ONGC, RIL, Vedanta in Focus as Cabinet Okays Deep-Sea Exploration Scheme

Mumbai, Aug 1: The Union Cabinet has approved a Rs 84,000-crore programme to ramp up deep-sea oil and gas exploration, marking one of the biggest policy pushes yet to lift India’s domestic hydrocarbon output and cut its reliance on imported crude, according to sources. The scheme is designed to draw both domestic and global energy majors into deepwater and ultra-deepwater blocks, areas that have stayed largely unexplored so far because of the high costs and geological uncertainty involved. Under the approved plan, the Centre will fund up to half of exploratory drilling costs, a move that materially improves the economics of high-risk offshore projects. Sources said the scheme has been rolled out before the current deepwater block auction concludes, giving companies weighing participation in India’s latest licensing round an added reason to bid. The clearance marks a meaningful shift in India’s energy policy, potentially unlocking investment in acreage that many companies have historically stayed away from. 

The move is likely to have a direct bearing on India’s listed energy space, touching upstream explorers, gas utilities and the oilfield services and engineering firms that support offshore projects. Some companies stand to gain directly from lower drilling costs and a larger addressable pool of deepwater acreage, while others could benefit indirectly through higher order flows or additional gas volumes once new discoveries come on stream. Investors are likely to track these names closely as the terms of the subsidy scheme are implemented and the ongoing block auction draws to a close. 

Stocks that could be impacted, directly or indirectly, include: 

• Oil and Natural Gas Corporation (ONGC): As India’s largest state-run explorer and the biggest holder of deepwater acreage, ONGC stands to gain the most directly from the 50 per cent government subsidy on drilling costs, which eases the capex burden on complex offshore projects such as those in the KG basin. 

• Oil India (OIL): The country’s second-largest state-owned upstream company could see improved return profiles on any deepwater blocks it picks up in the ongoing auction, given the shared drilling cost support now on offer. 

• Reliance Industries (RELIANCE): Reliance, which already operates India’s largest deepwater gas fields in the KG-D6 block, could use the incentive to justify fresh appraisal and development drilling in adjoining acreage, supporting its oil-to-gas segment. 

• Vedanta Ltd (VEDL): Through its Cairn Oil & Gas business, Vedanta has been pushing to raise domestic crude output, and cheaper drilling economics under the scheme could support its exploration plans in new offshore blocks. 

• GAIL (India) (GAIL): As the country’s dominant gas transmission utility, GAIL would gain indirectly from any rise in domestic gas output, which could feed additional volumes into its pipeline network and city gas distribution partners. 

• Larsen & Toubro (LT): L&T’s hydrocarbon engineering arm, which builds offshore platforms and subsea infrastructure, could see a larger order pipeline as exploration and development activity picks up in deepwater blocks. 

• Deep Industries (DEEPINDS): A smaller oilfield services player offering gas compression and drilling support equipment, the company could see increased demand for its services as exploration activity broadens across more operators. 

• Aban Offshore (ABAN): One of India’s few listed offshore drilling rig operators, Aban Offshore could benefit from higher rig utilisation and day rates as deepwater drilling activity accelerates on the back of the new incentives. 

Taken together, the approved scheme underscores the government’s intent to de-risk offshore exploration economics at a time when India imports more than four-fifths of its crude requirement. Market participants are likely to read the Cabinet’s clearance as a structurally positive development for the upstream and oilfield services space, even as the actual impact on individual companies will depend on the specific blocks they hold and their pace of execution. 

Source

• https://www.pib.gov.in/PressReleasePage.aspx?PRID=2292445&reg=3&lang=1