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The changing face of India’s upstream sector

01 November 2015

India is one of the fastest growing economies in the world and the demand for oil and gas (O&G) is growing at an unprecedented rate. This whitepaper, by Beroe Inc. Senior Research Analyst Vignesh Mohan, looks at the upstream O&G sector in India highlighting the changes over the years, as well as future challenges and what needs to be done to take advantage of the opportunities available.

The Indian upstream sector within the O&G industry is witnessing tremendous growth and has seen significant changes such as improvement in terms of allotment, technologies as well as new regulations over the last decade. The key focus area for India’s future upstream sector would be increasing the domestic production by encouraging exploration to meet the huge demand for O&G in future.

The Indian O&G sector was traditionally operated by the national oil companies, with Oil and Natural Gas Corporation Limited (ONGC) being the largest O&G producer. The introduction of the New Exploration Licensing Policy (NELP) has proven to be successful in attracting the interest of National Oil Companies (NOCs), as well as private domestic and few overseas players. The key purpose of NELP is to reduce the increasing demand-supply gap of energy in India.

Nevertheless, much more needs to be done to attract significant investments from big oil companies to meet the burgeoning energy demands of the country.

India’s Energy Sector

India consumes nearly 5% of the global crude oil consumption, while its crude oil reserves are less than 1% of the global reserves. This makes India one of the largest importers of crude oil globally. At an asset base level, India contributes 1.04% of global production. The Indian O&G sector is traditionally dominated by National Oil Companies (NOCs), with ONGC being the largest O&G producer accounting to nearly 75% of the country’s production.

India's energy demand continues to rise. Approximately 93% of India's energy is produced from fossil fuels and oil and gas accounts for about 43% of the total energy produced from the same. Of this 43%, a large part comprises of oil and gas imports.

A major concern for India over the last two years has been the weakening of rupee against dollar. Depreciating rupee and high dependence on imported O&G has led to huge import bills, which in turn has created a tight economic situation for a large developing country like India.

Figure 1
Figure 1

Significance of Upstream Sector

India has total reserves of nearly 758 million metric tonnes (MMT) of crude oil and 1,354 billion cubic meters (BCM) of natural gas as of 2013. India’s consumption currently exceeds 138 million tonnes per annum (MTPA), while the crude oil production remains at about 37 MTPA. Declining crude oil production and fast economic growth have led to a wider demand-supply disparity for crude oil and gas in India. Some of the existing O&G fields, which have already been in production for several years, are facing a drop in production as they have reached their peak (Figures 1, 2 & 3).

Figure 4 (below) illustrates the crude oil demand and the consumption growth rate in similar developing economies like China, Brazil and India up to 2035. The growth rate of global average of crude oil demand is expected to be 0.5% over next two decades. But in the case of India it is eight times the global average at around 4% compared to 2% for China and Brazil.

India imported approximately 80% of its crude oil requirement in 2012 and the net energy imports were at almost 6.3% of GDP in FY14. The import figure is expected to reach to 90% by 2030, which will require a very high percentage of GDP to be spent on oil, which will make the country vulnerable to external shocks.

Hence, India’s upstream sector becomes a key, in order to reduce the countries increasing import bill on O&G and attain a high level of energy security. This can be driven by increasing the crude O&G production by encouraging exploration activities within the country.

Important Milestones in India’s Upstream Sector

Figure 2
Figure 2


The New Exploration Licensing Policy (NELP) was introduced in 1999-2000 to provide an equal platform for both public and private sector companies in the exploration and production of hydrocarbons with Directorate General of Hydrocarbons (DGH) as a nodal agency for its implementation. It has also has an auction mechanism to award licenses to companies for undertaking E&P activities in India under the Production Sharing Contract (PSCs). It lays down the bid and block award procedures, bid evaluation criteria, fiscal system, etc.  India has an estimated sedimentary area of 3.14 million sq. km. consisting of 26 sedimentary basins, of which, 57% area is in deep-water and remaining 43% area is on land and shallow offshore.

While only 28 blocks were awarded in the pre-NELP era, licenses for 254 blocks have been given to more than 70 companies since the onset of the NELP era in 1999. Till date nine rounds of NELP have been completed and approximately 48% of estimated area has been awarded through NELP. Investment made by E&P companies USD 21.32 billion.

Although there has been a reduction in award of contracts post NELP VI, the percentage of moderately to well explored levels have increased from 16% in pre-NELP era to 22% since the onset of NELP era.

Embracing of Latest Technologies by the Indian Upstream Sector

1.  Enhanced Oil Recovery

Enhanced Oil Recovery (EOR) is a technique for increasing the amount of crude oil that can be extracted from an oil field. The global average recovery factor for a typical oilfield is approximately 40%.

