The Cabinet Committee on Economic Affairs (CCEA) has approved the long-awaited shale gas and oil exploration policy to boost oil and gas production and cut imports. The plan is to unlock shale gas reserves.
Bidding of shale gas and oil exploration blocks has a long way to go before it becomes viable due to various issues like gas pricing, access to capital, land rights, water contamination, says Debasish Mishra, Senior Director at Delloitte India.
Initially, Oil and Natural Gas Corp ( ONGC ) and Oil India Ltd ( OIL ) will be allowed to explore and produce shale gas from land blocks, which have already been allocated to them by government without competitive bidding.
Below is the verbatim transcript of his interview on CNBC-TV18
Q. The shale-gas exploration policy has been hindered by slow assessment of the size and accessibility of actual reserves and also on the issue of price. Do you really believe that we will have takers when the government finally decides to put these blocks up for bidding?
A: There are several factors which dither a lot of actual investors from showing interest in this shale gas blocks. Some issues like what is happening in NELP rounds where investors are concerned about the pricing of the gas and the allocation policy and stuff like that.
The success of shale gas in US was a factor of technology. There are 18000 rigs available with horizontal drilling facility, access to capital, land rights etc but these are challenges in a hugely densely populated country like India. Issues like water contamination and other things could be also posing several challenges.
Q: What is going to be the immediate implication because ONGC and Oil India already have blocks allocated to them? With the passage of this policy what will be the immediate implication specifically as far as these two companies are concerned?
A: They may be putting some amount of money in the exploration activity. However, the geological factors in India also is not well understood, when it comes to what kind of structure is there, what kind of reserve is there - the specifics are not yet known.
Once these companies get that right to explore they will put some amount of money and explore it better to understand whether these things are commercially viable or not.
ONGC stock price
On October 22, 2014, Oil and Natural Gas Corporation closed at Rs 400.05, down Rs 8.05, or 1.97 percent. The 52-week high of the share was Rs 472.00 and the 52-week low was Rs 263.30.
The company's trailing 12-month (TTM) EPS was at Rs 26.72 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 14.97. The latest book value of the company is Rs 159.81 per share. At current value, the price-to-book value of the company is 2.50.
READ MORE ON The Cabinet Committee on Economic Affairs (CCEA), shale gas and oil exploration policy, Oil and Natural Gas Corp (ONGC), Oil India Ltd (OIL), competitive bidding, shale gas blocks, NELP
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