India’s petroleum and natural gas ministry is gearing up to launch the 10th round bidding for oil and gas blocks with revised production-sharing contract (PSC) norms in January 2014.

“DGH (Directorate General of Hydrocarbons) has carved out exploration area of about 270,000 sq km (104,248 sq miles) for which the process of inter-ministerial clearances has been initiated. After the clearance, exploration blocks are likely to be offered,” said Veerappa Moily, the country’s petroleum and natural gas minister.

The upstream regulator has identified 68 blocks – 25 deepwater, 20 shallow water, and 23 onshore – for the new bidding round. The ministry is preparing to launch the round during its biannual Petrotech 2014 in New Delhi, which is scheduled begin Jan. 12. Road shows for the round will be held in Houston, London, and Singapore between January and March.

Having learned some lessons from the first nine rounds, the 10th round will be a perfect round, the minister said, referring to problems raised by some investors. The minister admitted that some operating companies of awarded blocks had encountered problems in getting regulatory clearances from the ministry of defense, forestry, environment, and space.

BHP Billiton in October surrendered nine exploration blocks, awarded in the 8th round bidding, to DGH due to the denial of clearance from the defense ministry on the grounds that the acreage falls in the Indian Navy’s strategic area.

Recent bidding rounds for exploration acreage have generated little response from global companies. The petroleum ministry found takers for only 16 of 34 blocks offered in the ninth round bidding.

Moily said his ministry would now secure all required regulatory clearances for exploration acreages before putting them on the block.

The sedimentary basins are largely unexplored or poorly explored and have potential for large hydrocarbon discoveries, the minister added. Only 47.3% of the 3.14 million sq km (1.2 million sq miles) sedimentary basin area in the country has been awarded for exploration.

India, the world’s fourth largest energy consumer following China, the US, and Russia, is estimated to have 205 Bbbl of prognosticated hydrocarbon resources.

Sweetening PSC Norms

The federal petroleum and natural gas ministry is working to launch the next bidding round with revised PSC norms based on recommendations made by a committee early this year. “We are working to create an enabling and conducive environment to promote investments by making fiscal terms that are simple to administer. This will improve the overall governance mechanism of the upstream oil and gas industry and will act as a confidence-building measure to attract the much needed risk capital and newer technologies,” Moily added.

The petroleum ministry has already drafted the “Uniform Licensing Policy for Award of Hydrocarbon Acreages with New Contractual System and Fiscal Model,” which provides developers with operational freedom, limits roles of bureaucrats in managing gas and oil fields, and allows companies to explore both conventional and non-conventional hydrocarbon resources in a block.

In the new policy regime, the existing cost recovery-led PSC model will be replaced with a system of sharing revenue from an E&P block from the first day of production. The government will get its share of the contract’s overall revenues, without offsetting any costs. This ensures that the government will get progressively higher revenue and safeguards the government’s interest in case of a windfall arising from a price surge or a surprise geological find.

“Thus, a major impact of the proposed model would be to provide the contractor with the incentives for keeping costs down. Pegging the costs down will enhance the contractor's profitability of operating the project,” the policy note said.

The proposal eliminates several PSC features that caused inordinate delays in the previous contracts. The requirements for declaration of commerciality (DoC) and a field development plan will not be mandatory, and contractors can continue exploring during the development and production phase of discoveries.

The policy also has proposed a 10-year income tax holiday for deepwater oil and gas production, a seven-year tax holiday for onshore and shallow-water blocks, and exemption from payment of royalty for shallow and deepwater blocks.

In addition, the ministry is working on policy guidelines to provide operational flexibility to the existing operators of oil and gas blocks in the country. The ministry would relax time lines prescribed in the PSC pertaining to appraisal, commerciality submission, field development plan (FDP) submission, and other issues. This operational flexibility would help explorers like Reliance Industries and Cairn India to start producing oil and gas from 62 discoveries that are entangled in contractual disputes.

The ministry has recently allowed exploration in mining lease areas, even after the completion of the exploration period, in a move to maximize exploration works in the allocated blocks.

Growing Demand For Hydrocarbons

The ministry is hopeful that the new PSC norms based on the revenue-sharing mechanism will accelerate growth in India’s upstream oil and gas sector. An internal note states that even after the launch of nine rounds between 1998 and 2012, only 254 blocks have been awarded. Of those, 74 were surrendered due to a lack of prospects and denial of regulatory clearances. Explorers are active in 178 blocks of the allocated blocks

“Although 126 discoveries have been made in 41 of these active blocks, commercial production has commenced in only three of these blocks,” the note added. The three blocks are: Reliance Industries-operated KG-D6 block (where production has fallen significantly from 62 MMscm/d in 2010 to about 14 MMscm/d now), Niko-operated CB-ONN-2000/2, and Gujarat Petroleum-operated CB-ONN-2000/1.

The production of crude oil and gas dropped to 37.864 million tons and 111.4 MMscm/d, respectively, by March 31, 2013, from about 38.68 million tons and 115 MMscm/d in 2011-2012.

The demand for oil and gas, however, continues to increase in India. The country’s demand for petroleum products is expected to increase by 152 million tons in 2012-2013 to 186.2 million tons by 2016-2017. Demand for natural gas could go from 286 MMscm/d to 466 MMscm/d during the same period.

Moily wants to tap the country’s hydrocarbon resources to minimize the supply deficit.

“Only 73 Bbbl of oil and oil equivalent gas could be established through exploration, out of 205 Bbbl of prognosticated hydrocarbon resources. Thus, about 133 Bbbl of prognosticated resources remain to be unlocked through exploration,” he said. “This will be possible only by speedy implementation of new exploration programs across the country.”