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Haunting E&P Companies…
- Debasish Mishra, Senior Director | Consulting, Deloitte Touche Tohmatsu India Pvt Ltd
Oil has become a precious commodity in today’s world. Geopolitical issues are haunting E&P companies for their under recoveries. Most of the E&P companies whi ch are operating in politically unstable countries are either withdrawing from those countries or halting their production.

On the eve of World War I, First Lord of the Admiralty Winston Churchill made a historic decision to shift the power source of the British Navy’s ships from coal to oil. He intended to make the fleet faster than its German counterpart. But, the switch also meant that the Royal Navy would rely not on coal from Wales but on insecure oil supplies from what was then Persia. Energy security thus became a question of national strategy. Churchill’s answer? “Safety and certainty in oil,” he said, “lie in variety and variety alone.”

“On no one quality, on no one process, on no one country, on no one route, and on no one field must we be dependent,” - this has been the cornerstone of energy security since that time and countries like India that depends on import for 80 per cent of its consumption – it’s even more critical. India has been attempting to secure supply since a long time - since domestic reserves are dwindling and NELP outcomes have been disappointing, both public and private sector companies have ventured out for oil and gas assets abroad.

The biggest of them all is ONGC Videsh that has invested in Vietnam, Myanmar, Russia, Kazakhstan, Iraq, Syria, Libya, Nigeria, Sudan, South Sudan, Brazil, Columbia, Cuba - that is almost 13 countries other public sector entities like BPCL has almost made smaller but noteworthy investment in Mozambique and Brazil. There are many in private sector like Reliance and Videocon who have made forays into E&P business abroad. Syria is volatile but there are positive indications due to US’s decision not to attack. Libya is getting normalised. Middle-East is calm post -Arab spring. Nigeria has local government elections soon so it is politically similar to India (inactive). South Sudan is and has always been turbulent. Political instability in these countries is definitely impacting the production from the assets.

Challenges in all these are manifold First, there are many countries, which are either in conflict zone or just coming out with one. Example, Iraq, Sudan, Libya etc. Indian diplomacy is still at nascent stage compared to the Western powers and has very limited influence. Also, India as a country is shying away from engaging directly in these countries unless it is part of UN peace-keeping force.

Second, there are countries like Russia, Kazakhstan, where getting a stake in an oil field is more of a countryto- country engagement than a commercial decision and they would often flex their muscles - here an emerging power like India has to show some strength in getting a good bargain. China is often two steps ahead of India in such places.

Third, there is increasing push towards resources nationalisation in many countries. This is a real risk in countries in Latin America. Again E&P companies have to undergo many challenges like high security costs, low high-skilled local manpower and high level of corruption. E&P companies in India are suffering from Policy paralysis in the wake of upcoming elections and focus on KG-D6 and gas pricing are grabbing too much attention now-a-days. Most of the Indian E&P players are looking for international assets like ONGC (through OVL), RIL, and Videocon.

Overall, it’s much more driven by the External Affairs Ministry than ONGC or the Oil Ministry. Securing supply routes is also another critical factor. Many believe US is going to soon have “energy independent” given their luck with Shale Gas and Tight Oil. Many believe after 2017, they will at least not depend for oil outside American continent. That puts the onus on securing supply routes on countries like India and China. For example, India will import for a long time from Saudi and other Middle-East countries - this supply will come via the Gulf of Eden and the Persian Gulf. Piracy emanating from Somalia is a major problem in that region. Also recent incident of Iran flexing its muscle by detaining an Indian tanker for nearly a month shows that we need to have a robust supply routing, where there is heavy coordinating with the Indian Navy to ensure security.