Introduction

The Indian government has been implementing new policies to manage and distribute oil exploration and production licenses. One of the latest initiatives is the Open Acreage Licensing Policy (OALP), introduced in 2016, which replaced the New Exploration Licensing Policy (NELP). This policy aims to provide more flexibility to bidders and ensure a competitive and transparent bidding process.

The Transition from NELP to OALP

On March 30, 2016, the government launched the OALP, a significant shift from the NELP. Under this new policy, bidders can choose specific areas for exploration and submit their bids. The government then reviews these submissions, conducts research to ensure no overlaps with previously awarded areas, and places these areas into a bidding process. Those who have submitted their interest for particular areas receive a bonus of 5 points during the bidding selection. The government is primarily focused on selecting bidders who promise a higher share of oil and gas production for the government, as well as a faster exploration and extraction timeline.

The Maiden Auction of OALP

The first auction under the OALP involved 55 fields, offering a significant opportunity for both new and existing players in the sector. Vedanta showed tremendous interest and aggressively bid for all 55 exploration blocks. ONGC, the state-owned National Oil Corporation of India (GOI ONGC), submitted bids for 37 blocks, with 26 submitted independently and 11 in partnership. The rest of the bids came from other companies, notably Oil and Natural Gas Corporation (OIL) and Hindustan Oil Exploration Company (HOEC).

Outcome of the Auction and Government's Strategy

Among the 55 exploration blocks, the government awarded 41 to Vedanta and only 2 to ONGC, raising questions about the government's strategy. It is believed that Vedanta's aggressive bids, along with its commitment to providing a higher percentage of oil and gas to the government, as well as its promise of faster exploration, played a crucial role. This allocation indicates that the government is prioritizing private sector investment and efficiency over state-owned enterprise interests.

Government's Plan to Minimize Oil Imports

The government's overarching goal is to reduce oil imports and achieve significant oil savings. By 2022, the objective is to cut the oil import bill to 10% of the national GDP. By half of 2030, this figure is expected to drop to 67%. To achieve these targets, the government is leveraging various policies to explore and exploit existing fields efficiently.

The Impact on ONGC

It is widely believed that without fields to discover and explore, ONGC's financial health and operational capabilities face significant challenges. Companies relying on government awards for growth are heavily dependent on such allocations. The reduction in exploration activities could negatively impact ONGC's ability to generate revenue and maintain its market position.

Conclusion

The allocation of oil exploration and production licenses is a complex decision-making process influenced by economic, operational, and political factors. While Vedanta's aggressive bidding and promise of efficient exploration provide a model for future investments, the government's continued commitment to domestic resource exploitation and efficient resource management remains central. The outcome for ONGC and other state-owned enterprises highlights the importance of strategic planning and diversified investment strategies in the oil and gas sector.

References

Source: ONGC bids for 37 oil blocks Cairn 55 in 1st OALP round - ET EnergyWorld