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Monday, 07 Oct 2013
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NELP-X to be launched soon. Will it find enough buyers?


The 10th round of the new exploration licensing policy or NELP-X will be launched by the Ministry of Petroleum and Natural Gas in January 2014. In this round, the ministry intends to offer 68 oil and gas blocks to interested explorers.


NELP 10_ProjectsToday


NELP-X will be the second highest offering of block under the NELP which was launched in 1999. Of the 68 oil and gas blocks being considered for auction in NELP-X, 25 are deep water, 20 shallow water, and 23 onland blocks.


While the Ministry of Petroleum and Natural Gas has sought defence clearance for the auction of the blocks, the Directorate General of Hydrocarbons (DGH) is coordinating with the Environment and Forest Ministry for undertaking oil & gas exploration in these blocks.


NELP-X is likely to be held on new terms wherein a bidder shall be asked to quote the amount of oil or gas output it is willing to offer to the government from the first day of production. The company offering the highest share of oil or gas will get the block.


NELP 10 Block_ProjectsToday

Currently, oil companies are allowed to first recover the entire cost of exploration and production and only then share the profit with the government.


In NELP-IX round of auction undertaken in 2010, though 34 oil and gas blocks were offered, only 16 blocks were awarded. The situation was a little better in NELP-VIII, when, of the 70 blocks offered, 32 blocks were awarded. In NELP-VII, out of the 57 blocks offered, 41 blocks were awarded, while NELP-VI was by far the most successful round with 52 out of 55 blocks on offer being awarded.


NELP was formulated by the government to provide a level playing field to both, public and private sector companies in the exploration and production sector. So far, a total of 254 oil and gas blocks have been awarded for exploration in the previous nine rounds.


Even though, NELP offered a lot of incentives to oil companies, overall, the policy has failed to produce the targeted results. While the auction process has failed to enthuse global players to invest in India, the awardees have failed so far to produce the anticipated quantum of crude oil or gas.


Low output prospects in Indian oil blocks, combined with multiple clearance hurdles, have made foreign oil companies keep away from the NELP auction process.


Out of the total blocks awarded so far, only six blocks have been reported to have started production. Most of the remaining oil and gas blocks have lower reserves than earlier believed and which have now become unviable from the investment point of view. Among the awardees, Reliance Industries has relinquished 15 blocks in the last two years.


Thus, though India has an estimated sedimentary area of 3.14 million sq. km comprising 26 sedimentary basins, only 0.93 million sq km area is under exploration.


To realise the full potential of the existing hydrocarbon reserves, it is important that all sedimentary basins having substantial reserves are offered to private and public players for exploration. Although the NELP was successful in boosting development on the exploration and production sector, it failed somewhat in achieving its full potential and objective.


Since 2009, the government has been considering replacing the existing NELP with a new policy, which is the Open Acreage Licensing Policy (OALP). Under this policy, companies can choose any block for offer at any time, without waiting for the regular bid rounds under NELP. OALP is supposed to bring in efficiency and flexibility in the awarding process of oil and gas blocks in the country.


To implement OLAP, the government needs to set up a national data repository which will have reliable information on all oil and gas reserves in the country. Although DGH has started work on the national data repository, little progress has been made so far.


The government has an India Hydrocarbon Vision 2025 under which it plans to bring all sedimentary basins of India into active exploration. However, to achieve this, the government needs to set up a regulatory regime which is more transparent and investor friendly.


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Quote of the week:


Veerappa Moily_Minister of Petroleum & Natural Gas_ProjectsToday

"We have nine rounds so far. Several issues came up in the Nelp (New exploration licensing policy) rounds. We have learnt lessons. We are working on the next round. The tenth will be the perfect round."

Veerappa Moily,
Minister of Petroleum & Natural Gas


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