India's oil rush

Few Canadian companies bid for potentially lucrative exploration licenses.

Canadian companies sitting on the fence about doing business in India should stand up and pay attention to the subcontinent's most recent petroleum exploration auction. Not only did the fifth round of auctions under the New Exploration Licensing Policy grab more bidders than ever, it also caught the attention of deep-pocketed industry heavyweights for the first time. Among the 47 companies bidding for the rights to find oil and gas in 20 areas are firms such as BP PLC, the Kuwait Foreign Petroleum Exploration Co. and British Gas. Chevron Texaco and Shell expressed interest, but ultimately didn't bid.

The heated competition could mean bad news for smaller Canadian bidders such as Calgary's Niko Resources Ltd. (TSX: NKO) and Canoro Resources Ltd. (TSXV: CNS), both eager to expand their own Indian operations, because the oil and gas majors can bring more cash to the table. Ironically, part of the new-found interest in India's oil and gas fields is due to Niko's success there. In 2002, Niko–along with India's Reliance Industries Ltd.–discovered seven trillion cubic feet of gas in the Bay of Bengal. The firm's share price has more than doubled since then, and Niko is now considered a major player in India. “Ever since Niko's discovery, in tandem with a big oil discovery onshore by Cairn Energy of Scotland, the world has begun to sit up and take notice,” India's minister of petroleum and natural gas, Mani Shankar Aiyar, told Canadian Business during a recent visit to New Delhi. “The success that Niko and Cairn have had makes capitalists salivate.”

That said, it's hard to imagine Niko winning an auction against top-flight competition today if it didn't already have an established presence in the country. That shows the importance of getting into India earlier rather than later, especially as other sectors of the economy open up. Aiyar says India's petroleum sector is the most “liberalized and globalized” in the country, a point driven home by its own exploration and production efforts abroad, as well as an extensive international road show it undertook earlier this year to drum up interest in the New Exploration Licensing Policy, which opens up oil exploration in India to foreigners.

Despite the push–and a reportedly warm reception in Calgary–there are few Canadian companies bidding for the new exploration licences, six of which are offshore and 12 onshore. Aside from Niko and Canoro, Talisman Energy Inc. (TSX: TLM) bought data on some of the offered blocks, but would not confirm that it made any bids. Still, Aiyar believes Canada can play an increased role in his country in the future, and there is a history of co-operation. One of India's big foreign forays, for example, was a result of Talisman selling its Sudan fields to state-run ONGC Videsh Ltd. for $1.2 billion in 2002. ONGC has also had its eye on First Calgary Petroleums Ltd., although its initial overture was rejected.

Outside of the acquisition realm, India needs technical help in getting at some of the 30 billion tons of hydrocarbon reserves it believes are on its turf. Because India imports 70% of its oil needs, there is a perception that it's energy poor. Not so, says Aiyar, though a lot of it is hard to get at. About 11 billion tons is hidden beneath the forbidding Himalayas, and getting at this oil could well be a job for a Canadian company. “Canada is a country that is very advanced in petroleum technology, especially exploration and production, but doesn't have the immense geopolitical complications that other oil majors have,” Aiyar says. But that can only happen if Canadians are willing to risk striking it rich.