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Interview

with Sunil K. Srivastava, Director General, Directorate General of Hydrocarbons (DGH)

04.11.2010 / Energyboardroom

What will be the main novelties in the upcoming 9th round of the New Exploration Licensing Policy (NELP) and how is it improving India’s position as an upstream investment destination, especially for foreign investors?

The DGH is currently launching the 9th round of the NELP with four different types of blocks: S type (small); onshore blocks; shallow-water blocks; and deepwater blocks. For all of them we have a very good amount of data so that potential investors can evaluate the prospectivities accordingly. The majority of the blocks are situated in either in the petroliferous basins or close to them and we will have also some number of basins where so far oil and gas presence has not been proved but still we have international analogues where investors have shown interest.
The DGH has also taken into consideration from our previous experience what kind of interests investors have so that the 35 to 40 blocks that will be launched in the 9th round of the NELP meets investors’ expectations.

As far as international players are concerned, they seem to have high expectations for the coming round. India already has an important number of major players such as BP, BG, ENI, Santos, BHP, Cairn and others. They seem to be quite optimistic about the prospectivity, the local governance and policies towards foreign investors in India.

As a proof of that, a couple of years ago we hired the Petroleum Finance Corporation of the USA to have an outsider perspective of the local legal framework towards investors. The DGH gave them the job to consider all the countries that were currently auctioning blocks and compare them in a wide array of parameters: political, fiscal, financial, governance, prospectivity and risks involved. So they took a total of 59 countries and compared them in different ways, in most cases India ranked among the top 5 and in the few remaining we are at least among the top 10.

What exactly explains such a good performance?

In the first rounds of NELP there were not many investors coming to India, with not many people believing in India’s deepwater potential. But then discoveries in deepwater have shown that pessimists were roundly mistaken. Besides that, according to what you nowadays hear in the USA, Canada and Australia, India posed many issues related to governance, but once their investors decided to take the risk and come to India they happily discovered that they were wrong.

As an example of India’s sound governance and stable rules, we have the KG basin D6 block, which took only 6 years to go from discovery to production. It’s success was not only a product of the competence of the operator but also the government’s fast-tract decisions, approvals, governance and policies. Thanks to India’s sound policies investors, both national and international, have increased their stakes in India’s E&P industry.

Another good example is the Ravva field, given on a field action many years back. At first it was producing only 5000 barrels a day, it then was taken by Cairn when it peaked to 50000 barrels and today it is producing almost 45000 barrels per day and will continue active for many years. However, the terms and conditions that the government of India had agreed at the time of singing the contract – when it was producing only 10% of its peak – did not change as it is often the case in other countries. We honor each and every word of the contracts that we once signed. This is why companies like Cairn have publically stated that they prefer to invest in India than even in their home country.

As you said, in the last ten years the legal environment in India has become more attractive to both foreign and national private investors. Do you see further improvements or do you think the current framework is the appropriate one? For instance, many in the industry now defend the application of an Open Acreage Licensing Policy (OALP).

We at DGH are constantly working for the improvement of the system. This is why five months before the launch of NELP IX we requested the feedback from the industry on how the system can be continuously improved. The DGH is working together with the operators and all is build thinking on the best way to develop the sector. These feedbacks are aimed at improving not only the bidding rounds, but also to check things like the operations sharing contract policies and so on. We also have an open house policy called ‘Investors Meet’, it’s last meeting took place last month and we invited not only the companies that were operating in India but also all the ones that had shown any interest in coming, they all had the chance to give us their feedback on how they thought the system could be improved.

The main reason why the NELP has been so popular in the last 10 years has been its capacity to absorb improvements that were beneficial both in the public as in the private investor’s sphere. The most important aspect is the transparency of the bidding process, where none of the statements are qualified; it is all quantified, offering a truly level-playing-field to all players interested in investing in the Indian upstream market. For instance, since 1997 we distribute a document to all participants in a bid stating both the reasons why they won and why they lost, leaving no doubt about the legitimacy of the bidding process.

The OALP is basically the system of auctioning that has been implemented in countries like Canada, Australia, and Pakistan. With the NELP we decided the blocks, their size and shape in a very successful way, but now we understand that for the areas that are not under license already a system such as the OALP is more appropriate, but only when the National Data Depository is implemented. The DGH is planning to have it implemented in about one-and-a-half-year time.

The National Data Depository is gathering all the E&P data that can add value to oil and gas E&P including data from the Geological Survey of India, the National Geophysics Research Institute and so on. The Indian government has the custody of all the E&P data, therefore all data that any company has acquired also belong to the government; and on behalf of the government the DGH is the depositary. In addition to that, Coal Bed Methane (CBM) is also another area that we gather the data from. The National Data Depository will serve not only E&P companies but also research institutes, universities and anybody who can add value to E&P in India will have access to it.

The DGH has taken important steps on unconventional hydrocarbon resources such as CBM policy and it has also taken moves on areas such as Shale Gas, but some say India still lags behind in these areas. What is your assessment over India’s stance on unconventional hydrocarbon resources?

As far as CBM is concerned, we had a late start-up, but then India has made a rather fast job in catching up and a couple of months back we did the 4th round of CBM. Up to today we have almost 31 blocks awarded and gas production is already working in one block and other 3 development plans have been approved. Investors in such fields have a lot of expectations and in many cases they were positively surprised after their biddings.

Regarding gas hydrates India has more than 7000 km of coast line where we believe there is a very significant amount of gas hydrates hidden. In 2006 we took a geological expedition and have established the presence of hydrocarbons in the Mahamadi basin and KG basin. Some of the deepest and thickest gas hydrates anywhere in the world are in India.

Thanks to these studies we fell that India has quite significant quantum of resources and because this is a very high cost research area we are in association with most of the countries that are engaged in gas hydrate research for the extraction and commercialization of this resource. We have an MOU with the American Department of Energy and with the Japanese group JOGMEC and the DGH has just started cooperation with the Germans as well. If we study and explore the potential of gas hydrates in India’s offshore basis maybe sooner than later we will be able to solve India’s energy problem up to a very large extend.

You mentioned shale gas. I have to admit that in India there has not been a very systematic work on this field, but looking to the success that it is having in other parts of the world we are moving on a fast-track to replicate it in India. We have several basins with shale gas potential so we are working on the study of these resources from one side and from the other we are working on some fiscal terms and conditions to favor it. Today we need some legislation changes so that two operators – one working in shale gas while the other is working in oil & gas – can work on the same place in harmony. These changes should be implemented by the last quarter of next year.

The government of India feels we should be able to start auctioning shale gas as soon as possible. This is why we at DGH are very positive that the coming years will be quite exciting times for the Indian oil and gas industry. We invite all foreign investors to be part of it.

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