India plans to offer 26 oil & gas blocks under auction

India offers 26 oil and gas blocks for auction
India offers 26 oil and gas blocks for auction

Indian Market
by 5paisa Research Team Last Updated: 2022-10-12T16:26:57+05:30

With Indian economy still troubled by too much of crude oil imports, India is going aggressive on oil block allocation. In the latest round, India is offering 26 blocks or areas for prospecting and extracting oil and gas. This is one of the largest offshore bidding rounds as per a statement put out by the Directorate General of Hydrocarbons (DGH). In addition to the 26 blocks of oil & gas that are being offered for auctions, the government is also offering another 16 areas or blocks for prospecting for coal-bed methane (CBM). That would be offered as part of a separate round of bidding.

The auction of 26 blocks offered by the government covers a total area of close to 2.23 lakh square kilometres. The entire bidding for the exploration and development of these blocks would happen through the process of international competitive bidding. However, the DGH has been silent about the proposed timelines for the bidding and the roll out. What we know as of now is that out of these 26 oil & gas blocks, 15 blocks will be ultra-deep-water blocks, which enjoy preferential pricing for oil and gas. In addition, another 8 blocks will be classified as shallow sea blocks while the remaining 3 blocks will be on land blocks.

The oil block bidding is being conducted under the Hydrocarbon Exploration and Licensing Policy (HELP), which was officially promulgated in March 2016. This replaced the original New Exploration and Licensing Policy (NELP) of 1999 and the new policy contains more favourable terms for the bidders, which we shall look at later. Here is what you must know about the total bids awarded till date and the bids currently in process.

    a) A total of 7 rounds under the Open Acreage Licensing Programme (OALP) have been completed and a total of 134 exploration and production blocks have already been awarded. These 7 blocks cover 2,07,691 square kilometres of area and they are spread across a total of 19 sedimentary basins.

    b) In July 2022, the government had conducted the 8th round of oil block bidding, in which a total of 10 blocks were offered spread across a total area of 36,316 square kilometres. However, the winners of these blocks are yet to be announced.

    c) Effectively by the end of the eighth round of bidding (once the winners are announced), the government would have completed the allocation of cumulative area of 244,007 square kilometres of blocks under the OALP regime announced in 2016.

    d) In comparison, the latest round (Round 9) announced for 26 blocks cover an area of 2.23 lakh square kilometres, so this round alone would be as large as the previous 8 rounds. That just goes to show the aggression that the government is showing in pushing its exploration programs through rapidly.

More about the proposed 9th round of bidding

As per a statement by the Directorate General of Hydrocarbons (DGH), out of the 16 CBM blocks being offered in this Ninth bidding round, there will be a total of 4 blocks in the state of Madhya Pradesh and 3 each in Chhattisgarh and Telangana. In addition, there will be a total of 2 blocks each in Maharashtra and Odisha  while the states of Jharkhand and West Bengal would have 1 block each. The criteria for the bid selection would be based on revenue sharing. In other words, the bidder offering the highest share of revenues to the government of India would win the block; subject to meeting other eligibility conditions.

For the bidders, the current revenue sharing contract model under the HELP is a lot more attractive. However, that is not all. Bidders get added advantages like reduced royalty rates and exemption from oil cess. In addition, bidders don’t need to share revenues from blocks in less prospective basins. Companies also get more marketing and pricing freedom and also the freedom to investors for carving out blocks of their interest. To make the process more simple and seamless, there will be a single licence to cover both conventional and unconventional hydrocarbon resources. Hopefully, it should be a win-win for both parties.

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