India Expects Major Companies to Invest $3B in O&G Exploration

NEW DELHI (Dow Jones Newswires), June 30, 2008

India expects to rake in investments of more than $3 billion for exploration in oil and gas blocks offered in its latest auctions that failed to generate much enthusiasm from global oil majors.

India imports almost three-quarters of the crude oil it needs and is trying to boost domestic production by encouraging exploration within the country.

It also wants companies such as Exxon Mobil Corp. and Chevron Corp. to bring in their exploration expertise into the country to speed up the process.

But as in previous rounds, big oil companies stayed away from bidding, partly due to the quality of blocks on offer as well as the fiscal regime governing the process.

Of the 57 blocks offered in this round, 39 were "recycled" - or offered and explored earlier. Twelve of these "recycled" blocks did not receive any bids.

The auctions have also been hurt and delayed by a lack of clarity on whether production of natural gas in India would also get tax incentives like crude oil production does.

"Clarity is important, because we are committing big investments. You need to clearly understand what type of returns you can expect," said a senior executive from an overseas oil firm, who was present at the bid opening ceremony.

U.K.-based oil major BP PLC has criticized the Indian federal government's move to limit tax breaks to only companies that discover crude, leaving out those that find gas, the Times of India reported Monday, citing a letter by BP's group managing director Ian Conn.

The report said Conn, in his letter to Oil Minister Murli Deora, has charged the government with reneging on its commitment to treat oil and gas finds on an equal footing and said such policy flip-flops discourage investors from taking India seriously.

BP bid for two blocks in partnership with India's Reliance Industries Ltd. (500325.BY).

The confusion partly affected the bidding and there was "lukewarm" response for some of the blocks that are in gas-prone areas, said V.K. Sibal, director general at upstream regulator Directorate General of Hydrocarbons.

The latest auctions, the seventh under a New Exploration Licensing Policy, is its largest ever and offered 57 oil and gas offshore and inland blocks.

"Going by the number of blocks, the investment will exceed $3 billion (in this round)," said S. Sundareshan, the second most senior bureaucrat in the oil ministry.

The government received 181 bids during the auctions for 45 blocks out of the 57 on offer.

A total of 96 companies, including 21 foreign firms, bid for the blocks.

The auctions manage to attract Australia's BHP Billiton Ltd. (BHP), which bid for the first time for Indian oil and gas blocks under the NELP.

The company bid for seven deepwater blocks in India along with local company GVK. For six of the blocks, the BHP-GVK consortium is the sole bidder.

BHP Billiton-GVK have provisionally received drilling rights for all the seven deepwater oil and gas blocks that they bid for, a senior government official said late Monday.

BHP is seeking to be the operator of these blocks with a 24% stake, while the remainder would be held by GVK, a BHP executive said on condition of anonymity.

State-run Oil & Natural Gas Corp. (500312.BY) has gotten about 20 blocks while BP-Reliance Industries combine received one deepwater block as per the preliminary bid evaluation, said the official, who didn't wish to be named.

The government is expected to review the bids in detail and award the blocks by Aug. 31, he said.

Copyright (c) 2008 Dow Jones & Company, Inc.

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