India has emerged from decades of self-imposed isolation, and it now plays an ever-widening role on the world stage. Today, the country haltingly embraces free markets, somewhat reluctant to dilute its socialist ideals at the same time it grapples with a rapacious hunger for energy.

For the past decade, India's burgeoning economy has propelled its growth in domestic oil and gas demand at three times the world average. The country is now the sixth-largest importer of crude oil in the world and the fifth-largest energy consumer.

Energy use and economic growth are entwined, of course, and India's dilemma is that its homegrown production supplies less than 35% of its crude oil needs. The country hosts 26 sedimentary basins that cover 3.1 million square kilometers, but just 28 billion barrels of oil in place have been discovered in seven of those basins. As of January, India was home to proven reserves of only 5.6 billion barrels of oil and 38 trillion cubic feet (Tcf) of gas, according to the U.S. Energy Information Administration. Unfortunately for India, that's less than 0.5% of the world's proved oil reserves.

Indian wells currently make 846,000 barrels per day, and that volume is supplemented by 1.7 million barrels of foreign crude. India also uses all the natural gas it currently produces and it imports growing volumes of liquefied natural gas.

With its 1.1 billion people and a red-hot economy, India desperately needs more oil and gas. Consequently, energy policy in India is driven by two main thrusts: discovering and producing more domestic resources, and securing supplies in foreign lands.

Inseparable from this policy is the industry's gradual movement from a government-controlled sector to one that operates in free markets and is an attractive venue for private and foreign companies.



Resource endowment

India has never been awash in oil. From 1880 to 1947, Burmah Oil Co. and other foreign firms comprised its industry, and total demand was just 55,000 barrels per day. When modern India was born, the country produced just 600 barrels of oil per day from a lone field at Digboi in Assam; product imports supplied the balance of demand. After independence, India nationalized its oil industry and formed its state oil companies. In more than 100 years, Western majors, such as Amoco and Shell, drilled only a dozen exploratory wells in India.

The state firms did well for some years, growing a domestic industry with the help of experts and technologies from the Soviet Union. But India's upstream was strictly off-limits to non-state entities, including public- and private-sector Indian firms.

The picture changed in 1991, when the country began to liberalize its economic policies. The government initially invited Indian and foreign firms in with a small-field policy. It was a tentative move, and results were lukewarm. Nonetheless, a few Western firms, such as Enron, Command Petroleum and Hardy Oil & Gas, signed deals.

A breakthrough for foreign operators came in 1999, when the government launched its New-Exploration Licensing Policy. These license awards, although dominated by state and Indian public and private firms, offered foreign companies entry into the previously closed upstream. The rounds also put up the first tracts in India's deepwater basins.

While India's efforts to attract foreign expertise, capital and technology to its shores were not overwhelmingly successful, some companies did participate and a couple enjoyed extraordinary success.

And, exploratory drilling has recently brought some very good news. Discoveries jumped from nine in 2000-01 to 27 in 2004-05 (India's fiscal years run April 1 to March 31).

Natural gas finds in the deepwater Krishna-Godavari Basin off India's east coast have been noteworthy: Reliance Industries' 2003 Miocene find at Dhirubhai on Block D6 was the largest gas discovery in the world that year. Dhirubhai's reserves are currently estimated at 14 Tcf.

Another plum was reported in 2005 by Gujarat State Petroleum Corp. The company discovered reserves of around 10 Tcf at its Deen Dayal prospect on Block KG-OSN-2001/3. And, in December 2006, Oil and Natural Gas Corp. (ONGC), India's premier state entity, made a discovery on Block KG-DWN-98/2. The company encountered net gas pay of nearly 30 meters at a depth of 5,400 meters, and indications are this discovery could contain around 8 Tcf.

"Earlier, the world believed-and we also subscribed to the belief-that India is a geologically under-endowed country," M.S. Srinivasan, petroleum secretary, India's ministry of petroleum and natural gas, said at a recent conference in New Delhi. "Now we are seeing, and the world also is starting to believe, India is not under-endowed but only underexplored."

