Cabinet panel to take up Nelp VII next week

The Cabinet Committee on Economic Affairs is likely to take up the issue of awarding oil and gas exploration blocks under the seventh round of the New Exploration and Licensing Policy (Nelp VII) next Thursday, according to a senior oil ministry official.

The decision comes after Australian mining major BHP Billiton said it would not improve the terms of its bid.

BHP Billiton, the largest mining company in the world, and new entrant GVK Oil and Gas were the sole bidders for five deepwater blocks and hence the provisional winners after the bidding closed on June 30 this year.

Under its bid, the consortium does not plan to drill any well in the first phase of exploration, which will last five years.

Though drilling need not be part of the minimum work programme submitted by the bidders, most firms promise to drill at least one or two wells in the first five years.

It costs about $50 million to drill an exploration well in deep waters. In comparison, seismic surveys in offshore areas cost a fraction of this.

In the first phase, the BHP-GVK consortium plans to carry out only seismic survey of the five blocks. In the second phase, however, it is compulsory to drill at least one well.

Companies, however, have the option of relinquishing the block to the government if they think it is not likely to have oil or gas reserves.

The government has been negotiating with BHP and GVK to get them to drill a few wells in the first phase.

"BHP has refused to improve its bid terms, so we are going ahead with awarding the blocks under Nelp-VII. It is likely to go to the CCEA next week," said a senior official in the petroleum ministry.

Government officials said they did not want to push BHP. The government has been trying to attract large firms to Nelp auctions.

Companies such as British Petroleum, Italy-based ENI and British Gas have bid for the auctions but US companies and Royal Dutch Shell have been absent.

BHP, which produced 318,000 barrels of oil and oil equivalent gas per day in 2007, will be the operator in the oil blocks as GVK does not have the required experience in exploration. It will also give technical support.

The government was planning to award the blocks under Nelp VII by September-end but could not do so as an empowered committee of secretaries wanted negotiations with the BHP-GVK consortium.

Under Nelp VII, the government offered 57 blocks but received bids for 45. The number of bids was 181 bids from 99 companies, the most under any Nelp round (which started in 1999).

Analysts say the five blocks BHP has provisionally won fall into the 'low-prospectivity' category.

"That is probably why they did not want to invest too much," said a Delhi-based analyst.