An interesting look by The Financial Times at India’s auction of oil & gas exploration blocks on which the global majors have mostly shied away from bidding. As the article notes:

“…India has a tough time attracting the big players. While the auction process itself is widely perceived as transparent, domestic companies tend to bid aggressively, even if they subsequently fail to deliver. This can partly be explained by supply constraints – markets for everything from rigs to people are tight – but also hints at disingenuity. Indian red tape is another powerful deterrent. Almost four years after making India’s biggest oil find in decades Cairn India has yet to extract a drop, partly due to bureaucratic wrangling. It is currently awaiting the green light to build an $800m pipeline, without which oil is stranded in the middle of the Rajasthan desert, 600km from the coast.

Meantime, the current auction may be the biggest but the blocks are inferior: predictably, the choicest assets went first and the latest crop represents second-tier pickings. Since oil majors regarded India as too risky a proposition in the early years of the decade, much of the exploration now under way is led by the likes of state-owned Oil and Natural Gas Corporation and, in the private sector, Reliance Energy. Moreover, India is still seen as a minnow when compared with, say, much of Africa. And while returns look decent – according to Wood Mackenzie, exploration in India has yielded an internal rate of return of 23 per cent over the period 1997-2006, ahead of Angola and Norway – they are being ground down by domestic competition. All of which suggests that if the majors bid, they will do so as a consortium – the better to mitigate risk and navigate the red tape.”