Indian Exploration & Production Sector

Overview of Investment
Investments into E&P industry would continue due to uncertain oil prices. Any investment by Oil & Gas Company translates into business opportunity for service providers such as drilling companies, supply vessel companies, etc. Following chart shows investments growth by Indian E&P companies with focus on Indian Oil & Gas Sector (OVL, a subsidiary of ONGC, is focused on international investment to oil & gas blocks for India.

The chart clearly shows consistent investment by exploration and production companies. These investments have broadly remained independent of oil prices. Irrespective of whether crude oil prices are above US$ 100/ Barrel or below US$ 60 /barrel, the investments have remained robust in India

Figure Capital Investment in the Offshore E&P – Asia Pacific

Quantifying Market
Though investment has grown 6 times, the opportunities for service providers have not grown in the same proportion. This is mainly due to increase in cost of products and services to undertake E&P activity. A more accurate way to measure opportunities for service provider, offshore logistics services companies, would be assess the number of rigs operating in Indian water or the wells drilled by these rigs to quantify opportunities in exploration and asses the production platform in Indian waters to quantify opportunities in production. The offshore rigs operating in India and number of wells drilled in India have witnessed a modest growth rates in last five years. The number of rigs has increase by close to 20% from 40 in 2007 to 46 in 2014. Similarly, the number of wells drilled due to exploration or development of field has also remained modest. Going forward the opportunity in the sector would be driven by the new discovery, field development plan, redevelopment of existing fields and ongoing exploration activity for blocks awarded in the various rounds of NELP. 

Sustainable growth in Offshore Exploration and Production activities opens up opportunities opens up long term opportunities for service providers. The market is stable, more than 75% of share is with ONGC – a government of India owned company. This opens up long term reward for service providers in the Sector.

Offshore Maritime Services Industry has seen a boom over the last couple of years, especially when the prices of crude oil was high. In fact, at one point of time, governments and E&P players were of the belief that the global crude oil price could reach US$150, US$175 or even US$200/barrel. This led to aggressive investments by offshore oil and gas companies. More than two thirds of these investments were a source of income for the offshore maritime services companies. The sector looked so lucrative from the investment point of view that both the regular players and speculators in the OMS industry borrowed funds and invested in new assets. However, High oil prices did not last for ever and presently oil prices are trading around US$ 50/barrel (July, 2015).

The fall of prices has forced several oil and gas companies defer their offshore drilling and exploration programs, while some have cancelled it. The story of India is different, primary reason for these deferments and cancellations was the economics of extracting oil. The cost of extracting crude oil varies from US$5/barrel to more than US$40/barrel, depending upon the geographical conditions, environmental conditions, etc. Therefore, if oil prices are low, the risk associated with offshore exploration in a region where the cost of exploration is high increases several fold. Such projects become unviable or un-attractive leading to deferment of projects or scrapping of projects. The costs associated with the exploration of oil or gas is fixed and high, but the yield is uncertain. This factor discourages most of the oil and gas companies from taking up expensive offshore exploration ventures, if the price of crude oil is not lucrative. India is a different country. Irrespective of what oil price is, Government of India and Oil & Natural Gas Corporation would continue to invest in Exploration and Production activity to meet their energy security. Hence, Entry to India would provide assured business to Offshore Service Providers.