How Policy changes can encourage more investment in Oil & Gas sector along with present status and future

action plan to revive growth

Dr. Avinash Chandra

23rd May 2013

2

26 sedimentary basins:

Sedimentary Area-

Onshore- 1.39 M. Sq. Km

Shallow Water- 0.40 Deep Water- 1.35 ______

3.14

Total onshore- 44%

Total offshore- 56%

AwardeAwarded d

Under Under Operation Operation

Pre - Pre - NELPNELP

2828 1515

NELPNELP 235235 185185

FieldFieldss

2828 2727

CBM CBM 3333 3030

TotaTotall

324324 257257

Contracts Under Operation ( Up to NELP VIII)

4

Synopsis of Activities in Indian Sedimentary Basinal Areas

• Reduction in Unexplored Areas:1. In 9 years (1995-2004) - 28%2. In 7 years (2005-2012) - 10%

Achievement declined- 54%• Increase in Exploration Initiated Areas1. In 9 years (1995-2004) - 19%2. In 7 years (2005-2012) – 7%

Achievement declined - 53%• Increase in Moderate to poorly explored areas1. In 9 years (1995-2004) - 9%2. In 7 years (2005-2012) – 1%

Achievement declined - 86%

5

What is extremely worrying is that between

1st to 6th round of NELP about 220,000 sq. km (or

7% of country’s sedimentary area) was offered

under each round.

But during NELP Round VII (2008) to NELP Round

IX (2012) only 31,000 sq. km was offered i.e.

of over 85% (or only 0.99% of country’s

sedimentary area.

7 times less accreage offered than earlier

rounds

Exploration Blocks awarded in NELP Exploration Blocks awarded in NELP RoundsRounds

24 23 2320 20

52

41

32

1922

0

10

20

30

40

50

60

1 2 3 4 5 6 7 8 9

8

Date of Signing 2000 2001 2003 2004 2005 2007 2008 2010 2012

Suggestions for Improvements

• Offer more Blocks for Exploration each year. Earlier (1993 & 1995) Blocks were offered every 6 months. Whereas , after 2004 Blocks were offered every 18-24 months. Atleast, Blocks should be offered every year.

• Open accreage system to be introduced immediately as Blocks will then be available on continuous basis throughout the year .

Thus, Companies will not have wait for announcement of bids each year. This will greatly save time and accelerate the exploration of Indian basins.

9

• To revive interest of Oil Companies offer incentives for exploration atleast in following areas:

a) Non- Hydrocarbon producing basins eg. Vindhyan, Deccan Syneclise , Ganga & Bengal basins etc.

b) In known hydrocarbon producing basins only for following categories:

i. Logistically difficult terrain of certain parts of NE India & lower Himalayasii. Blocks in deep & ultra deep waters

10

Incentives can be in many different ways eg. Tax holidays, reduced royalty in Offshore areas (jurisdiction of Central Government).

In non-producing basins the Exploration risk are too high such as Vindhyans, Deccan Syneclise etc. Companies will not work unless major incentives are given like Tax holidays or other incentives.

No Ring fencing of Exploration expenditure. Thus, exploration cost will be recoverable from all other producing assets of the same Company. This may revive interest in exploration in the country.

11

Major thrust required to make quality data Major thrust required to make quality data available to Oil Companies to decide which available to Oil Companies to decide which

Blocks to bid-Blocks to bid-

• DGH data centre is delayed by atleast 5-6 years. This may be expedited.

• DGH (Government) may regularly acquire data in less prospective basins and non- hydrocarbon producing basins.Funds can be made available from OIDB.

• In more prospective and oil producing basins private sector can be asked to conduct aspeculative surveys and drilling at their own cost and recover investment from sale of data to be assisted by DGH

12

• Urgent need to collect limited but reliable shale oil and shale gas data in the country.

• ONGC just drilled 2 wells in Raniganj coal field specifically for shale gas and established risked GIIP of 48 TCF of shale gas .

• We need to drill 1 or 2 wells in six key shale oil / shale gas basins to collect minimum reliable data for offering Blocks for shale oil & shale gas.

• For India shale oil potential is far more important than shale gas due to prevailing very low price of gas.

• Key Indian shale basins like Cambay, Krishna Godavari & Cauvery have very high shale oil potential.

• Globally (mainly USA) shale oil production is expected to reach 14 mill. Bbls per day by 2035.This amounts to 12% of world’s total oil supply.