To a large extent, that is true. There's plenty of room in India for explorers to work. The subcontinent is not blessed with Persian Gulf-style fields, but it does offer some surprising opportunities.



A billion-barrel block

The most celebrated success story in India is that of Scottish explorer Cairn Energy Plc. The little company entered India in 1996 when it acquired Command Petroleum, an Australian firm that held assets there.

Today, Cairn operates 7% of India's production and it has the potential to produce 20% of the country's crude oil by the end of the decade. The company has been so successful that it has spun off its Indian assets.

"Cairn realized that it was running an Indian business out of Scotland, and it needed to focus on India and have senior management based in India," says Rahul Dhir, chief executive officer, Cairn India.

The impetus was Cairn's discovery of 3.6 billion barrels of in-place oil on an 11,000-square-kilometer onshore block in Rajasthan, in India's northwestern corner. Although Cairn had been a successful operator in India for years, the scale of the Rajasthan development dwarfed all prior projects.

"India is a growing and developing country, and our project is inextricably linked with India's economic growth," says Dhir. Cairn believed the best way to evolve its Rajasthan project was to launch an initial public offering of parts of its business. It decided to form a separate company based and led in India.

In the IPO this past January, Cairn Energy retained 69% of shares in Cairn India, and offered the balance on the Bombay Stock Exchange in Mumbai. Cairn India now has domestic Indian investors in addition to international and industry investors.

Cairn India currently produces 87,000 barrels gross (24,000 barrels net) per day. Ravva Field, in the shallow waters of the Krishna-Godavari Basin, is the cornerstone of the company's production. The field currently makes 50,000 gross barrels per day, a plateau rate, and Cairn drills infill wells to maintain production. It also operates two large gas projects in the Cambay Basin, Lakshmi and Gauri. Additionally, the company has exploration acreage in the deepwater Krishna-Godavari and in the Himalayan Foreland Basin, along India's northern border with Nepal.

But the upside of the company is squarely in its Rajasthan fields, which it discovered three years ago. The three largest accumulations are in the northern part of Block RJ-ON-90/1 and are dubbed the MBA fields: Mangala, Bhagyam and Aishwariya. They contain proved and possible reserves of 600 million barrels of oil equivalent (BOE). Enhanced oil-recovery techniques, if successful, will add 200 million BOE to that total. Furthermore, a number of additional discoveries contain 100 million, and another 100 million are present in the low-permeability Barmer Hill formation on the block.

To date, the company has drilled more than 140 wells in Rajasthan. These wells are straightforward and fairly shallow, and produce waxy, mid-range-gravity crudes, primarily from the Paleocene Fatehgarh formation. Last year, the company ran five rigs on its block.

"We've spent $600 million in risk capital and discovered 3.6 billion BOE of in-place resources," says Dhir. "Over the next three years, we've committed $1.5 billion to our Rajasthan development." By the end of the decade, Cairn India expects to be producing 115,000 net barrels per day.

The company plans to bring Mangala, the largest field, onstream in 2009. The next two fields will follow in six to 12 months. Target production is 150,000 barrels per day, and Mangala will provide 100,000 barrels of that. At present, the company is looking for three rigs that will drill 300 development wells during the coming three years.

It is financing the massive project with a credit facility it has secured with 14 international banks, capital from its IPO and cash flow. Funding was led by the Royal Bank of Scotland and the International Finance Corp. (IFC).

At present, the government, Cairn and ONGC, which holds a 30% back-in on Rajasthan Block, are working out marketing issues. The parties are debating who shall pay the cost of a 471-kilometer line that is needed to export the oil to refineries at Mundra, on India's western coast.

"We could be ready to produce before the midstream facilities are complete. We're hoping to get the issue settled by the middle of the year," says Dhir.

