Evolution of Oil & Gas Industry in India

1) At Independence , India 's domestic oil production was just 250,000 tonnes per annum. The entire production was from one state-Assam.

2) Most foreign experts had written off India as far as discovery of new petroleum reserves was concerned.

3) The Government announced, under Industrial Policy Resolution, 1954, that petroleum would be the core sector industry.

Preamble

1) Petroleum exploration & production was controlled by the Government-owned National Oil Companies (NOCs, ONGC and OIL) in pursuance of the Industrial Policy Resolution, 1954.

2) They had "the run of the country". They found significant quantities of oil and gas reserves. In the early 70s, they supplied nearly 70% of the domestic requirement.

3) However, by the end of the 80s, they had reached the stage of diminishing returns. Oil production had begun to decline whereas there was a steady increase in consumption and today the two NOCs are able to meet only about 35% of the domestic requirement.

4) Of greater concern was the abnormal decline in Bombay High and Neelam fields.

5) This was further compounded by the resource crunch in the beginning of the 90s. The Government had no money (FE) to give to the NOCs for the development of some of the then newly discovered fields (Gandhar, Heera Phase-II and III, Neelam, Ravva, Panna, Mukta, Tapti, Lakwa Phase-II, Geleki, Bombay High Final Development schemes etc.).

6) While some of these fields could be developed by ONGC (Gandhar, Neelam, Bombay High, Lakwa, Heera, Geleki etc.), for others there was no money available for indigenously developing the fields.

7) The problem had elements such as the administered oil price, non-availability of appropriate technology, logistics etc.

Petroleum Sector Reforms, 1990

1) Given the rather depressing scenario on the fiscal and crude output fronts, the Government launched the Petroleum Sector Reforms(PSR) in 1990. Till then (1990), three rounds of exploration bidding had been gone through with no success in finding new oil/gas deposits by the foreign companies who only were allowed to bid.

2) Under the PSR, the Fourth, Fifth, Sixth, Seventh and Eighth Rounds of exploration bidding were announced between 1991 and 1994. For the first time Indian companies with or without previous experience in E&P activities were permitted to bid starting with the Fourth Round. The NOCs had carried interest of upto 30% after commercial discoveries were made.

3) Most companies felt this to be a deterrent. The Government then announced the Joint Venture Exploration Programmed in 1995. The exploration blocks were in those areas for which the Petroleum Exploration License was with the NOCs and they were required to have a 25% to 40% Participating Interest from day one.

4) Once again this was viewed as a deterrent by some majors who felt that 25% to 40% of the expected profits would be lost to the NOCs.

5) It was clear that the majors wanted that blocks be carved out of areas held by the NOCs with the proviso that each of these blocks should have at least one oil discovery in it and further that the NOCs should have no equity holding in the blocks.

6) Naturally this was too much for the NOCs to digest. They did not agree to withdraw from the areas held by them.

7) Ultimately, blocks offered earlier and not awarded were re-offered with a few new blocks under New Exploration Licensing Policy (NELP). We shall see this in a little more detail later.

8) Around the time the Fourth Round of Exploration Bidding was launched in September 1991, the Government also decided to offer some of the discovered but undeveloped small and medium size oil and gas fields of the two NOCs. Two rounds were announced, the first in 1992 and the second in 1993.

9) Now, one would think that with offer of oil/gas fields and offer of virtually the entire sedimentary basin area of India in one exploration round or the other, including the NELP, the PSR of 1990 were finally in place. Alas, that is not quite so.

10) In a fast changing world, reforms have a short "shelf life" and further reforms are required to be set in motion.

Foreign Companies in Exploration in India

Foreign companies entered the Indian E&P scene since early fifties (Indo Stanvac Project- A Joint Venture between Government of India and Standard Vacuum oil Company for West Bengal onland in early fifties, Carlsbons Natomas for Bangal offshore in early seventies, Assamerc for Cauvery offshaore and Reading an d bates for Kutchj offshore also in early seventies and later since the first round in 1980; Shell for Kerala offshore and Chevronn- Texaco in Krishna - Godavery Offshore). This is certainly not as much as elsewhere in the world. 

Indian E&P Companies

1) Most of the Indian companies barring HOEC have been riding piggyback on the foreign companies for exploration and development ventures in India . However, it is heartening to know that more Indian companies did so beginning with the Fifth Round. Still, one cannot take away the fact that most Indian companies even today need foreign companies to work as Operator.

2) In this regard, Reliance Petroleum Ltd. have taken the first step by joining up with ONGC in bidding for exploration as well as development ventures in India and abroad.

3) Another recent feature is the entry of the downstream companies like IOC, GAIL into upstream in consort with ONGC and OIL.

Opening of the Oil/Gas Fields for Development by Private Companies

1) As mentioned in the Preamble, the Indian oil/gas fields discovered by the two NOCs, were first offered in 1992 under the First Offer.

2) The second such offer was made in 1993.

3) Development of fields is characterised by a comparative lack of business risk but is a cost intensive venture.

4) Only those companies who have previous experience of field development can undertake such ventures. Unlike the Exploration blocks, field development contracts have upfront payments to be made to the NOCs for past costs as well as in the form of signature bonus. At the stage of oil/gas production, companies are also required to make production bonus payments.

5) All this and the lack of previous experience forces the Indian companies to seek foreign partners not only to work as Operator but also to share costs.

6) It would help Indian cause if the government were to introduce the practice of Pure Service Contract like in some of the other producing countries.

Main Results

1) Today 74 Exploration Contracts and 28 Development Contracts are in operation. In addition, 1 Development Contract has been approved for award but has not yet been executed.

2) When this happens, there will be a total of 103 PSCs in operation. This is a sizable number but unfortunately this is not made known to a large number of people/enterprises.

3) The Development Contracts are likely to add about 150,000 barrels of oil per day (or about 7.5 MMT per year) and about 7 million cubic meters per day of gas production.

4) In terms of money about 4 billion dollars are expected to be pumped into these ventures over the next 10 to 15 years.