India Seeks Bids for 34 O&G Exploration Blocks

NEW DELHI (Dow Jones Newswires), Oct. 15, 2010

India Friday launched its ninth round of oil and gas field auctions with a hope that recent easing of state control over pricing of gasoline and natural gas and the global economic recovery will help it attract more foreign companies to explore its vastly unexploited sedimentary basin.

The South Asian nation has invited bids by March 18 for 34 exploration blocks, almost half of what it did in the last auction round in October 2009, when investors shied away due to the global financial meltdown. They comprise eight deep-water, seven shallow-water and 19 onland blocks, Oil Minister Murli Deora told a news conference.

"The investor response this time will be extremely good because all the 34 blocks have been carefully analyzed," Oil Secretary S Sundareshan told reporters on the sidelines of the conference. "A smaller number of blocks which have high potential have been sieved and put on the market. We are very optimistic."

India expects investment commitments in the current round to exceed the $1.1 billion it received in 2009, Sundareshan said.

However, analysts expect international response to the auction under India's New Exploration Licensing Policy, or NELP, to remain sluggish and global majors such as ExxonMobil and ConocoPhillips to stay away due to a lack of clarity on fiscal incentives and issues related to inducting new partners.

"We haven't seen significant presence from major companies in India's licensing rounds," Sara Pourghorbani, analyst in charge of Indian subcontinent at industry consultancy Wood Mackenzie, said by phone. "There are concerns on the prospect of blocks and on uncertainty in policy measures like tax holidays."

The first eight rounds under the NELP were eligible for a seven-year profit-linked tax holiday on production of mineral oil. Also, during the eighth round, the government had clarified that natural gas production too will get profit-linked tax holiday.

In the latest auction round, the companies will be eligible for only investment-linked concessions, in line with the new Direct Tax Code, which is likely to become effective April 1, 2012, Secretary Sundareshan said.

"There will certainly be no impact" on investment decisions due to change in tax regime," Sundareshan said. "The investor wants only clarity. He doesn't want any scope for doubt after he has made an investment."

Analysts say investors are wary of the quality of the data of the blocks to be auctioned. The government's intervention in U.K-based explorer Cairn Energy PLC's (CNE.LN) proposed stake sale in its India unit to Vedanta Resources PLC (VED.LN) could also become an overhang on investor sentiment, although India maintains that it is neutral on the deal and will make a decision based on the merit of the case.

In the previous auction, India received bids for only 36 of the 70 blocks offered. It has reduced the number of blocks in the latest round and is also focusing on onshore and shallow water acreage, which are significantly cheaper to operate.

This strategy could help India to receive more bids this year, said Shehzad Hassan, regional coordinator for Indian subcontinent at IHS Global Insight.

India has a sedimentary basin of 3.14 million square kilometers, but so far only a third has been explored. The country imports four-fifth of its crude oil requirements and has set a target to complete exploration work on the entire sedimentary basin by 2015 as part of efforts to cut its crude import bill, which comprises a third of its total imports.

The government will hold a series of road shows across the world, beginning Oct. 18 in Mumbai, on the auction, Oil Minister Deora said.

The government has hired U.K.-based Furgo Data Solutions Ltd. to market the blocks.

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