Notwithstanding the resolution of the sales outlet, Cairn has secured all necessary approvals and has moved into the construction phase at Mangala, which holds some 430 million barrels of proven and probable reserves.

The scale of this undertaking is unlike anything that's been done before in Rajasthan, the world's most populous desert. Cairn is working with IFC to develop community programs and services, including work on water systems, school upgrades, animal husbandry and small-business development. The operator has also ventured into health care, and has supported more than 3,000 eye operations through the organization Sight Savers International.

"We have more than a decade's experience of understanding and working in India, and we know the regulatory process and how systems work," he says. "We have aligned our objectives so that we create value for our shareholders and for India's national, state and local governments."



World-class gas

India has also been very good to Niko Resources. In a dozen years, the Calgary-based firm has grown from market capitalization of C$30 million to C$3.7 billion, mainly on the strength of its Indian assets. Currently, Niko has a portfolio of 10 properties in India, Bangladesh and Thailand, and most notably it owns 10% of Block D-6 in the Krishna-Godavari Basin, site of the world-class Dhirubhai discovery.

Two years ago, Niko said the better wells in Dhirubhai Field on D-6 Block could produce at rates of more than 100 million cubic feet a day per single well. Last year, it upped that estimate to rates of 350 million a day. "Today, our better wells will produce in excess of half a billion cubic feet of gas a day each," says Ed Sampson, chairman and chief executive.

Deepwater Dhirubhai Field, in 650 to 1,200 meters of water, will initially produce 2.8 billion cubic feet (Bcf) per day from extremely thick and high-quality Miocene turbidite reservoirs. Indeed, when the first phase of production comes onstream in July 2008, this project alone will double India's total gas production.

Incredibly, the first development only taps wells in a tiny corner of D-6, which covers 1.9 million acres. Some 15 additional discoveries have been made outside that original area. Gas-in-place resources on the block, which is operated by public (non-state) Indian firm Reliance Industries, are currently estimated at up to 35.4 Tcf.

Dhirubhai's 2.8-Bcf-per-day rate is only the beginning. "The equipment and infrastructure are being designed to handle up to 4.2 Bcf per day," says Sampson. "Even that number we believe we can improve on greatly over time."

Work is proceeding at a furious pace to bring the D-6 bounty to market. Reliance and Niko are right on schedule: a jetty is being constructed on the river, up to 3,200 men are working on a gas plant, and up to 10,000 people are building a 48-inch pipeline from India's eastern coast to Mumbai and up to Gujarat state.

Furthermore, the partners have discovered significant oil reserves on D-6. Last year, they drilled the MA-1 and MA-2 wells and encountered oil-bearing Cretaceous reservoirs, new and deeper productive horizons. The MA oil field is slated to start production in March 2008, even before D-6 gas begins to flow.

"We've got 24 to 26 meters of oil column and up to a 140-meter net pay column of liquids-rich gas above it, which will allow us to maximize recovery rates," says Sampson.

Beyond D-6, Niko holds a variety of properties in India. In the southern part of the country, its 100% Cauvery Block has potential for prospects in the 30- to 50-million-BOE range. The company is currently shooting 650 square kilometers of 3-D seismic on the 236,000-acre block, and is bringing in a Canadian rig to start drilling this summer.

The best prospect in Niko's portfolio has not yet tasted a drillbit, says Sampson. D-4 Block is 4 million acres, more than twice the size of D-6, and it holds five separate turbidite fan systems. (There is just one such fan in D-6.) Niko holds 15% of the project. This year's activities on D-4 include the acquisition of 4,000 square kilometers of 3-D seismic, which will be used to fine-tune three drill locations.

Reliance and Niko have also recently announced another discovery on their shallow-water NEC 25 Block, again in the Bay of Bengal. The partners now have six discoveries and up to 8.3 Tcf of gas in place on this 2.7-million-acre block. This year, they are drilling an eight-well program. First production is scheduled for 2009.

