.1.8 So, after the various enthusiastic go- required for petroleum operations
aheads and the almost immediate halt
No minimum expenditure commit-
commands, NELP finally took shape at
ment during the exploration period
the beginning of 1999. New year, new
hopes. But some critics felt that the No mandatory state participation/
response to the maiden international carried interest by NOCs
bidding proposed under NELP would
Freedom to sell crude oil and
be lukewarm, as there were mostly
natural gas in domestic market at
cosmetic changes in 44 of the blocks
market related prices
on offer.
Biddable cost recovery limit up to
8.1.9 This was countered by pointing out 100 percent
that a substantial difference between
Sharing of profit petroleum based
these and the earlier blockswas that
on pre-tax investment multiple
they were financially much more
achieved and is biddable
attractive than earlier fiscal packages.
The NELP, however, does not change No cess on crude oil production
the perceived geological prospects of
Royalty payment for crude oil and
discovering hydrocarbons in the oil
natural gas on ad-valorem basis
blocks until and unless data packages
for the offered blocks are substantially Onland Blocks Offshore Deepwater #
upgraded through fresh exploration
Crude Oil 12.5per cent 10 per cent 5 per cent*
efforts by NOCs.
Natural Gas 10 per cent 10 per cent 5 per cent*
* For first 7 years of commercial production
# beyond 400m bathymetry
PetroFed Paper on “Review of E&P Licensing Policy” 95
Evolution of NELP
Option to amortise exploration and 8.1.12 An objective Bid Evaluation Criteria
drilling expenditures over a period of (BEC) is in place wherein the following
10 years from first commercial main parameters will be considered
production while evaluating the bids:
Contribution to site restoration fund
fully deductible in same year for Technical capability of the bidding
income tax company/consortium
Liberal depreciation provisions Operatorship experience
making companies eligible for Financial capability of the bidding
further tax adjustments company/consortium
7 years tax holiday from the Work Programme
commencement of production
Profit sharing offered by the bidder/
Conciliation and Arbitration Act, s along with proposed cast recov-
1996, which is based on UNCITRAL ery limit
model shall be applicable
8.1.13 DGH provides the companies with
8.1.11 Under NELP companies are required to seismic data on the Indian sedimentary
bid for: basins. Companies are free to purchase
and inspect this data. Successful
Work programme commitment bidders enter into a Production Sharing
Profit petroleum share expected by Contract, based on the MPSC.
the contractor at various levels of
pre-tax multiple of investments
Percentage of annual production
sought to be allocated towards cost
recovery
96 Paper on “Review of E&P Licensing Policy” PetroFed
Evolution of NELP
8.1.14 The major differences between earlier rounds of bidding for exploration blocks and NELP
can be summarised as under:
PetroFed Paper on “Review of E&P Licensing Policy” 97
Evolution of NELP
8.1.15 NELP terms beneficial to NOCs ing interest was to be held by
NOCs. This will also provide
NOCs are exempted from payment operational flexibility to the compa-
of cess (a concession of almost US nies in selecting partners of their
$3.0/bbl) choice.
The maximum royalty rate is 12.5 A level playing field as no blocks
percent of international price as are reserved for NOCs.
against 20 percent of the adminis-
tered price in non-NELP areas
Incentive for deep water explora- 8.2 Progress under NELP
tion with only half of the royalty
payable in the initial seven years 8.2.1 According to a DGH press release the
from commencement of commer- progress of NELP in terms of explor-
cial production atory wells drilled and discoveries
made can be summed up as follows:
Exemption from customs duty
NOCs to get international prices on From the year 2000 onwards, so
their production of oil and gas far 71 wells have been drilled
under NELP PSCs. Out of these
Seven-year tax holiday from the 37 wells have been successful in
date of commencement of com- terms of striking hydrocarbons.
mercial production Thus the success ratio of explor-
Liberal depreciation provisions will atory wells drilled under NELP is
make companies eligible for 50 percent which is very encourag-
further tax adjustments ing.