Figure 3
Figure 3

Based on the percentage of recovery from the oil well, the exploration is divided into three levels of recovery stage, the primary, secondary and tertiary. The EOR forms the tertiary recovery level and using the EOR techniques, 60% or more of the reservoir's original oil can be extracted. There are four methods of oil recovery through EOR which are thermal, gas injection, chemical and others (Microbial, Acoustic, Electromagnetic)of which the thermal is the most highly adopted worldwide.

EOR in India

 With the production from many onshore fields in India declining, companies are now looking to implement EOR technologies to boost and maximize domestic production.

EOR techniques have been implemented in India, including Alkaline Surfactant Flooding (ASF) at Jhalora-Rajasthan, Kalol-Gujarat, and Ankleshwar-Gujarat; Immiscible Hydrocarbon Water Alternating Gas (HC-WAG) injection in Gandhar fields in South Gujarat; in-situ combustion/air Injection and Simultaneous Water and Gas (SWAG) injection at Mumbai High.

The latest EOR project to be executed within India was the Mangala field project in Rajasthan by Cairn India Ltd (Cairn). Cairn has proposed to take up a USD 600 million polymer flood EOR project at the Mangala field (RJ-ON-91/1 block) in Rajasthan, to enhance crude oil recovery. It is expected that this facility will be operational for the first polymer injection by 2014/15. The EOR project is expected to improve oil recovery up to 32.1% of the STOIIP (stock tank oil initially in place), from 13% at present, and yield an incremental production of 70 MMbbl (Million barrels) by the end of the PSC in May 2020.

2.  Rapid Rig Technology (RRT)

Figure 4 - Future Crude Oil Demand
Figure 4 - Future Crude Oil Demand

RRT is a compact and highly mobile onshore land rig technology. The features of this technology are:

*  Highly Compact

*  Rapidly deployment and highly mobile land rig

*  Reduced crew size

*  Fully automated pipe handling and drill floor

*  User friendly with optimised safety features and reduced environmental impact

Cairn has adopted RRT for its onshore drilling program in Mangala, Bhagyam and Aishwariya (MBA) oilfields in Western Rajasthan, India. The emphasis of Cairn in the MBA fields was to develop fields with significant savings in both land and infrastructure costs and also to minimise environmental impact. The rapid rig design coupled with a multi-well pad concept was the chosen solution. Unlike conventional rigs, these purpose-built rigs provide major benefits to the operator, which include:

*  Greater versatility, lower operating costs and maximised utilisation 

*  Minimised rig-up/down time 

*  Smaller equipment size, compact well site footprint and reduced environmental impact 

*  Smaller crew size, reduced transport loads and lower transport cost 

*  Minimised hydraulics and fast, efficient pipe handling 

Figure 5
Figure 5

*  Minimised accident exposure 

3.  Stage fracturing stimulation in tight reservoirs

Tight oil or gas reserves are conventional resources found within reservoirs with very low permeability. The oil or gas contained within these reservoir rocks typically will not flow to the wellbore at economical rates, without implementation of advanced drilling technology and completion process. Horizontal drilling coupled with multistage fracturing is commonly used to access these difficult reservoirs. The Stage fracturing stimulation technique is widely used in the US and is recognised as a key enabler in the significant increase of domestic O&G production from shale gas and tight oil reservoirs in the United States.

Oilex was the first to implement, the horizontal multi-staged fractured stimulation at Cambay-76H well in India in the year 2011. Although this effort ran into difficulties and was inconclusive, this represented an important milestone in the transfer of proven North American technology to India. In March 2014, Oilex awarded the fracture stimulation program for Cambay-77H to Schlumberger. Schlumberger is a well-known and experienced service contractor for fracture stimulation work around the world.

Schlumberger has completed the four-stage fracture stimulation operations at Cambay-77H and preparations are under way for mill-out operations to remove the plugs and open all four stages to the well bore. 

4.  4D Seismic technology

The 4D Seismic method involves the acquisition, processing and interpretation of repeated seismic surveys over a producing field with the aim of understanding the changes in the reservoir over time, particularly its behavior during production. This is important in terms real budgetary consequences as increasing the recovery factor of a reservoir, has significant revenue implications.

The ability to monitor the behaviour of a reservoir using the 4D seismic technology during its production lifetime will enable operators, to observe changes in the subsurface beyond the limited windows provided by wells. The information provided by seismic studies, is considered key in optimising the recovery of remaining reserves. The economic benefits of this study include increased return on investment, reduced drilling costs, and increased production.