• To prospective bidders in an area all regional geological and tectonic information should be made available ,each year. This will cut down the number of dry wells drilled by different bidders in a particular area.

• All non- proprietary data should be placed in public domain after 3 years on payment of small fee for all the relinquished areas.

• Huge amount of data is available with NOCs like ONGC & OIL and some with private companies eg. RIL, Cairn etc.

It can be made mandatory to release non proprietary data on payment basis to operating oil companies and for Research & Development work to Universities and professional organisations (after due diligence).

Old data can be released as soon required but new data for a Block can be released after 3 years of lock-in period unless the data holder has no objection to release it earlier on payment basis.

15

• DGH & MOP&NG may help to establish operator friendly procedures and policies for early approval of activities such as budgets, extension of time requested, Declaration of Commerciality, Field Development Plans etc. This will permit early completion of exploration & development activities.Lately it is noticed that such approvals take very long time

• To provide new impetus to exploration DGH & MOP&NG may encourage more & more Indian and foreign Companies to come to India.

• Encourage more State Government Companies to play a strategic role in Oil & Gas exploration & production specially when it comes to shale gas and oil related activities.

16

To reverse the trend of slow down in Oil & Gas sector from 7th round i.e. 2008 onwards some steps can be taken:

• Production of unconventional gases( CBM, Shale gas etc.) are important in curbing global warming. If not harnessed they deplete the Ozone layer. Since gases are high-efficiency, clean fuel their production contributes to cleaner environment and development of much needed “Low Carbon Economy” in the country. Therefore such Projects should be environmentally cleared via fast track route on highest priority, at every stage.

• Even crude oil is environmental friendly as compared to coal and other Chemical / Industrial projects. Moreover, 80% of crude is imported and in 5 years 55-60% natural gas will be imported as LNG. The estimated import bill by 2030 could be 350- 400 billion USD ( US$ 2010 terms).

• Such Projects require time bound , fast track clearance.

17

• Defence and other Central and State Government clearances on high priority.

• Sometime Companies hold on to huge areas without relinquishment. DGH to ensure strict relinquishment policy and re-offer relinquished areas as soon as feasible.

• DGH may not allow Companies to hold on to proven producing areas without putting them on production, as soon as, geologically and operationally feasible.

18

Strengthening of DGH• DGH has to be revitalised and strengthened. It requires 25-

50% staff as its own cadre initially.

• It can be made an independent upstream regulatory body as per the original intention of cabinet approval of April 1993

• Oil industry and Blocks / Fields awarded have to be managed by a technical and professional organisation like DGH

• Management Committees to be handled by DGH and not by Ministry .Ministry makes policies ,decide procedures / conditions and may retain powers for key approvals .The implementation of the Policy and handling of oil industry may be the domain of DGH.

• Advisory Council of DGH has technical functions to perform. It was initially formed to monitor the health of country’s largest Bombay High field and other major fields.

• In the past it has always been chaired by country’s top most retired geo-scientist.

• Its members should mainly be established and reputable technical experts in the direct field of Oil & Gas exploration, development & production with understanding of safety / environment issues.

Steps to be taken to enhance domestic oil and gas production from unconventional energy sources

21

22

23

24

25

26

27

29

6

16

58

14

810

54

10 10

27

7

0

10

20

30

40

50

60

CBM-I CBM-II CBM-III CBM - IV

No. of Blocks Offered No. of bids received Blocks Awarded

CBM Bidding Rounds CBM Bidding Rounds

PARTICIPATING COMPANIESPARTICIPATING COMPANIES

19

26

86

0

10

20

30

CBM I CBM II CBM III CBM IV

8 foreign

18 Indian

26 Total

3 foreign

16 Indian

19 Total31

• The slides show that there is a major decline in CBM activities in the country after 2006.CBM is a major new source of gas (proven recoverable reserves already over 11 TCF), it is extremely environmental friendly, if not produced it depletes ozone layer. It greatly improves environmental conditions in highly polluted coal mining areas .

• We may award more blocks for CBM as after 2010 no CBM Blocks have been awarded. Earlier (2002-2004) CBM Blocks were awarded every year but between 2004 – 2010 only 2 rounds were awarded in 2006 & 2010.

32

• We may quickly announce Blocks for CBM production (Methane Drainage) from coal mining areas prior to coal production. The Blocks can be jointly decided by MOP&NG & Coal Ministry but implementation process to be handled by Coal Ministry. Petroleum ministry to supervise safety aspects.