Contribution made to the Site As many as 23 discoveries have
Restoration Fund Scheme is been notified by companies like
deductible in the year of contribu- Cairn Energy, Niko Resources,
tion and not in the year of Site Gujarat State Petroleum Corpora-
Restoration as per earlier provision tion and Reliance Industries. Out
of the Income Tax Act of these discoveries, two discover-
ies by Niko in the block CB-ONN-
8.1.16 NELP terms beneficial to private 2000/2 have already been brought
investors - Other than all the above to production. One discovery,
benefits that are applicable to private namely Dhirubhai-2, by Reliance
investors as well, the following benefits has been declared commercial.
also apply:
Development plans for two
Carried interest of NOCs at 30 deepwater discoveries of Reliance
percent has been abolished Dhirubhai-l & Dhirubhai-3 have
already been approved and gas
Companies are free to have 100 production is expected to begin in
percent participating interest as mid- 2008. Proposals for the
earlier up to 40 percent participat- commerciality of another deepwater
98 Paper on “Review of E&P Licensing Policy” PetroFed
Evolution of NELP
discovery Dhirubhai-6 has been enterprises submitted their bids. The
submitted by Reliance and this is PSC's were signed for 24 exploration
being evaluated within DGH. All the blocks comprising 7 deepwater, 16
other remaining discoveries are shallow offshore and 1 onland.
being appraised.
8.3.4 A total of 16 discoveries have been
made in two KG deepwater blocks and
8.3 NELP I (1999) one shallow offshore block in
Mahanadi-NEC. These discoveries
8.3.1 The first round of New Exploration include the world class gas discovery
Licensing Policy (NELP I) was an- made by the RIL-Niko Resources
nounced on January 8, 1999 by GoI. A consortium in 2002 in the Krishna-
total of 48 blocks were put on offer for Godavari (KG) basin deepwater block
exploration of oil and natural gas. Of KG-DWN-98/3. The other two discov-
these, 12 blocks were deepwater eries include the gas discovery made
(beyond 400m isobaths), 26 shallow by Scottish company Cairn Energy in
offshore and 10 were onland blocks. 2001 in the deepwater block KG-DWN-
The bid closing date was August 18th, 98/2 and gas discovery by RIL in block
1999. The companies could bid for one NEC-OSN-97/2 in the Mahanadi-NEC
or more blocks, singly or in association shallow offshore area.
with other companies and the success-
ful company/ consortium was free to 8.4 Analysis of foreign
form an unincorporated or incorporated investments under NELP I
venture.
8.4.1 The foreign companies which bid
8.3.2 For the first time in India, blocks under NELP I, either on their own or in
categorised under the nomenclature of consortium with an Indian company,
Deep water blocks were put on offer include Enron Corporation-USA,
under NELP I. Under the pre-NELP Petronas Carigali-Malaysia, OAO
rounds there were only two categories Gazprom-Russia, Energy Equity India
of blocks, either onland or offshore. Petroleum Pty Ltd.-Australia, Cairn
Companies were provided with only the Energy-Australia, Niko Resources
Basin Information Docket for the Ltd.,-Canada, Geopetrol International
deepwater blocks as there was no Inc.-Panama, Mosbacher India LLC-
separate Data Package available for USA, Grynberg Petroleum Co. (RSM
each block. However, seismic and Production Corporation, USA) and
gravity-magnetic data was made South Asia Oil & Gas Plc-Australia.
available for each of the blocks along
with Satellite Gravity Data. 8.4.2 Out of the 10 foreign companies who
submitted their bids under NELP I only
8.3.3 By the bid closing date of August 18th, 5 were successful in bagging a block.
1999, GoI received 45 bids for the 27 These foreign companies were Cairn
blocks on offer. Ten foreign, 6 Indian Energy (1 block), Niko Resources (12
private companies and 5 public sector blocks in consortium with RIL), OAO
PetroFed Paper on “Review of E&P Licensing Policy” 99
Evolution of NELP
Gazprom (1 block) and 1 block by CB-ONN-2000/2 located in Cambay
Mosbacher India Ltd. and Energy basin which were offered under NELP II.
