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Auction for oil blocks faces delay
Time Factor

New Delhi, Feb. 1: The government is likely to delay the next round of auctions for oil and gas blocks by at least six months because of the global recession and fall in international crude prices.

“Bids in the last round were below expectation, so we are revisiting our plans,” petroleum minister Murli Deora said.

The government had planned to organise the bidding in the first quarter of 2009.

About 4,00,000 sq km and over 100 blocks were to be awarded under the eighth round of new exploration and licensing policy (Nelp VIII), which would have been the biggest auction.

The next round may be organised under an open acreage system. This allows companies to identify the blocks or areas they want to explore instead of bidding for pre-assigned blocks.

Open acreage will happen once the directorate general of hydrocarbons puts in place a database having geological information of all the basins and fields.

“The next round of Nelp is likely to be delayed as this is not the right time to enter the market,” a senior petroleum ministry official said.

Officials said several global majors such as Royal Dutch Shell, Exxon Mobil and ConocoPhillips had revisited their exploration and production plans and were keeping away from unexplored blocks.

According to analysts, “A number of exploration and production companies were relooking at their investment strategies because of a liquidity crunch and lower crude prices. So it makes sense to postpone Nelp VIII.”

Oil explorers are unsure of investing as exploration is a highly capital-intensive proposition, they said.

Global crude prices have fallen from its peak of $147 in July to around $40 now.

There was also concern over a level-playing field for oil and gas producers vis-à-vis tax holidays.

Last year, former finance minister P. Chidambaram, through the Finance Bill and an accompanying memorandum tabled in the Lok Sabha, proposed a new clause which took away the tax holiday on gas production.

Petroleum ministry officials said, “We are discussing with the finance ministry to work out a solution as oil and gas should have a level-playing field.”

According to the officials, the next government will have to take a call on the timing of Nelp VIII and make efforts to lure global players.

In Nelp VII, the government has signed production sharing contracts for 44 oil and gas exploration blocks. Total committed investment in the first phase is about $1.5 billion. Fifty-seven blocks covering 150,000 sq km were offered in Nelp VII.

So far, 206 blocks have been awarded under Nelp.

Of these, 68 discoveries have been made in 19 blocks, establishing in-place reserves of 500 million tonnes of oil and gas.

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