Auction of oil, gas blocks under Nelp VIII may be delayed

The eighth round of auction of oil and gas blocks under the New Exploration Licensing Policy (Nelp VIII) might get delayed beyond February 2009 on account of the current financial and economic situation in the country and across the world.

“We understand there is liquidity crunch, but it is also an opportunity for the companies to invest. We are looking at how the prospective bidders would take this present situation and then decide on a date of conducting Nelp VIII,” Director General at the Directorate General of Hydrocarbons (DGH), VK Sibal, told Business Standard.

With 4,00,000 sq km in acreage and over 100 blocks to be awarded, Nelp VIII is touted as the biggest-ever auction of oil and gas blocks in the country. “We have not yet marked the blocks. We are offering around 400,000 square feet of area. An in-principle approval from the Ministry of Environment is awaited and the planning is in preliminary stages,” Sibal added.

Industry observers say there is a strong case for the government to postpone the Nelp VIII keeping in account the present liquidity situation, and low crude oil prices.

“It will make sense to postpone Nelp VIII as a lot of exploration and production companies are re-looking at their investment strategies. Impact of the liquidity crunch coupled with softness of crude prices will affect the situation. However, serious players would still look forward to bidding,” said a sector expert from Ernst and Young, a professional services firm.

International crude oil prices have fallen sharply from a high of $147 a barrel to about $40 and may act as a deterrent for companies to invest.

“Even international heavyweights like Royal Dutch Shell, Exxon Mobil and Conoco Phillips have revisited their growth plans and pulled down their E&P budget,” he added.

However, industry players believe that before the government commences the process for Nelp VIII, it should be clear on the tax rules (80-IB (9) under the Income Tax act) and provide a level-playing field to the players.

Last year, former finance minister P Chidambaram, through the Finance Bill and an accompanying memorandum tabled in the Lok Sabha, proposed a new clause in sub-section 80-IB (9) that essentially takes away the tax holiday on gas production from Nelp blocks.

“We are working on the details of 80-IB (9) and shall announce the details before we declare Nelp VIII. We are also evaluating the minium work programme,” Sibal added.