India has once again called for fresh bids in its oil and gas exploration sector, aiming to attract much-needed foreign investment amidst a global energy crisis. However, despite a series of policy reforms designed to make the environment more appealing, international players remain largely hesitant, citing persistent operational challenges and a lack of trust.
Government Efforts to Boost Exploration
The government's latest initiative includes the Open Acreage Licensing Policy (OALP) bid round-XI, which offers 21 new blocks for exploration. This follows the extension of the OALP-X round, initially launched last year, due to a lukewarm response from private players. Authorities have emphasized that OALP provides a transparent and investor-friendly framework, boasting benefits such as a single license for all hydrocarbons, no oil cess, 100% foreign participation, marketing and pricing freedom, reduced royalties, and incentives for early monetization.
These reforms are a continuation of efforts stretching back years, from the New Exploration Licensing Policy (NELP) to the 2017 Hydrocarbon Exploration Policy (HELP), all aimed at boosting India's domestic energy production and attracting global capital. Yet, the desired influx of major overseas players like British Petroleum, Shell, ENI, ExxonMobil, Petrobras, and TotalEnergies has largely failed to materialize, with these firms often preferring to partner with Public Sector Undertakings (PSUs) on brownfield re-development projects rather than new exploration.
Persistent Hurdles for Foreign Investors
According to CreditSights, international players currently account for less than 10% of India's total oil and gas production. The reasons for this reluctance are multifaceted and deeply rooted:
- Bureaucratic Red Tape: Foreign firms frequently encounter extensive bureaucratic processes and inconsistent enforcement of regulations across different states, leading to significant delays.
- Policy Inconsistency: Energy expert Kirit Parikh, a former Member of the Planning Commission, highlights that policies have not been conducive to attracting foreign explorers. He points to incidents like the 2013 retrospective tax on Cairn Energy, which sought over Rs 10,000 crore in taxes, as a major factor eroding trust. Parikh notes, "It takes years to build trust and minutes to lose it."
- Protracted Clearances: Market research firm Mordor Intelligence indicates that forest clearances alone can extend beyond 900 days for upstream locations that intersect wildlife corridors. Additionally, land acquisition legislation mandates extensive community consultation, potentially adding 8-12% to project budgets. These long timelines deter foreign independents from frontier exploration and push capital towards less risky brownfield projects.
- Preference for Domestic Players: Some international companies perceive a subtle preference for domestic entities, further complicating their entry and operations.
"This sector is among a few that have no government protection or incentive like PLI. To unlock India’s full potential, we need more exploration. Today, there are hardly 200 active licences in India when there should be 2,000," says Anil Agarwal, Founder and Chairman of Vedanta Ltd, a prominent player in the critical minerals and oil & gas sectors.
Despite the government's assurances of an investor-friendly framework, the historical challenges and operational complexities continue to make India's oil and gas exploration sector a difficult proposition for foreign capital. Addressing these deep-seated issues of trust, bureaucratic efficiency, and consistent policy enforcement will be crucial for India to truly unlock its full hydrocarbon potential.