Equity India Private Ltd. GSPCL discovered oil in the CB-ONN-
2000/1 block in August 2004. Niko
8.5 NELP II (2000) Resources struck natural gas in the
CB-ONN-2000/2 block in 2002. Subse-
8.5.1 GoI invited bids under NELP-II, on quently significant quantities of Shallow
December 15th, 2000 for 25 blocks for gas (NSA field) have been discovered in
exploration of oil and natural gas. Of the block.
these, 8 blocks were deep water, 8
shallow offshore and 9 were onland 8.6 Analysis of foreign
blocks. For the first time blocks in the investments in NELP II
west coast were put on offer as at that
time more than 50 percent of the 8.6.1 To woo private investors, both foreign
country's crude production came from and domestic, GoI appointed IHS
ONGC's Mumbai High fields on the Energy Group of USA as the marketing
west coast. The bidders were given consultant for NELP-II and road-shows
time duration of three-and-a-half months were held at Delhi, London, Houston,
to submit their bids and file their Singapore and Tokyo. Among the
documents by March 31st, 2001. major oil firms that participated in
these road-shows included Shell,
8.5.2 After the NELP I round, comments were British Petroleum, British Gas, Premier
invited from 43 E&P companies and Oil, Cairn Energy, Exxon Mobil, Mara-
organisations on the MPSC and based thon, Philips, Chevron, Texaco and
on the comments received GoI ap- Pertamina of Indonesia.
proved some changes to the MPSC
issued under NELP I. Also, to increase 8.6.2 The foreign companies who submitted
transparency in the bidding process their bids under NELP II round were
and to make it more investor-friendly, Niko Resources, Canada, Cairn
the weightage of the broad parameters Energy, U.K., Petrom, Romania,
for bid evaluation were made public for Heramec, U.K, Hardy Exploration &
the first time. Production India, U.K., Joshi Technolo-
gies, USA, Petrobas, Brazil,
8.5.3 The PSCs for the 23 blocks were ExxonMobil, USA, Premier Oil, Pan
signed on July 17, 2001, three and half Canadian, Total Fina Elf France and
months from the closure of bids on BHP Petroleum Australia
March 31, 2001 as against just about
seven and half months in the first round
8.7 NELP III (2002)
of NELP. The total investment commit-
ted in these 23 blocks was US$ 290
8.7.1 NELP III was announced on March
million (Rs.1,300 crore) in Phase-I and
27th, 2002 and bids were invited by the
US $ 788 million (Rs.3,700 crore) in all
GoI for 27 blocks for exploration of oil
three phases.
and natural gas. Of these, 9 blocks
were deep water, 7 shallow offshore and
8.5.4 A total of 3 discoveries have been made
in two blocks viz. CB-ONN-2000/1 &
100 Paper on “Review of E&P Licensing Policy” PetroFed
Evolution of NELP
11 were onland blocks. The bid closing by the investor community regarding
date was August 28, 2002. the Indo-Pakistan border tension and
travel advisories issued by certain
8.7.2 As in the previous rounds, the GoI countries.
undertook a comprehensive promo-
tional exercise to promote the blocks 8.8.2 By the time NELP III was announced in
through five road-shows at New Delhi, March 2002 hydrocarbon discoveries
Singapore, London, Houston and had been made under the first two
Calgary and through an exclusive rounds of NELP which included
NELP-III Indigo Pool website. discoveries by Cairn Energy in block
KG-DWN-98/2 (NELP I) and Niko in
8.7.3 A total of 45 bids were received for the block CB-ONN-2000/2 (NELP II). The
23 blocks on offer under the NELP-III Government, on the strength of these
by the bid closing date. Out of the 27 discoveries, was confident that the
blocks on offer, PSCs were signed for perception long held by the foreign
8 onland blocks, 6 shallow-water E&P companies regarding the low to
offshore blocks and 9 deepwater moderate hydrocarbon prospectivity of
blocks. No bids were received for 3 India, would change and that such
onland blocks and 1 shallow-water discoveries would instil confidence
offshore block. among the foreign investors while
investing in India.
