Government greenlights Rs 84,000-crore scheme to boost offshore oil & gas exploration, production

Subject to exploration success, the scheme aims to increase India’s domestic oil and gas production from around 62 mtoe to 80 mtoe annually and expand the country’s hydrocarbon resource base from 1,600 mtoe to 2,2oo mtoe. The additional production has the potential to reduce crude oil imports by nearly Rs 1 lakh crore annually, strengthening India’s energy security and reducing import dependence, as per the government.

“The Scheme encompasses a comprehensive set of interventions across the offshore exploration value chain. It provides for large-scale acquisition, processing and interpretation of high-quality seismic data, accelerated deepwater and ultra-deepwater exploratory drilling, scientific drilling in frontier basins, development of common offshore production and evacuation infrastructure, and establishment of an integrated Oil & Gas Manufacturing and Services Zone,” the government said in a release.

“It also includes dedicated provisions for digital programme management, capacity building, technology adoption, stakeholder engagement and international outreach, creating an integrated ecosystem to accelerate offshore exploration and production in the country,” it added. The initiative was first indicated last year by Prime Minister Narendra Modi in his Independence Day address. He had called for a modern-day ‘Samudra Manthan’ to unlock India’s vast offshore energy potential.

Under the Samudra Manthan scheme, Rs 43,200 crore will be allocated to support deep-sea exploratory drilling, which involves significant costs and risks, while Rs 28,534 crore will be earmarked for offshore data acquisition. Another Rs 10,000 crore will be used to partially fund building of common infrastructure to bring the discovered oil and gas reserves into production, while Rs 2,000 crore will be earmarked for developing oil and gas manufacturing and services zones.

The scheme will provide support of up to 50% of drilling cost or Rs 675 crore, whichever is lower, for every well drilled in deep-sea and ultra-deep-sea areas. Drilling at such depths is an expensive proposition, costing between $100 million and $250 million per well, as per industry estimates. It is also risky as the drilling activity may not lead to any oil or natural gas discovery. In certain cases, even if hydrocarbons are discovered, it may not be commercially viable to exploit them. The scheme, officials expect, will mitigate some of the investment risks for upstream oil and gas players, and increase investment into the sector.

“India’s future hydrocarbon potential lies largely in deepwater and ultra-deepwater basins such as Krishna-Godavari, Cauvery, Mahanadi and the Andaman region. Exploration in these frontier areas requires advanced technology and significant investment…Recognising the high-risk, high-cost nature of such exploration, the Government is adopting a risk-sharing approach to encourage sustained investment, accelerate exploration, and unlock India’s offshore hydrocarbon resources” the government said.

Hydrocarbon exploration is a capital-intensive and long-gestation activity, with a typical period of five to 10 years from the award of an exploration block to the commencement of commercial production. Further, existing oil and gas fields witness a natural production decline of around 6–7% every year, making continuous exploration and new discoveries essential to sustain domestic hydrocarbon production, as per the government.

According to Prashant Vashisht, senior vice president and co group head at ICRA, the scheme is a positive for India’s upstream oil and gas sector, and could lead to some reduction in oil and gas import dependency. “The scheme provides funds for offshore seismic data acquisition especially in erstwhile no-go zones, which is a key issue hampering commercial exploitation of oil and gas reserves in these areas due to lack of good prospectivity data,” he said.

“Additionally, the scheme provides support for drilling deepwater/ultra-deepwater wells where the domestic upstream sector has limited experience and technical expertise and exploitation of the same remains highly capital intensive and risky. The scheme aims to add incremental annual production of 10-15 million tonnes of oil equivalent which would reduce the dependence on imports of oil and gas but only to the extent of 3-5%,” Vashisht added.

“Over the past decade, the Government has undertaken transformative reforms across the upstream sector, including opening almost the entire offshore acreage for exploration, modernising the legislative and contractual framework, and strengthening the National Data Repository. Building on these reforms, Samudra Manthan will usher in a new era of accelerated offshore exploration through strategic public investment, cutting-edge technologies and world-class infrastructure,” the government said.