India: the next North Sea

“The Indian public sector enjoyed a virtual monopoly position for the better part of half a century, and it took them a little time to realize that NELP was not undermining them, but opening new opportunities for them to be able to explore acreage they were not able to explore on their own,” Aiyar says.

“All partnerships are designed to secure financial resources, new technology, experience, additional manpower, and above all to secure innovative ideas,” Aiyar says.

Successful ventures involving ONGC and foreign entities as well as Indian private sector companies have gone a long way toward raising the confidence of foreign operators, according to Aiyar.

“I think the joint ventures are making a big difference. They eliminate the illusion that India is showing favoritism toward Indian companies,” Aiyar says.

India hopes to draw even more investors to this year’s bidding round. According to Aiyar, there is greater breadth to the bidding process in NELP V, and the possibility of significant finds will draw more players into the game.

“There is a kind of domino effect,” Aiyar says. “If you succeed in one place, the expectation is that somewhere or other nearby, there are other places to succeed in. The sense that I have of the Bay of Bengal being potentially the North Sea of South Asia is, perhaps in everything except the hyperbole, a view that is getting to be shared by both oil majors and more venturesome small independent companies.”

But participation by smaller operators is not a foregone conclusion. According to Aiyar, though there is optimism, there is no guarantee. “It is one thing to provoke an interest. It is quite another thing to have that translated into bids. What I do know is that January 2005, we are more hopeful than we were in January 2004. But it is only on the 31st of May that we’ll know how far that provoking of interest has translated itself into an investment decision,” Aiyar says.

NELP V awards will be made by July 31, Aiyar says. “Two months later, we will be ready to sign contracts.”

ONGC’s bidding round

An interesting twist to this year’s licensing round is the initiative ONGC and Oil India Ltd. are taking to offer their own acreage in what Aiyar calls, “a virtually open acreage policy,” in conjunction with NELP V.

ONGC and OIL are jointly offering 19 offshore marginal fields off the west coast and posted a notice inviting tender in early February.

According to Y. B. Sinha, director of exploration at ONGC, “ONGC has the vision of becoming a world-class oil and gas company.” Achieving that goal requires deepwater exploration and development. The deepwater sector has begun to yield major breakthroughs, but much of the acreage remains unexplored. More opportunities exist, Sinha says, but the catch is that ONGC can pursue some of those opportunities only through partnerships.

“We have an extensive program for 2004-2007,” Sinha says. But ONGC needs partners to achieve its goals. Strategic alliances are essential for securing what Sinha calls “best-in-class technology” to develop the many deepwater areas.

A significant draw to investors is the fact that many of the blocks on offer are near producing blocks or blocks where there have been sizable discoveries.

Minister Aiyar sees the concurrent bidding as extremely positive. “ONGC and OIL’s bidding round has done more to increase interest than anything we have done with regard to NELP V because the global oil industry is aware of the very large number of blocks that are in the possession of ONGC that have either been very lightly explored or not explored at all,” Aiyar says. The potential of these blocks could be considerable. And ONGC has realized that it does not lose by bringing in partners to explore properties that the company is unable to explore on its own.

“That is the single biggest breakthrough in my seven months as petroleum minister,” Aiyar says.

Offshore operators

A number of companies took the opportunity of the NELP V road show to talk about their successes in India.

BG Group, for example, has been in India since 1997 and is planning to continue investing, according to Dave Roberts, executive vice president and managing director Asia and the Middle East. Roberts identifies India as a core asset for BG.

Analysts predict that by 2025, gas will account for 20% of the hydrocarbons value chain in India. That is tremendous incentive for BG.

“Our checkbook is open as opportunities are opened to us,” Roberts says.

Canada’s Niko Resources Ltd. agrees. Niko is increasing reserves and plans to drill one new well each month this year.

Ed Sampson, Niko’s president and CEO, says, “If you’re looking at the international market, you can’t afford not to look at India.”

Niko has partnered with India’s Reliance Industries Ltd. (RIL) offshore the country’s east coast in what Sampson describes as “a bonanza.”

P. M. S. Prasad, president and CEO for RIL’s petroleum business, says RIL will continue its high level of investment. “Exploration density in India is one of the lowest in the world, particularly in deepwater, where we are focusing,” Prasad says.

RIL began exploration projects in deepwater and had its first discovery within 20 months of receiving an exploration license. RIL has found gas with 13 wells, a 100% success rate.

This unbelievable run of luck is one reason deepwater remains the key exploration acreage offshore India, Prasad says, and it ensures that there will be more exploration activity in days to come.

“With the discoveries on the East Coast, India’s deepwater joins the major deepwater provinces in the world,” Prasad says.

Cairn Energy Plc. of the UK has the longest history in India. According to Mike Watts, Cairn’s director of exploration, the company is looking to open up new exploration areas.

“We believe in South Asia,” Watts says, “and we back our technical and commercial teams quite vigorously.”

“Cairn is about exploration,” Watts says. “We’ve challenged the myths. We found oil and gas in deepwater. And we’ve got a long way to go in terms of oil and gas exploration.”

China and India

China and India are both looking internationally for investors and investment opportunities. The two countries have been lumped together by many, but their approach and objectives are not at all aligned. According to Mani Shankar Aiyar, India’s petroleum minister, there is some danger in failing to see the differences.

“They (China and India) are two very different countries,” Aiyar says, pointing out that India is a democracy and approaches things very differently from China, which has a different social and political system. “One of the advantages of investing in India,” says Aiyar, “is that although you may be half a globe away, you are not that far away in terms of social, cultural, constitutional, and legal practices.”

“We are the two new kids on the block,” Aiyar says, and that has led people to group the two countries mentally. “In ordinary discourse, India and China are being constantly coupled,” Aiyar says.

China has been an entity with which to contend for quite some time, Aiyar says. Until a few years ago, China was self-sufficient, Aiyar explains, but recently, the country has seen an enormous increase in domestic demand and is aggressively trying to meet its growing energy needs. The result, according to Aiyar, is that “Everyone has sat up to take notice.” The difference between China and India, he says, is that India has been a net importer of energy for years. Its situation is not new. What is new is that the increase in imports has grown in recent times and will continue to grow dramatically.

“We expect to have a growth in demand for hydrocarbons in India, which is double the global rate. We expect to be increasing our demand at about 4% per annum, compared to the global rate of about 2% per annum,” Aiyar says.

India is working to resolve the issue of enormously growing demand and limited domestic production.

“India is now on the global hydrocarbon scene, not only as an importer, but also in terms of seeking foreign direct investment in the hydrocarbon sector as well as aggressively going out in the world and looking for properties ourselves,” Aiyar says.

Inevitably, India has to seize opportunities wherever those opportunities arise, he says.