8.7.4 A further analysis of the NELP III
response reveals that 18 blocks 8.8.3 However, the NELP III round received
attracted multiple bids, whereas 5 lacklustre response from the foreign
blocks attracted single bids. Thus E&P companies. A total of 11 compa-
about 78 percent of the blocks on offer nies submitted their bids out of which 7
attracted multiple bids under NELP III were domestic oil companies and 4
as compared to around 50 percent were foreign companies which in-
blocks attracting multiple bids under cluded Cairn Energy, U.K., Premier Oil,
NELP-I and NELP-II. U.K., Hardy Exploration and Produc-
tion, U.K. and Geo Global Resources,
8.8 Analysis of foreign Canada. Amongst the foreign compa-
nies Premier Oil and Geo Global
investments in NELP III
Resources had bid for the first time
under NELP.
8.8.1 The year 2002 was a mixed bag for the
foreign E&P investors. On one hand
8.8.4 Scottish explorer Cairn Energy and
efforts were being made by the GoI to
Premier Oil of UK had bid for one and
attract foreign investments such as
three blocks respectively but drew a
deregulation of the petroleum sector
blank. However, Hardy Oil of UK in
w.e.f. April 1st, 2002, and reduction in
consortium with RIL, was successful in
the income tax rate applicable to
bagging seven of the nine prime deep
foreign companies from 48 percent to
water blocks on offer, Geo Global
40 percent while on the other hand
Resources in consortium with Gujarat
apprehensions were being expressed
State Petroleum Corporation (GSPC)
PetroFed Paper on “Review of E&P Licensing Policy” 101
Evolution of NELP
and Jubilant Enpro, was successful in Bank guarantee to be returned after
bagging the KG-OSN-2001/3 in which minimum work programme comple-
a huge gas discovery of 20 tcf has tion
been reported in June 2005 by GSPC.
8.10 Analysis of foreign invest-
8.9 NELP IV (2003)
ments in NELP IV
8.9.1 Fourth round of NELP was announced
by GoI on May 8th, 2003, under which 8.10.1 NELP IV was expected to generate a
it invited bids for 24 blocks for explora- large participation from the foreign
tion of oil and natural gas. Of these, 12 companies, especially in the aftermath
blocks were deep water, 1 shallow of world class gas discovery reported
offshore and 11 were onland blocks. by the RIL-Niko consortium in the KG-
The bid closing date was September DWN-98/3 block in October 2002 in
30th,,2003. the KG Basin. Although international oil
majors like Total, ExxonMobil and Shell
8.9.2 As many as 48 companies reviewed showed interest, especially in the
the data packages for the 24 blocks on deepwater blocks, but decided not
offer. A total of 19 companies submit- participate in the NELP IV bidding
ted their bids. Out of these 12 were process.
domestic (six Public Sector and six
Indian private companies), and seven 8.10.2 The seven foreign companies who
were foreign. Nine companies were participated in NELP IV round were
first-time bidders under NELP. PSC's Enpro Finance, Niko Resources,
were signed for 20 exploration blocks Canada, Canoro Resources, Canada,
comprising 10 deep water and 10 Cairn Energy, UK, Geoglobal Re-
onland blocks. The twoblocks in sources, Zarubezneftgaz, Russia, BG,
Manipur and Palar offshore basin did UK and Hardy Exploration & Produc-
not receive any response. tion, UK. Out of the above 7 foreign
companies Zarubezneftgaz, BG and
8.9.3 Some of the changes made in NELP Canoro Resources had participated for
IV include: the first time under NELP.