And, Niko makes net production of 32 million cubic feet per day from its Hazira and Surat blocks on India's western side. In 2007, it is acquiring 3-D seismic over half of Hazira, which has not been shot before. Surat has development work scheduled for it.

Niko started producing in India in 1996, when it was a micro-cap company and global interest in India was negligible. "India didn't then have the world standing that it has today. Things have certainly changed over the period, all for the better," he says. "India is up and coming, and it's an exciting and vibrant place to be."

From Niko's perspective, the last dozen years have brought prodigious changes to India's business environment. "The ability to do things in India in a very fair and transparent way has improved immensely, to the point that India is close to being on the same standard as Canada or the U.S.," he says.

Notwithstanding that, things do move slower in India because of the size of its bureaucracy. Glitches remain a part of operating life. "However, the challenges we face in India are largely the same challenges we have here in Canada-securing equipment and keeping people in a robust employment market, and the constant escalation of prices in services and drilling rigs."



Service sizzle

Speaking of services, India is certainly a growth market for this sector.

In 2005-06, 418 wells were drilled in the country, and nearly half of these were exploratory wells, according to India's upstream regulator, the Directorate General of Hydrocarbons. Some 1 million meters of hole were drilled, for an average depth per well of 2,400 meters. Offshore, eight vessels were engaged in seismic acquisition, and 43 crews worked onshore.

India ranks as one of worldwide drilling contractor Transocean Inc.'s most robust areas of operations, says David Mullen, senior vice president, marketing and planning. "Over the past few years, we have seen some spectacular growth in India, from basically no activity in deep water to activity of between three and five rigs." Exploration successes by Reliance and ONGC have driven this growth, and now these companies are looking forward to development work at their discoveries.







Transocean has a long history in India. The Houston-based driller helped ONGC construct the country's first jackup drilling rig in the early 1970s. In 2001-02, Transocean had one jackup in India; today it operates 12 mobile offshore rigs, the largest fleet in India by an offshore drilling contractor.

Transocean's India fleet includes an ultra-deepwater drillship, the Deepwater Frontier; one deepwater drillship; two semisubmersible rigs; and eight jackups. In addition, the deepwater drillship Discoverer 534 is due to return to India later this year, and the ultra-deepwater Deepwater Expedition is scheduled to begin work in the first quarter of 2008.

"We became an early mover to serve clients in India, partly because the great majority of the country's offshore areas have yet to be explored," says Deepak Munganahalli, head of Transocean's India operations. "Through steady service, we have laid the foundation to help meet increased rig demand."

Transocean holds several firsts in offshore drilling in India, including the first drillship capable of working in 600 meters of water, the first dynamically positioned drillship, both as contracts for ONGC, and Reliance's first exploration well.

It was Transocean's deepwater Discoverer 534 that drilled Dhirubhai and multiple subsequent discoveries on Block D-6 for Reliance. At the time, the drillship set India's deepwater drilling record in more than 1,800 meters of water. When Discoverer 534 arrived in India in 2002, it was the only rig in India capable of operating in more than 900 meters of water.

Significantly, Transocean helped Reliance enter deepwater exploration by managing logistical challenges in remote locations and such operational challenges as strong currents and long swells.

"Transocean has also been a strong performer in shallow water," says Munganahalli. The company's eight jackup rigs in India have term contracts, including five with integrated services contracts under which Transocean manages logistical and support services in addition to regular drilling operations.

The company, thanks in part to an advanced on-the-job training program and performance culture, has built a base of experienced personnel in India who have a strong focus on safety and client relationships. "In India, Transocean has shown an ability to adapt to a dynamic, deregulating business environment while generating significant job growth for local economies," Munganahalli says.



Robust growth

Halliburton has been in India for 30 years, and in a strong growth mode since 2001. "This July we will open a research and development center in Pune for our fluids division that will be a company center of excellence for the Eastern Hemisphere," says Chas Charles, Halliburton country vice president, for India and Bangladesh. "We are growing our market share by the day."

