India’s ONGC set to develop domestic shale while Reliance takes a knock abroad

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Source: DollarPhotoClub

India is seriously gearing up to explore its shale deposits, estimated by EIA at 96 Tcf of technically recoverable resources. On Sunday, Indian media outlet The Economic Times announced that the state-owned Oil and Natural Gas Corp. Ltd. (ONGC) is planning to spend approximately $105 million (INR 7 billion) to drill up to 17 shale oil and gas wells located on the country’s east and west coasts.

“ONGC Ltd. has proposed for exploratory drilling of 11 wells for shale oil/shale gas in Cambay basin at Mehsana, Ahmedabad, Bharuch in Gujarat. Total cost of project is $54.9 million (INR 3.66 billion),” revealed minutes of a recent meeting of the Ministry’s Expert Appraisal Committee (EAC).

If the proposal is approved by the government, it will be the first time that ONGC has embarked on shale exploration on such a large scale, a senior company official told The Economic Times. Also for the first time the state-owned firm will engage in shale gas exploration in India’s Krishna-Godavari basin located on India’s east coast.

The company is seeking permission to drill 11 exploratory wells for shale oil and shale gas in Cambay basin at Mehsana, Ahmedabad and Bharuch districts of Gujarat, 1 prospect in Cauvery basin at Nagapattinam in Tamil Nadu and five wells in Krishna-Godvari Basin at East and West Godavari districts of Andhra Pradesh.

In total the company is planning to drill 17 wells across the country. It is currently awaiting a permission from the ministry to prepare Terms of Reference for exploring the wells.

“ONGC was given a mandate to identify a minimum of 50 nomination blocks where it will take up shale gas and oil exploration in Phase-I,” an unnamed official was quoted as saying.

“ONGC will have to drill at least one (two in blocks having area more than 200 sq km) well for assessment of shale gas and oil in each of these blocks by 2017,” the official said.

It is a well-known fact that India, the third largest economy in the world, is energy starved, currently spending a whopping $160 billion annually importing oil and gas to meet the growing energy demands of its population of 1.25 billion. At present more than 85 percent of India’s domestic demand of oil and gas is met through imports.

In 2013 Indian Petroleum and Natural Gas Minister Veerappa Molly announced that the ministry would prepare an action plan that would lead to India gaining its energy independence by 2030. This was supposed to be achieved through developing the country’s natural resources such as shale and coal bed methane, foreign acquisitions of hydrocarbon deposits, reduced subsidies on motor fuels, and oil and natural gas pricing reforms.

Veerappa’s successor, minister Dharmendra Pradhan recently announced additional proposals for reform of India’s oil and gas industry. Increased gas price freedom, unified licensing and a shift to revenue sharing, rather than profit sharing, are among the reforms Pradhan is pursuing after seeking input from industry leaders and experts.

“We will make the policy after considering all the views and take it to the Cabinet,” said Pradhan while at the Bio-Energy Summit 2015, as quoted by the Hindu on November 17. These collaborative reforms are part of an ongoing governmental effort to increase India’s energy security.

Despite these declarations, India’s road to energy independence is not likely to be easy. So far the only companies engaged in exploring shale resources are the two state-owned firms: ONGC and Oil India. In the New Exploration and Licensing Policy (NELP) few foreign firms have actually bid for blocks. In the latest round of the NELP, none of the 16 blocks have been awarded to an international firm. Foreign companies have also complained about prohibitive levels of bureaucracy, which make doing business in the country very difficult.

Another problem is the lack of technical know-how. The Indian hydrocarbon deposits are not well understood and reservoir intelligence companies have complained that the country lacks coherent and well-organised legacy drilling data that would make understanding its shale deposits easier. The shortage of water – necessary for hydraulic fracturing, which is a very water-intensive process – poses another problem.

While domestic hydrocarbon exploration is mired in difficulties, India’s foreign upstream acquisitions don’t look any better.

It’s been reported that Reliance Industries – an Indian company which invested heavily in U.S. shale – has suffered losses in in the fourth quarter of fiscal 2016 (Apr 2015-Mar 2016) that ended on March 31 due to low oil and gas prices.

The company’s capex for the quarter was sequentially 31 percent lower at $113 million, and reflected a fall of 53 percent year-on-year. During the fiscal, aggregate capex was at $781 million, lower by 32 percent on year. During the year, 129 wells were drilled and 190 wells were put on production – lower by 10 percent compared with the year before. Total producing well count stood at 1,055 in March 2016, compared with 865 wells in the same period last year.

“The decline in revenue was led by lower upstream production in domestic blocks coupled with sharply lower oil and gas prices in both the domestic and US shale segments,” RIL said.

The company said that though business environment remains challenging, it is focused on lowering activity levels to conserve cash while retaining optionality and preparedness for ramp-up, when prices improve.

“We have been scaling down our capex for the shale gas business. Looking at the energy prices, we would be further scaling down investments to $125 million for this year,” said Srikanth Venkatachari, joint chief financial officer at RIL, at a press briefing on Friday.

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