Provision of fast-track arbitration 8.11 NELP V (2005)
Higher weightage for technical and
8.11.1 NELP-V was launched on January 4th,
financial capability for deepwater
2005 offering 20 blocks six deep water
blocks
blocks, two shallow water blocks and
Surcharge on income tax for foreign 12 onland blocks. The launch was
companies abolished earlier scheduled for May 25th but was
postponed due to the political uncer-
tainty in the wake of the general
102 Paper on “Review of E&P Licensing Policy” PetroFed
Evolution of NELP
elections. For the first time Government decided to exercise its
Maharashtra was included for explora- option to take its profit share of
tion under NELP-V. The bid closing natural gas in cash or in kind for a
date was May 31st, 2005. block of 5 years instead of such
option being made every year as in
8.11.2 A total of 69 bids for 20 blocks (18 bids the previous rounds.
for six deepwater blocks, seven bids for
In order to encourage small and
two shallow water blocks and 44 bids
medium sized investors, compa-
for 12 onland blocks) were received. On
nies having a net worth of US$ 500
July 25th, 2005, the Cabinet Committee
Million or more were not required to
on Economic Affairs (CCEA) approved
give a bank guarantee towards
the award of 18 blocks under NELP-V.
MWP commitment in respect of
The award of two blocks is pending on
onland and shallow water blocks.
account of certain representations
This threshold value in the previous
raising legal issues having been
rounds was US$ 1,000 Million.
submitted by the bidders to the Govern-
ment which are being examined at the In order to provide transparency to
time of writing of this paper. the bidding process, weightage for
all bid evaluation criteria including
8.11.3 Some of the new features introduced weightage for sub-criteria were
under NELP V are : made public under NELP-V for the
first time.
All geo-scientific data was made
available online through the internet
to enable companies to view data
8.12 Analysis of foreign invest-
at their own convenience and ments in NELP V
location. Work stations were
provided at Data Centres at Lon- 8.12.1 A total of 26 foreign companies and 21
don, Houston, Calgary and Dubai to Indian companies (eight Public Sector
facilitate companies to review and Undertakings and 13 Private Sector
analyze data and to provide on the undertakings) submitted their bids.
spot clarifications.
8.12.2 Out of the 26 foreign companies 17
Details of all operational blocks
companies submitted their bids for the
from earlier rounds such as work
first time. These companies are British
programme, fiscal terms, etc., were
Petroleum (UK), Petrobras (Brazil), ENI
made available at Data Centres to
S.p.a (Italy), Hunt Oil (UK), Beach
enable companies to assess
Petroleum (US), KUFPEC (Kuwait),
existing work programme as well
Norwest Energy (US), Suntera Re-
as other bidding parameters while
sources Limited (Russia), Zakros
formulating their own bids and also
Holdings Ltd. (Cyprus), Foresight (UK),
help them in forming strategic
Providence Resources (UK), Birkbeck
alliances.
Investment Limited (Mauritius), Exspan
In order to provide marketing Exploration and Production International
stability to the companies, the (Indonesia), Istech Resources Asia
PetroFed Paper on “Review of E&P Licensing Policy” 103
Evolution of NELP
(Indonesia), Jubilant Energy India (V) NELP rounds can be attributed to the
Ltd. (Cyprus), Jubilant Energy India (V) professional and extensive promotional
Limited (Cyprus) and Welwyn Re- exercise undertaken by the Govern-
sources Limited (Canada). ment in promoting NELP-V acreages
and also the huge gas and oil discover-
8.12.3 Energy majors like Shell (US), Total ies made by Reliance Industries Ltd.-
(France), BHP Billiton (Australia), Niko Resources consortium and Cairn
Statoil (Norway) showed interest after Energy.
initially purchasing the data packages
for various blocks but stayed away
from submitting bids at the last mo-
ment.
8.12.4 The handsome response generated by
NELP-V as compared to the previous
104 Paper on “Review of E&P Licensing Policy” PetroFed