“We are seeing interest from companies across the board”

Atanu Chakraborty, Director General of Hydrocarbons

IN May this year, Atanu Chakraborty, who last headed the Gujarat State Petroleum Corporation (GSPC), was cherry-picked by Prime Minister Narendra Modi as the new Director General of Hydrocarbons (DGH). The office of the DGH regulates the exploration of oil and gas reserves in the country, alongside providing technical support to the Ministry of Petroleum and Natural Gas. In his first detailed interview after taking over, Chakraborty speaks to Business Today’s Anilesh S. Mahajan. Edited excerpts:

The auction process of small oil and gas fields has just started. What are your expectations from it?

It is almost five years since new acreage was offered to investors in India. What are currently being offered are discovered fields. So the risk in exploration is very low. These are all small fields, both onshore and offshore. It is a nice, balanced bouquet of offerings. Reserves have already been discovered up to a certain level, and those with good understanding of oil and gas fields can extract even more. Processing facilities are also there. People should come in to improve the investment climate for larger things that will come subsequently.

Global crude prices have fallen to record lows and the projection is that they will not climb up to $100 a barrel again for the next two years. Is this the right environment for India to auction these blocks?

Since the blocks are small, the investment required to develop them will not be very big either. Investors will not have to spend too much on facilities for processing and related activity, as we are trying to link these fields to either ONGC’s

WE WILL ENSURE THAT THE COMPANY WHICH APPROACHES US FIRST FOR EXPLORATION DOES NOT LOSE OUT

(Oil and Natural Gas Corporation) or OIL’s (Oil India Ltd) existing processing facilities. We are offering almost 2,000 sq. km. of seismic surveys and about 1,300 sq km of seismic data for 130 wells across 67 fields in 46 contract areas. It is very substantial data we are providing. It makes sense to invest in these blocks. We are offering revenue sharing contracts. Earlier governments offered profit sharing contracts and that was a major issue for operators. Now revenue risk is completely out.

How much interest have investors shown?

We had expected small and medium companies to show interest with industry professionals or capital providers like PE (private equity) firms tying up with them. But now we are seeing interest from companies across the board. We have opened a centre in Noida which provides all the data relating to the 46 contract areas on offer. We intend to open similar centres in Houston, Calgary and London. Potential investors can buy the data packages, interpret them and then come up with bids.

After NELP (New Exploration and Licensing Policy) which existed for many years, the cabinet has now approved HELP ( Hydrocarbon Exploration and Licensing Policy). What difference will this make?

HELP is predicated on a Unified Licence Scheme, which allows exploration of both conventional and non-conventional hydrocarbons. We are also considering open acreage, so that companies are not restricted by the boundaries of a contract area. That reduces exploration risk, and the government is okay with it, either through HELP or OALP (Open Acreage Licensing Policy). Both choices exist. There is also the National Data Repository (NDR), in which we have already collected substantial data relating to almost 50 per cent of the sedimentary basins in the country. There is both raw and processed data, which will help anyone looking at India as an investment option in extracting oil and gas. We have also worked out the outline of the revenue sharing contracts we will use with HELP or OALP. We are now working out detailed packages. We want to start as soon as these small fields’ bid is over. Mixing the two is not advisable.

What sort of work is still left with the NDR?

NDR is complete but in a sense it will always remain a work in progress. You have to always keep updating data. We are now working on improving the reliability (of the data), working on disaster recovery and testing it out, ensuring that access is free as far as possible.

If a company decides on an area and wants to explore

it, how will you ensure the government gets a good deal?

The company will have to go through a bidding process because this is a natural resource. There will have to be bidding.

Won’t that be unfair to the company which first approached you if others are allowed to bid for the same area?

We will ensure that the company which approaches us first for exploration does not lose out. I’m unable to outline any structure at this stage, because we are working on the legality of various options. There is the Swiss challenge structure, which comes in many variants and is quite commonly used. When some company does the initial exploration and its work is taken up and we ask for bids, we can pay the company the cost of exploration. We don’t want the company which came in first to be at a disadvantage, or else no one will come at all.

Till the time you finalise HELP or OALP, can we expect a NELP, Round X?

NELP X was part of the PSC (profit sharing contract) series, which is now over. We have moved to revenue sharing contracts. We can have HELP 1 or OALP 1 or a combination of both. We can offer a data package (HELP) or ask people to look and build their own data (OALP), or both can go on simultaneously. We will also have to see how the market responds. Sometimes markets are slow. It’s a strategy that needs to be worked out.

How will OALP 1 and HELP 1 be different?

OALP will have to be an ongoing exercise because a company will come in (to explore an area) and decide and bid. It will not wait for six other companies to also show interest and bid at the same time. But if you put together a package where the area choice is not open and ask for bids… that would be HELP 1.

Did Prime Minister Narendra Modi’s experience with oil and gas in Gujarat help frame the new policy? How do you analyse the scenario?

There are two or three basic things about the new policy. First, it brings market forces into play. Second, it gives market access. The oil and gas market is no longer tightly controlled and fragmented. Any investor, when he looks at an area of potential investment, looks at the market structure, whether market forces are being allowed free play or whether the sector is heavily regulated. Highly regulated markets have their negatives. The heavy regulatory burden, along with issues related to the environment, made the previous regime’s policy unviable.

What has happened now? Markets and access are being opened up and the regulatory burden substantially reduced. Companies don’t have to depend on government committees clearing their costs. They are free to plan their own programmes, but must adhere to a minimum work programme. Complementing this, permissions are flowing fast across all sectors. The regulatory risks are gone.

Should the DGH be made completely autonomous like some of the other regulators?

There can be different opinions on this. The regulator is important in a scenario where the market is controlled in monopolistic fashion. In hydrocarbons, we are now allowing free entry and exit. Market access is open, as is pricing. Many of the usual functions of a regulator are not required in this sector. Here, the regulator’s job is to bring more data into the public domain, and possibly at some time in the future, coordinate the sharing of facilities so that companies do not have to duplicate infrastructure and hydrocarbons can be brought into the market earlier. These are two areas which may need some amount of regulation. I think the present system is working all right and no overnight overhauling is required. But the term ‘regulator’ implies a certain amount of regulatory risk and we want to reduce that.

As a regulator, you report to the petroleum ministry, which also runs ONGC, OIL and other oil and gas PSUs. How fair is that?

As I said, there is free entry and free exit in the sector. In such a situation, I guess the role of government as regulator and as owner of oil and gas companies are completely separate. But perhaps we need more debate on this.

Is the current auction, using the new formula for the first time, the biggest test of your career?

It is a dipstick to test investor sentiment. These are small fields. In all, we are offering around 15,000 sq. km. across these 46 areas. Some of the single blocks under exploration are bigger than all these fields put together. The response will be crucial in determining how the policy should be tweaked in future for the bigger fields. ~

MARKETS AND ACCESS ARE BEING OPENED UP AND THE REGULATORY BURDEN IS SUBSTANTIALLY REDUCED