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Exploration of oil and gas: Opportunity and key challenges... - Views on News from Equitymaster
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  • Mar 23, 2007

    Exploration of oil and gas: Opportunity and key challenges...

    Oil and natural gas, also known as hydrocarbons, are two of the most important fossil fuels used to meet the energy requirement of the country and support economic growth. Oil and gas account for 45% of the energy requirement of the country. We currently meet more than 70% of our requirement from imports. This has made the government to think over the issue of energy security of the nation, one of the key outcomes being laying increased emphasis on E&P (exploration and production) and thus allocating blocks under the NELP (new exploration licensing policy) on attractive terms. In this article, we analyse the exploratory potential of the country.

    India has 26 sedimentary basins, comprising both onland and offshore areas. The table given below shows the progress on the exploration front in the areas with high potential of hydrocarbon reserves.

    Exploration: long way to go...
    Level of exploration Area (m sq. kms) Percentage of Total
    Moderate to well explored 0.6 17.9%
    Poorly explored 0.6 18.5%
    Exploration initiated 1.1 33.6%
    Unexplored 0.9 30.0%
    Total 3.1

    The table clearly reveals the fact that India is a poorly explored country. The reason could be traced to the fact that the sector was in the hands of state post independence. However, post deregulation of the sector, more and more promising areas will be brought under exploration, thus boosting India’s production potential.

    Likely impediments for the exploration space in India

    While there is no denying the exploration potential of the country, there are various issues surrounding the same, such as location of the exploratory area, availability of skilled manpower and equipment and technology for exploration.

    Particulars Area (m sq. kms) Percentage of Total
    Onshore 1.4 44.4%
    Offshore (upto 200 m isobath water) 0.4 12.5%
    Deep water area 1.4 43.1%
    Total sedimentary area 3.1

    The above table provides a break up of the exploratory area based on location. It reveals the fact that majority of the area holding exploratory potential is offshore and deep-water area. Given the fact that Indian private sector exploratory companies have very limited operating history, they lack the technology to successfully exploit these areas on their own. Private companies are thus likely to tie up with global majors with the requisite technology to operate in the offshore and deepwater area. Infact, state major, ONGC is also scouting for a technological partner for production of its recent finds in Mahanadi and Cauvery basin.

    Exploration activity has seen a major uptick on the back of a significant rise in the prices of crude and natural gas. Brazil, Mexico, Angola, Nigeria and Indonesia are the few countries where significant E&P activity can be expected in their deep-water reserves. This has led to shortage in drilling equipment, thus affecting exploration activity of various Indian companies. However, the scenario is likely to improve over the longer period.

    If one were to analyse the global reserves potential of oil and natural gas, it can be inferred that the majority of the reserves available are deepwater reserves. Against a backdrop of rising demand globally and the consequent exploration boom, things are not upbeat on the human resource front either and in future, the industry might struggle to maintain the required level of exploration and production due to lack of trained manpower. According to society of Petroleum Engineers (SPE), the current global E&P petrotechnical workforce is expected to be around 3,75,000. With rising E&P activity, the overall shortfall for the same is expected to be around 30,000 professionals by 2012. India too, is likely to face a similar crunch, with workforce migration further compounding problems.

    Thus, as seen from the write up above, while the potential for exploration in the country is immense, there remains a big question mark of the timely execution of the same. Further, margins and consequently the returns from these activities are also likely to take a hit as firms grapple with manpower and equipment issues. Hence, we believe investors need to tone down their expectations with respect to benefits accruing to companies from exploration activities.



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