According to a Business Standard report, India’s crude oil production stood at a 28-year low of 28.4 million tonnes in the financial year 2021-22. Crude oil production has been falling month-on-month for the last four years in a row, with only one month registering a marginal increase. Also, India’s demand is growing rapidly, resulting in a steady increase in imports, reaching 212 million tonnes in FY22. India is the third largest importer of crude oil in the world after only China and the US. The question is, can India increase its domestic production, or will it depend on imported energy like Japan?
Whether India has significant hydrocarbon reserves for exploitation is open to question. India is believed to have less than 600 million tonnes of reserves spread across its vast landmass and offshore areas, within the country’s exclusive economic zone. Bombay High is the largest discovery and still the largest source of crude oil. The Brahmaputra Valley, where oil was first struck during the colonial period, and Barmer in Rajasthan are major coastal sites. The Cauvery and Godavari basins as well as the region off the coast of Gujarat are estimated to have good deposits. But the point is to find them and get the oil and gas out.
Since oil and gas are abundant in the geographic book-end of the Indian subcontinent, the Persian Gulf to the west and Southeast Asia to the east, it is because India also has vast reserves waiting to be discovered. . Geologists are looking at the geography of continental drift to identify potential reserves in locations that were once near sites of proven, active reserves, such as Guyana and Equatorial Guinea. The issue is to find India’s reserves and pump oil and gas out of them.
It has not proved to be easy. The burden of India’s massive crude oil production falls on the shoulders of ONGC. Over the years, ONGC has become a less efficient explorer and developer of hydrocarbons and has guided more cash cows to acquisitions, all of which do not make economic sense. Its track record in finding oil and gas since the discovery of Bombay High has not been great. When ONGC announced its plan to spend last month 31,000 crore on the new discovery, its share price declined.
The last major discovery was made by Cairn in Rajasthan, now called Mangala and owned by Vedanta. Otherwise, India is trying hard to get foreign expertise and funding in new hydrocarbon discoveries. In the latest round of auction of open acreage, three state-owned companies (ONGC, Oil India Limited and GAIL) and a novice private company Sun Petro participated. India has consistently failed to attract large global players in exploration and development.
India now offers very attractive terms for new investors in the oil and gas sectors. It offers open acreage, which means companies can identify and bid for blocks of their choice in a specified extension, instead of bidding for blocks identified by the government. The country also provides revenue sharing instead of production sharing after recovery of cost as a method of remuneration to developers. The cost recovery is open to the Comptroller and Auditor General’s disputes and allegations of revenue sharing of the oil company in the political arena. Revenue sharing is best suited for countries like the Persian Gulf where the potential for oil/gas is high. However, given the political economy of cost recovery, India may settle for revenue sharing, even though it may reduce revenue – companies bid for fewer revenue shares to hand over to the government, on exploration before one. Considering the possibility of spending a lot, decent deposits are located. The royalties the companies have had to pay have been reduced. Despite all of this particular bride being beautiful, there are very few qualified suitors in the ring.
It is not inconceivable that the shoddy treatment of Cairn will play a role in intimidating the outside players. Cairn, a specialist hydrocarbon exploration company, conducted oil and gas exploration where other companies, including ONGC, had failed to find any. It also includes the area of Barmer. Nevertheless, prior to an initial public offering, an internal restructuring of the amalgamated subsidiaries to consolidate them into a single company, without any change in beneficial ownership, led to the retrospective demand for a capital gains tax. The company opposed the demand. The government responded by forfeiting dividends, selling shares and withholding tax refunds. Cairn won an international arbitration award against this arbitrariness. The government refused to award the award. The company identified Indian assets to be confiscated abroad, and foreign courts began to allow confiscation of assets. After initial setbacks, the government reversed its stance on taxation and struck a deal with Cairn.
This has left a bitter taste in the mouths of potential investors in India. Acting as a proxy for Reliance Industries Limited, the experience of mixed companies in doing business in India in relation to India’s readiness to comply with international arbitral awards ranging from Dewas to Amazon in its dispute with Future Doesn’t create excitement about ease. foreign companies.
Arbitrary use of central enforcement agencies against political opponents may serve petty leaders of the opposition, but it has an impact on the external perception of fair play in the hands of the Indian state. India has dipped on a range of globally accepted indicators of governance quality, from freedom of the press, democratic integrity, hunger and malnutrition to religious freedom. These do not directly map to crude oil production in the country, but serve as an incentive for serious capital and expertise deployment in India with longer periods of lock-in, in the case of investments in hydrocarbon exploration and development. work in.
Until India changes its performance on such parameters, ONGC will have to learn tricks that seem to have been forgotten since the prime days of Bombay High’s discovery and development. It will help if the government looks at ONGC as a financial investor instead of an oil major who can take over companies and hand over cash to the government.