Interview with A. Chakraborty

“I see India emerging as a big exploration and production space”

The Indian oil and gas sector is navigating its way through the challenging global scenario marked by low crude prices. New policies have been announced to create a business environment conducive to fresh investments. In this context, the role of the Directorate General of Hydrocarbons (DGH) assumes great significance. In an interview with Indian Infrastructure, Atanu Chakraborty, director general, DGH, shares his views on the current scenario, experience with the recent policy initiatives, and future outlook for India’s petroleum space…

What has been the response to policies such as the Hydrocarbon Exploration and Licensing Policy (HELP) and the recently launched Open Acreage Licensing Policy (OALP)?

HELP was introduced during the 2016 budget session. It is a policy framework that aims to change the entire paradigm of the sector and includes unified licensing, introduction of the OALP, shift to the revenue sharing model, as well as market pricing. Subsequently, the discovered small field (DSF) round was launched to bring in some acreage to the market. It has taken about one year from the announcement of the policy to its fruition in the form of the OALP launched recently. There are two reasons for this: one, we wanted to factor in the experience with the DSF round (with regard to what the industry expected from the contracts); two, it is a completely new concept as there aren’t many practitioners in the world of a regime which has a combination of the OALP and revenue sharing framework.

We wanted to take time for devising the correct framework and are keen on reducing the regulatory burden as much as possible. These were the parameters on which we were working. Finally, the OALP was operationalised in July 2017. At the same time, the National Data Repository (NDR) was also unveiled.

The response from the industry has been far ahead of our expectations, both in terms of accessing data and submitting expressions of interest (EoIs). Already, around 45 EoIs have been received for an area of about 50,000 square km. Interest has been seen from both private and public sector companies, from both big and small enterprises, as well as from both national and foreign firms. All this area will go in for exploration by next year, and some of it may start production in a short span of time. Moreover, all of the stated area has been chosen by the companies themselves; thus, the background work has already been carried out.

What has been the experience with the DSF round?

The industry seems reasonably happy with the transparent bidding round and significant removal of the regulatory burden. Industry players have bargained for slightly increased project risks against reduction in the day-to-day peeping into the cost recovery. Initially, cost recovery was a good system which provided protection against a host of risks. However, for a maturing economy like India some amount of project risks are easier to take.

Some of the parameters that were sought were connectivity and sharing of facilities as a means to improving cost structures. Another aspect of the experience with the DSFs is the market price, and the industry seems content. However, the question that has been asked is how much is the market price and how it is to be determined. The minister has made an announcement in this regard – gas price discovery will be facilitated through a market-based platform soon (short to medium term). This will amplify the attractiveness of the sector further. The government has been sending signals that market forces will be brought into play. HELP, for instance, is premised on this.

How will the OALP impact the domestic production scenario?

With the increase in production by 2022, we will be in a position to reduce import dependence on oil and oil equivalent products by at least 10 per cent. This estimate is predicated upon plans for which field development plans are approved. I am not counting in production from either DSFs or the OALP, knowing that whenever a new acreage comes in, it has its own dynamics. Some of the areas where works are under way include the Krishna-Godavari (KG) basin, the Cambay basin, the Gujarat-Kutch basin and the Rajasthan basin.

With regard to the production increase, we can expect at least 50 million metric cubic metres per day (mmscmd)-55 mmscmd (incremental production) of gas. We expect an increase in production (oil and oil equivalent gas) by about 80 per cent of the present level of crude production.

Production from DSFs will also come in. Besides, in about the next three years, production from OALP fields may also contribute to output, as there is much visibility with regard to the reserves, given the a priori knowledge about these areas.

What are the expectations from DSFs?

DSFs can always give surprises. The perception of many players has changed significantly after looking at the data. The upsides are much more than we had thought earlier. DSFs may have reserves of about 300 million metric tonnes (mmt) of oil and oil equivalent. Taking a proportion of about 40 per cent, it would translate to about 120 mmt-150 mmt of oil and oil equivalent of production. Annualising this, the expected additional production can be at least 3mmt-5 mmt of oil and oil equivalent.

What are the expectations from the OALP?

With regard to the OALP, incremental production will be at a much higher scale. I see India emerging as a big exploration and production (E&P) space. We have basins that have extremely high potential. The Kutch, KG and Rajasthan basins are cases in point. Thus far, I believe, we have just plucked the low-hanging fruit. We are yet to produce from the mesozoic layers, from which the rest of the world produces 50 per cent, while the proportion for India is only 5-7 per cent. Discoveries are being made in this layer, and the industry has also started to understand its nature.

What is your perspective on production from deepwater areas?

Deepwater areas are no longer rocket science – environmental approvals are easy, right of way is not an area of concern, and the technology is available. Advances in areas such as robotics, telemetry and analytics have made things simpler. Overall, we have developed a good level of understanding of these areas.

What are your thoughts on the NDR?

The NDR will be a perpetual project, as we will continue adding data to it. Data will be the most critical thing in the E&P segment. It will also have alternative uses. The government’s data policy is based on compulsory acquisition and easy dissemination. We want not only the E&P firms to use it, but we also want people to take this up for research purposes, which would have additional benefits. In about two years we are planning to make the data repository completely cloud based, so that real-time data access is possible.

What are the key concern areas with regard to the revenue sharing contract (RSC) regime?

We are analysing further feedback on the contracts. However, a lot depends on the bidding behaviour. If there is overaggressive bidding, then whether there is a production sharing regime or an RSC, there will be problems.

In the OALP and in DSFs to some extent, we have tried to address these issues. We have done away with some of the problem areas such as penalties under the minimum work programme. Earlier the penalty was indeterminate, but now the players know what they might have to pay in case of a default in the minimum work programme. Another initiative has been stricter adherence to timelines and specific penalties associated with it.

What is the progress on coal bed methane (CBM)?

A major problem that CBM faces is that a very large number of wells is required and land acquisition is a big challenge. However, we now have four operational fields, and by the end of the year we should be hitting about 5 mmscmd. Another key aspect is that Coal India Limited will take the initiative as it has the maximum coal reserves. Overall, I have modest expectations from CBM.

What is your expectation with regard to the production scenario in comparison to your perspective on the same about a year back?

I am actually very optimistic. The whole paradigm has changed: we are shifting from limited data to the NDR regime, where a lot of data is available for the area so that an informed decision can be taken by the player (as there is greater visibility of the reserves). On the consumption/demand side, there are no issues and the same goes for pricing. Besides, we are also maturing in understanding the technologies. India is at a stable phase and just needs to hold the course. It is important to deliver on whatever has been envisioned by the policies, and this is where we will have to continuously strive.


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