Today, more than 220 4D surface seismic repeat or monitor surveys have been acquired over 180 fields, globally. The number of surveys acquired is currently about 40 per year, representing a growth rate of almost 20%. While the majority of these surveys are in the North Sea, the technology has spread globally, with successful surveys acquired in the Gulf of Mexico, West Africa, Brazil, the Middle East, and the Far East. The first repeated 4D seismic technology was introduced at Gullfaks field in the Norwegian sector of the North Sea in 1996. To date, the application of 4D seismic at the now mature Gullfaks field on block 34/10a has helped production increase by 60 million barrels, raising the recovery rate to 60%, with the prospect of pushing the recovery rate to 70% by 2030.

A 4D seismic acquisition survey was conducted in 2010-11 by Cairn at Ravva O&G field, located in the shallow offshore area of the Krishna-Godavari basin on the eastern coast of India. Cairn conducted the 4D seismic survey to find the remaining oil zones within the field and conduct future infill drilling. The qualitative and quantitative 4D survey interpretation has helped Cairn in identifying by-passed oil areas. The multi-disciplinary integration has reduced the uncertainty associated with locating and designing infill wells. All these results are being used to update the reservoir model for continued optimal reservoir management and development.

5.  Ultra deep-water drilling

The O&G companies with advanced technology capabilities are drilling at a greater depth of more than 1,000 feet into the sea and deeper under the ocean floor to tap into another important oil and gas resource. Deep-water drilling is expensive, however, and its economics depend on oil price fluctuations.

The increasing demand for O&G and depleting resources from onshore and shallow water segments has put a thrust on Indian Exploration and Production (E&P) activities in deep water. India has over 1.35 million of deep water sedimentary basins and is on the lookout for innovative ways and technology to promote the E&P activities in this sector.

ONGC, a leading E&P Company in India, set a world record for the deepest water depth by an offshore drilling rig in June 2013. ONGC contractor Transocean drilled a well 10,411 feet (3,174 meters)deep in the waters at the KG1 basin off the east coast of India.

Way ahead for the Indian Upstream Sector

India’s upstream sector holds key for the country to become a force to reckon with in the near future. The upstream sector needs to mainly focus on:

1. Adoption and Implementation of latest technologies

Upstream operators need to focus more on adoption of the latest technologies like the 4D seismic, multistage fracturing in tight reservoirs and EOR. Adoption of new technologies will not only help the Indian upstream sector in exploring new fields but also ensure maximum recovery from existing assets at an optimum cost.

2.  Exploration of Unconventional Hydrocarbons

India’s proven conventional hydrocarbon reserves are limited and cannot sustain the ever- increasing demand for oil and gas. The upstream sector has started to explore and invest in unconventional hydrocarbon sources such as Coal Bed Methane (CBM), shale gas, and gas hydrates. Having the third largest proven coal reserves and being the fourth largest coal producer in the world, India holds significant prospects for commercial recovery of CBM. The CBM resource has been estimated to be around 4.6 TCM (trillion cubic meters).

Similarly according to US Energy Information Administration, India has approximately 96 trillion cubic feet (tcf) of recoverable shale gas reserves, equivalent to about 26 years of the country's gas demand. Hence India’s upstream focus in the future would be to increase the E&P activities in the unconventional hydrocarbons sector to meet the huge energy demands of the future. 

3. Joint Ventures and Acquiring Foreign Assets

The Indian upstream players should keep focusing on the acquisition of strategic foreign assets and Joint ventures with foreign E&P companies. Major Indian O&G companies like Reliance, GAIL, and OVL have started acquiring foreign assets and forming joint ventures with global E&P companies. This is mainly to reduce the country’s dependence on crude imports but also help in importing and developing latest technologies for India’s E&P sector.



To attract investment into Indian E&P sector and achieve growth, it is necessary for the government to incentivise E&P investments by providing tax holidays for exploration and production activities, production-sharing contract reforms, formulate a shale gas policy, change upstream CESS and royalty.

The royalties and the taxes paid by the upstream operators are the highest in the corporate sector in India. The tax holiday for E&P activities, which was phased out in 2011, could be re-introduced to attract mid-sized foreign players to the sector. These have stayed away in the past because of the heavy taxation levied on them.

In addition, a provision could be made to deduct the expenditure incurred on foreign blocks since more Indian O&G firms are keen on going global and acquiring blocks abroad. This will increase the attractiveness of acquiring foreign assets by Indian firms and also help in importing the latest technologies which could prove beneficial for the Indian exploration and production sector.

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