few global oil exploration companies looking to exit india _ business today

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Few global oil exploration companies lookingto exit IndiaAnilesh S. Mahajan October 31, 2012

India's oil and gas explorations face fresh hurdles. While New Delhi has never been

able to attract top multinational energy giants to drill in its territory, it is now scaring away

even the few foreign players which did venture here.

The main reason is the delay in granting approvals for exploration activities. Italian

exploration major Eni SpA, Australia's Santos, and the UK-based Foresight Group areamong those looking to exit. Exploration work is stuck also at blocks awarded to the

Australian company, BHP Billiton Petroleum, and Canada's GeoGlobal Resources. In fact,

bureaucratic delay was the reason Norway's Statoil ASA and Brazil's Petroleo Brasileiro

SA both cited when, in 2010, they pulled out of a venture with state-run Oil and Natural

Gas Corporation to develop a block in the Krishna-Godavari basin, off India's east coast.

These companies came to India after

winning blocks auctioned under the New

Exploration Licensing Policy (NELP),

which ended state monopoly in oil and gasexploration. The policy was decided upon

in 1997/98 to boost local exploration and

production work, and also attract foreign

players.

Increasing local output is essential as

India imports nearly 80 per cent of its

crude oil needs. In 2011/12, India spent

$140 billion (Rs 7.26 trillion; one trillion

equals 100,000 crore) on oil imports, up

40 per cent from the previous year. The

country produced 177 million metric

tonnes of crude oil during the 11th Plan

period of 2007-12, missing the Plan target

by 14 per cent. Output of natural gas in the

same period was 216.6 billion cubic

meters, 16 per cent short of what was

hoped for.

global oil exploration companies looking to exit India : Business Today http:/ /businesstoday.intoday.in/storyprin

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NELP has not been very successful in

attracting foreign direct investment (FDI)

into the oil and gas sector. FDI inflows

into the sector from April 2000 until July

2012 were only $5.14 billion, shows latest

data from the Department of Industrial

Policy and Promotion. This is just three per

cent of the total FDI inflows into India

during the period. The policy also has

largely failed in luring global giants such as

Exxon Mobil, Chevron, BP,

ConocoPhillips, and Royal Dutch Shell. In NELP's latest ninth round of bidding in 2010,

foreign players placed just seven bids. In comparison, global companies had submitted 35

bids in the sixth round in 2008, just before the recession.

{blurb}The oil ministry does not appear to be worried about the trend. "The response from

the international companies cannot be termed as poor," said R.P.N. Singh, Minister of

State in the oil ministry, in a statement to Parliament during the monsoon session in

August. "Decisions of the bidders are guided by various factors like perception of an

individual company in the context of opportunities available in other parts of the world,

business strategy, technical and financial capability."

Industry players are not convinced. "You cannot expect big oil companies to come and run

from pillar to post for permissions. Especially when you do not have large reserves to

show, and globally there are avenues where they can invest and earn much more," says

Vikram Singh Mehta, Chairman of the Shell group of companies in India. "Currently, if youhave 30 days to complete Stage One of the work, the permissions come on the 28th day,

and then the government expects things to be done in next two days." (Mehta is set to

leave Shell India in October-end.)

You cannot expect big oil companies to come and run from pillar to post for permissions: Vikram


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Singh Mehta

Aashish Mehra, partner at global consultancy Strategic Decisions Group, points to the

delay in government approvals for Vedanta Resources's purchase of a controlling stake in

Cairn India Ltd from Scottish explorer Cairn Energy Plc. "We have also seen how it was

made difficult for BP when it wanted to buy 30 per cent in Reliance Industries Ltd's blocks,"

he adds. "It disturbs the foreign players. This delay is criminal."

Among the foreign firms which seem to be fed up of the delays is Eni SpA. The companyplans to exit all its three blocks. It also wants to sell its 47.16 per cent stake in the

Mumbailisted Hindustan Oil Exploration Company. Exploration work at a block near the

Andaman and Nicobar islands was stalled after the Department of Space said the block

fell in the trajectory of the Indian Space Research Organisation's rocket stage impact

zone. A senior oil ministry official, who is privy to the developments, said the ministry has

taken up the matter with the prime minister's office (PMO).

Eni's block in Rajasthan is stuck as well. The block falls under a protected forest area, and

Eni was required to take permission from the Supreme Court to undertake exploration.

The oil ministry official said the company did not take the court's permission, and has also

not made the minimum investment required by its contractual obligations. The ministry is

contemplating action against Eni, which could include a penalty, the official added. Eni India

Managing Director Sergio Laura declined to comment. Cesaro Fabio, an Italy-based

spokesperson for Eni, also refused to respond.

{blurb}Meanwhile, Santos International Operations Pty Ltd is embroiled in a diplomatic row

between India and Bangladesh. Santos had won two blocks in the sixth round of NELP.

These two blocks, in the Bay of Bengal, cover an area of 16,500 sq. km, and both

countries have claimed territorial rights in the region.

Chandran Vigneswaran, a spokesperson for Santos, says the company is not in a position

to provide an update on the subject. The foreign ministry has taken up the issue with the

Bangladesh authorities, but nothing has been achieved as yet.

Foresight Group, which has an 11.11 per cent stake through group company Hallworthy in

a Rajasthan block, is looking for a buyer, says its Chairman Ravi K. Mehrotra. There have

been delays in granting permissions for the block. Foresight had earlier abandoned

another block, off the west coast of Kerala, because of low prospects. "The day I get a

buyer I will move out and invest in a more lucrative market," says Mehrotra.

"The government never compensates us for delays. It should understand that there is a

cost involved." Canadian operator GeoGlobal has postponed its investments till the next

financial year. The home and civil aviation ministries had refused to grant the company

permission for aerial surveys to help determine the geology of its two blocks in the

Naxal-prone region of Maharashtra.

BHP Billiton Petroleum had to stop exploration work at its 10 offshore blocks, off the west


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coast near Mumbai, after the Indian Navy objected to the company carrying out surveys in

the navy's practice areas.

"This is despite the defence ministry clearing these blocks for survey and initiation of

work," says a company executive who refused to be identified. Other officials say BHP

has invested more than $35 million for initial work at the blocks where it partners India's

GVK Petroleum.

On May 12, the company informed the oil ministry about work having been halted at the

blocks. The ministry has asked the Directorate General of Hydrocarbons, its technical

wing, for a proposal that can be taken up with the defence ministry.

The day I get a buyer I will move out and invest in a more lucrative market: Ravi K. Mehrotra

Antonios Papaspiropoulos, a spokesman for the company, says it is "working closely withthe Indian government to find a solution to secure access to its blocks" awarded in the

seventh and eighth NELP rounds. He refused to give details.

The oil ministry says it is aware of the problems the foreign explorers are facing. In the

first week of June, the ministry made a presentation before Pulok Chatterjee, Principal

Secretary to the Prime Minister, apprising him of the ambiguity in granting permissions at

various levels and asking for an inter-ministerial group to be set up to clear the maze.

On September 14, Oil Secretary G.C. Chaturvedi said the government is taking stock of

the situation and that the PMO has set up an inter-ministerial committee, chaired by thecabinet secretary, to resolve the issues.

But many are unimpressed by the oil ministry's seeming efforts. "You do not require policy

decisions to expedite approvals," says Mehra of the Strategic Decisions Group. "This only

needs government action. We are keeping our fingers crossed."

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