Fortunately and unlike the marketing and pricing of petroleum products, there is no controversy over the policy towards the exploration and production of hydrocarbons in India. Successive governments of all political complexion have endorsed the importance of engaging the private sector and in allowing the market to determine the commercial and fiscal terms. All have accepted that risk capital conjoined with “leading edge” technology offers the best chance of harnessing our indigenous oil and gas resources. The challenge has been to secure both in the face of the increasing availability of exploration opportunities worldwide.

In this context the decision to offer an additional 55 onshore and offshore blocks to the petroleum industry for exploration under the now almost decade old and therefore possibly misleading umbrella of the New Exploration Licensing Policy (NELP) could not be better timed. The oil companies are financially strong and have substantially increased their exploration budgets for 2006-7. This is because of high oil prices and the enduring benefits of the cost cutting and portfolio rationalisation exercise undertaken by them in the aftermath of the collapse of prices in the late ’90s. In addition and consequent upon the recent discoveries by Reliance, ONGC and GSPL in the Krishna Godavari basin offshore east India, there is heightened interest in our geology. And then there is “India everywhere”, the metaphor that now encapsulates our economic success and international confidence in the sustainability of this success. This NELP round — and there have been five before — stands therefore a good chance of attracting an enthusiastic and broad based response from international industry. The question is whether this will also bring in its train the relevant technological solutions for locating and then developing our undiscovered reserves.

Exploration and production is at the best of times an inherently risky proposition as it rests on overcoming three interlocking probabilities — the probability that a given geologic structure contains hydrocarbons; the probability that the hydrocarbons will be located; and the probability that once located the hydrocarbons can be produced optimally and on a commercial basis.

The probability that our geology contains hydrocarbons is high. We are certainly not a Saudi Arabia or Kuwait but the Directorate General of Hydrocarbons (DGH) in the Ministry of Petroleum has delineated 26 potentially hydrocarbon bearing sedimentary basins and has estimated that these basins contain approx 30 billion tonnes of oil and oil equivalent of prognosticated reserves. This is but 1 per cent of the total world reserves but it does nevertheless hold out the prospect of materially significant accumulations in individual fields.

The challenge is to locate these fields. Our success rate so far has not been good. We have had one giant discovery — Mumbai High in the mid-1970s but thereafter only a handful of medium and smaller successes. In consequence our demand-supply equation has undergone a statistical inversion. In the early ’80s, we produced 70 per cent of our crude oil requirements and imported the balance 30 per cent. Today we import 70 per cent and produce 30 per cent. There may no doubt be operational explanations for this relative lack of success but the underlying reality is that the “easy to find” hydrocarbons have been located and that what remains to be found are in complex geologies and/or harsh terrains like the deepwaters offshore and the Himalayan foothills. The probability of locating these reserves is therefore prima facie low. It can be increased but only if we are successful in accessing the relevant technological solutions for exploration in such environments. The positive is that these solutions do exist. There are many examples of companies that have through the deployment of sophisticated geophysical (for example, advanced 3D sismic) and drilling (for example, horizontal and multilateral wells) techniques successfully located reserves in equally if not more hostile geographies like the Arctic.

The location of reserves does not of course in itself constitute success. There is still the issue of development and commercial production. A statistic will highlight why this could present a challenge. The DGH has estimated that we recover only about 28 per cent of the hydrocarbons “in place” in our discovered reservoirs. In other words, 72 per cent of the hydrocarbons are not monetised. The industry average is not much higher but there are fields internationally of comparable geology to those in India where the companies are recovering between 45-60 per cent of the hydrocarbons in place. They have achieved this higher rate through the application of inter alia advanced reservoir modelling, “smart” wells and enhanced oil recovery (EOR) technology. These are complex and costly solutions but the potential upside is huge. Were we, for instance, to increase our domestic recovery rates from the existing 28 per cent to say 45 per cent, the production profiles (at existing rates of production) of our fields would be extended by almost two decades. In short, the probability of making the most of our discovered reserves rests also on technology.

I should point out that gas presents an additional complexity. Unlike oil, it is not fungible. It cannot under normal circumstances be stored for anything other than short periods. It is therefore usually consumed upon production (or else flared). Its development and production is consequently contingent upon the creation of the market; the construction of the distribution infrastructure (like pipelines) connecting the producers to this market and the conclusion of a mutually acceptable gas supply contract between the producer and the consumer. The reason why, for instance, ONGC’s gas discovery in Tripura remains undeveloped years after the reserves were proven is because this umbilical link across these segments of the gas value chain has not yet been forged. Technology has time and time again trumped the cassandras predicting the imminent depletion of hydrocarbon resources. Three decades back no one thought it would be possible to drill in the North Sea. This was because of the extreme weather conditions. Today the North Sea is amongst the largest oil and gas provinces outside OPEC. There was equal skepticism about the ability of companies to develop deepwater fields. Last year, however, the Nakika platform in the Gulf of Mexico started operating at a record depth of nearly 2 km. Technology cannot on it own of course overcome the challenges of our geological heritage but it must now be at the heart of our future policy initiatives.

There have been five rounds of bidding under NELP. The results have been impressive: 110 production sharing contracts have been signed and there has been a significant intensification of exploration activity. The shortcoming is that it has not led to a broader participation of the private sector. None of the international majors are, for instance, currently involved in exploration. This is a shortcoming not because these large companies have a monopoly over exploration success. Far from it. The success of Reliance and GSPL confirms that size and prior operational experience are not a defining requirement for exploration success. It is a shortcoming because as this article has emphasised we need to apply “leading edge” technology. Large companies have a track record in the application of such technology. NELP VI will be an unqualified success if it results in not only the broadening of private sector participation but also the upgradation of technological input. In evaluating the bids this latter factor should therefore be given strong weightage.