Halliburton's clients include Reliance Industries, ONGC, Cairn India, BG, Oil India and a whole host of small companies. And, more firms are entering India. ENI expects to start exploratory drilling in the first quarter of next year in the northwest of the country, and multi-national majors such as Chevron and Shell are reportedly looking at India's upstream.

The business outlook is robust. Lots of deepwater blocks have yet to be drilled; onshore and offshore discoveries need further development work; and interest in coalbed methane is strong. The three large government-run companies-ONGC, Oil India and GSPC-are relaxing some of their shackles, making it easier for them to come to tender and attract international contractors to bid for their work.

Field rejuvenation is another budding arena. A couple hundred mature fields are now being offered to contractors by state firms. Halliburton has agreed to work on production optimization on Lakwa, Lakhmani and Geleki, three ONGC fields in Assam.

India's greatest resource, its skilled and adaptable workforce, is another positive. "There are lots of high-quality graduates, and all they need is training," says Charles. "Quite a few companies in the industry have opened up training centers here, and India has the potential to become a source of workers for both itself and the rest of the world."



Attracting U.S. attention

Clearly, participation of private and foreign firms in India's upstream industry is growing rapidly. India offers political stability, an enormous domestic market, an expanding economy and skilled manpower. Its government has encouraged investments and has backed up that stance with significant reforms.

To date, however, the absence of American operators is striking. India's licensing rounds have not caught the attention of senior management at American companies. The perception remains that India is a difficult place for Americans to work, and it hasn't been considered particularly prospective either.

"Everyone used to believe that India was very barren, but that is now being disproved," says Pradeep Anand, president of Houston-based Seeta Resources, a management consulting firm. "As more successes come along, such as discoveries by Cairn, Reliance and ONGC, Americans are beginning to realize India has some very interesting prospects."

Indeed, India appears to be a hospitable country for small and midsize U.S. operators. "It's a democracy, English is widely spoken, and it shares similar laws to the United States." Such familiar and comforting values as an independent judiciary, trial by jury, private property and free speech are pillars of Indian civics, as they are in the U.S.

Today's reality is that India is in the midst of a swift and ongoing transition from rigid socialism to a more free-market economy, and it is aggressively seeking capital. The government has made it much easier to obtain E&P licenses, and India is bending over backward to attract foreign firms.

As American firms become more familiar with India's potential, and exchanges of knowledge and financial transactions grow, views on India will change. Already, all the major oilfield-service companies are active there. And investment banks-those that like to invest in E&P activities-are making inquiries.

"There's always a time lag between reality and perception," says Anand. "The companies that bridge that gap quickly will be the winners in India. By 2010, we will be surprised by the degree to which American E&P companies are involved in India."



India's way forward

What does the future hold? India is an emerging economic superpower, but half of its 1.1 billion citizens still do not have electricity in their homes. The country has ambitious targets for growth, for sustainability, and for sharing the benefits of progress with its people. Assuredly, its energy business has enjoyed resurgence in the last decade, as government controls have loosened and foreign firms have been invited in.

"People complain that India's socialist legacy lingers, but it's a completely different world than it was in 1991," says Sumit Ganguly, professor at Indiana University in Bloomington, Indiana. "There's been phenomenal change, and the economy has been unshackled to a degree that I didn't think I'd see in my lifetime."

Bottlenecks and problems still exist, naturally. To maintain and expand its growth, India needs to move much more firmly into the market economy and to invest heavily in infrastructure such as power, roadways, ports and airports. Labor law reform is another crucial area that must be addressed. And, while the government is making a big effort to be more nimble and proactive, India still has to address its fearsome bureaucracy, with its layers of regulations that require stringent due diligence and vigilance to satisfy.

"If India can get these things right, China's growth will seem anemic," he says.

And India will need prodigious volumes of oil and gas to continue its growth. Foreign firms are now very welcomed, and every barrel of oil and cubic foot of gas they can produce will be warmly received in a ready market.

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