Marginal Oilfield Auction: Smaller Companies Make Hay While Larger Firms Shy Away

Larger companies skip India’s small oilfield auction.

Oil drilling rigs (Photographer: Susana Gonzalez/Bloomberg)
Oil drilling rigs (Photographer: Susana Gonzalez/Bloomberg)

The oil ministry on Monday received bids for 34 contract areas of small and marginal oil fields relinquished by government-run oil companies. The ministry received 134 e-bids for 34 of the 46 contract areas up on offer, India’s upstream oil industry regulator, the Directorate General of Hydrocarbons (DGH), said in a statement. These reserves are estimated to hold more than 625 million barrels of oil and oil equivalent gas, spread over 1,500 square kilometres in onshore, shallow water and deep-water areas, according to the bid document released by the ministry earlier.

“The bid round took place in a challenging global market environment when oil and gas prices have been volatile and investment in the exploration and production sector has seen a substantial decline. Despite the above challenges, the response to Discovered Small Fields (DSF) bid round has been very favourable and exceeded expectations of all experts,” the oil ministry said in a separate statement. BloombergQuint had reported earlier that most of the larger oil and gas firms would refrain from bidding in this round.

Blocks with proven oil resources have attracted more bids, Balaji Chennakrishnan, founder and chief executive officer of Telesto Energy said over the phone. “Gas blocks have not attracted many bids due to higher investment, lower market price of gas, connectivity and transport concerns,” he added. Telesto Energy is a Singapore-headquartered company that specialises in upstream oil and gas consulting.

Though the cost will vary as per depth and area, the lifting cost for crude oil will be in the range of $10-15 from the blocks auctioned in this round, Chennakrishnan said. He noted that companies would have ideally committed revenue in the range of 30-60 percent to the government.

In this round of bidding, conducted under the newly approved Hydrocarbon Exploration Licensing Policy (HELP), bidders were to commit the share of revenue they would be willing to part with in order to win a block. Those who shared the highest revenue would have right to explore and monetise the discovery.

Hindustan Oil Exploration Ltd. has emerged as one of the most successful bidders in this round. The company was the top bidder in three contract areas through multiple consortiums. “It is an achievement for the government to get 5-6 bids for every block. New Indian companies have come because the government has relaxed entry barriers to the exploration business,” Managing Director P Elango said over the phone.

HOEC seeks to monetise the discoveries at the earliest, “For on-shore blocks, the government requirement is to start production in three years, we target starting production there in two years. For off-shore blocks, the government requirement is five years, we are targetting four years,” Elango added.