InvestorQ : What is the reason India is going so aggressive on oil block allocation in the latest round?
Sam Eswaran made post

What is the reason India is going so aggressive on oil block allocation in the latest round?

Moii Chavate answered.
1 month ago

The oil crisis globally is a reminder that India needs to start investing in energy security today. Towards this end, the government is offering a total of 26 blocks or areas for prospecting and extracting oil and gas. In comparison to previous rounds of bidding, this is considered one of the largest offshore bidding rounds. The details are out on the website of the Directorate General of Hydrocarbons (DGH). Apart from the 26 blocks of oil & gas that are being sold for bidding, government also plans to offer additional 16 areas or blocks for prospecting for coal-bed methane (CBM). That bidding is likely to be distinct.

Some of the numbers are quite staggering. For starters, the auction of 26 blocks offered by the government covers a total area of 2.23 lakh square kilometres. It will be done through the process of international competitive bidding. As per the details furnished on the website of the DGH, out of these 26 oil & gas blocks, 15 blocks will be ultra-deep-water blocks (enjoying preferential pricing for oil and gas). In addition, 8 of the blocks will be classified as shallow sea blocks while the remaining 3 blocks will essentially be inland blocks. The terms have been made as attractive to the investors as possible.

To understand the current round of bidding, it is essential to understand how this evolved over time. The oil block bidding is being conducted under the Hydrocarbon Exploration and Licensing Policy (HELP), which was made official by the current government in March 2016. The HELP actually replaced the original New Exploration and Licensing Policy (NELP) of 1999 and the speciality of the new policy is that it contains more favourable terms for the bidders. Some of these advantages mean greater freedom in pricing, lower royalties, pure profit share based bidding, no fixed cost etc. all these are likely to be positive.

Let us look at the current round of bidding in perspective. Till date, under the HELP, a total of 7 rounds under the Open Acreage Licensing Programme (OALP) were completed and 134 exploration and production blocks have been awarded. The total area covered is 2,07,691 square kilometres. In addition, 10 blocks were offered in July 2022 covering 36,316 square kilometres and the winning bids are yet to be announced. So in all area allocation is 2.44 square kilometres of blocks since 2016. In comparison, the proposed sale of 26 blocks alone is nearly equal to all the auctions in the past at 2.23 lakh square kilometres.

The blocks are spread across the states of Madhya Pradesh, Chhattisgarh and Telangana; apart from Maharashtra, Odisha, Jharkhand and West Bengal. The new HELP policy has some distinct advantages to make it attractive. These include reduced royalty rates and exemption from oil cess. Bidders also don’t need to share revenues from blocks in less prospective basins. On top of all this, these companies also get more marketing and pricing freedom and the entire process is through single license and single window clearance.