CBM drainage from over 150-200 coal mining Blocks if implemented can easily add 20-30 TCF of in place reserves.

• Steps may be taken for simultaneous production of CBM and conventional Oil & Gas in the same Block, where it is geologically feasible.

33

Increasing Domestic Production form Marginal Fields

• Under MOP&NG supervision a time bound policy to be implemented immediately to award through transparent, competitive bidding route all the onland and offshore marginal fields of ONGC & OIL , in shortest possible time.

This step can add atleast 5 MMT of crude oil production per year and huge quantities of natural gas.

ONGC & OIL may remain owner of the fields but operating & development rights are given to technically competent & experienced, small companies due to their low overhead costs & more suitable technology.

This can usher in the 2nd revolution in Hydrocarbon exploration in the country (1st was between 2002-2007) as successful bidders would later invest heavily in exploration Blocks as RIL, Cairn, Hardy Oil, Jubilant etc. did earlier.

34

Other processes & technologies helpful in contributing to hydrocarbon sector

• Coal to Liquid- in this field India could have been in forefront as the 1st Coal to Liquid functional pilot project was set up in OIL at the behest of MOP&NG in 1978. Then USA based companies were in the forefont in technology along with South Africa (SASOL) & Germany (Lurgi). China was nowhere at that time but today it is the world leader with 3 commercial projects already on stream and many more planned.

China is planning to use its 2nd largest coal reserves in the world for this purpose. India also has 6th largest coal reserves and is 4th largest producer of coal in the world.

2 Blocks have been awarded to Jindal Steel & Power Ltd. and Tata for this purpose. Each having a planned investment of over INR 10,000 Cr

35

• Underground Coal Gasification- ONGC has invested great deal of time & money in this field using Russian technology. However, their main project in Gujarat is pending for over 3 years due to lack of clearance by Coal Ministry.

• India has huge lignite deposits. Latest one was discovered by DGH while interpreting Barmer sesimic data of Royal Dutch Shell . The lignite zone is 200-300 m thick containing 2-3 layers and extends continuously over a distance of over 200 km from Barmer( where lignite is exposed) upto Gujarat border (depth of lignite about -1000 mts)

• Huge potential exists in the Country for underground Coal & Lignite gasification which can create a new revolution in power generation.

36

• Heavy Oil in Gujarat & Rajasthan- Gujarat heavy oil is well known and is being exploited by ONGC.

Rajasthan heavy oil belt was mapped by OIL in 1985-86 and discovery was made on drilling of 1st well in 1992. What is not well known is that this heavy oil in dolomite & limestone (Bilara limestone) extends over several thousand sq. kms. Only a few wells are producing from deeper Basal sandstone and production from dolomite could not be sustained over a long time.

This area could be a game changer in the country if proper technology could be developed and hydrocarbons exploited.

37

Source Oilex Ltd

Tight sand reservoirs in Cambay Basin

38

CAMBAY PROJECT- HYDROCARBONS-IN-CAMBAY PROJECT- HYDROCARBONS-IN-PLACE IN TIGHT SANDSTONEPLACE IN TIGHT SANDSTONE

NSAI’s Assessment of Hydrocabons In-PlaceNSAI’s Assessment of Hydrocabons In-Place

ZoneZone Discovered In-Place Volume EstimateDiscovered In-Place Volume Estimate

Oil MMbblOil MMbbl Gas BCFGas BCF

XX

YY

Total-GrossTotal-Gross

667667 654 654

965965 660 660

1,6331,633 1314 1314

Zone Undiscovered In-Place Volume EstimateOil MMbbl Gas BCF

Z180-200200-300300-400

Total-Gross

2693 27052424 24063791 41952684 333911592 12645

Total Estimate about 14 Tcf 39

• Gas Hydrates: Fuel of the future- India has very good prospects of fairly thick gas hydrate deposits mainly in deep water areas of East Coast and Andaman islands.

Total prognosticated gas resource from hydrates in the country is placed at 1,894 TCM (about 67,000 TCF). Even if merely 1% of the resource can be produced it can yield 670 TCF of methane.

40

• Japan has recently produced gas from hydrates in Nankai trough deep sea area.

• India is member of international collaboration for development of gas hydrates along with Japan, USA, Canada & Germany, test wells were drilled with some success in Mckenzie Delta area in Canada.

• India cored wells using Ship Joides Resolution in 2006 along east & west coast and in Andamans. Very thick, good quality gas hydrates zone were established in KG region.

42