Can ₹84,000 crore get India drilling?

Akshara (0:04)

In today's episode, we'll do one deep dive and cover another story for the day. First, we'll talk about whether rupees 84,000 crore can get India drilling. And then we'll talk about why rice is getting expensive when India has never had more of it.

Welcome back to The Daily Brief by Zeruda, where we cut through the noise to help you understand what's actually happening in the most important stories from business and markets. I'm your host Akshara. Today is Monday, 12th October.

Coming to the first story.

For all our talk about solar panels, wind farms and electric vehicles, India still needs a lot of oil and natural gas. Trucks burn diesel, planes use jet fuel, and factories use hydrocarbons for heat and as ingredients for fertilizers and chemicals. The energy transition will reduce some of that demand, but it will take time. Meanwhile, India relies heavily on imports, while its own oil production keeps falling. Imports met approximately 89% of its crude oil requirements in FY 2025-26, according to provisional government figures. And domestic production has fallen 27% since 2011, declining in all but one of the past 14 years.

Now, existing fields also produce less as they age. The Petroleum Ministry estimates this natural decline at around 6-7% a year, and getting more out of oil fields helps. But India needs new discoveries just to replace the production it would otherwise lose. And there may be plenty left to fight. In 2024, S&P Global estimated that four unexplored Indian basins held around 22 billion barrels of oil equivalent in undiscovered hydrocarbon potential. So oil equivalent includes gas measured in comparable energy terms. But these are estimates of what might exist. But only drilling can establish what is actually there and how much makes economic sense to extract. So India has a reason to explore new fields and potentially the resources to make it worthwhile. That is the backdrop to the Samudramanthan scheme, which the government approved in July. It's a Rs 84,084 crore offshore oil and gas program running through FY 2030-31.

So the scheme follows changes to India's petroleum laws and the opening of previously restricted offshore areas. And together, these measures aim to get more companies to invest in exploration.

But a company deciding whether to drill a new well has plenty of sums to work through. And the government's announcement is only the beginning.

As we explained in our earlier story on India's oil laws, private companies entered an industry where the government had a heavy hand. So under older production sharing contracts, companies could recover eligible costs from production before sharing what was left with the government. Higher costs meant less left to share. So a committee with government representatives reviewed or approved work plans and budgets. And under the modern contract, companies needed government acceptance to recover costs that significantly exceeded initial exploration estimates. Just because a company spent the money didn't mean it could recover it. So HALP, introduced in 2016, moved new licenses to revenue sharing. And the government share no longer depended on how much companies spent. That removed one source of friction for newly awarded blocks, though other approvals remained, and older contracts continued under their existing terms.

But companies still had to worry about future policy changes. So in 2022, when oil prices surged, the government introduced a windfall tax on domestically produced crude, taking a share of producers' extra earnings. For an investor putting money in years before production begins, that creates a problem.

Which term should it use to calculate its future returns?

The 2025 Oilfields Amendment and the final Petroleum and Natural Gas Rules address some of these concerns. They provide a single petroleum lease covering exploration through production. And they also include stabilization provisions, which let companies seek adjustments if certain changes in law hurt a project's economics. But companies must follow a specified process to seek that relief. This isn't a promise that taxes will never change. The government also says it's removed more than 99% of the earlier offshore no-go restrictions, opening over 1 million square kilometers for exploration. And companies can bid for exploration areas through the Open Acreage Licensing Policy, or OALP. But being allowed to explore an area doesn't tell a company whether it's worth spending money there. So imagine a company considering an offshore block under OALP. It starts by studying the available data, including earlier surveys and any records of wells drilled in the area through the government's national data repository. If it bids and wins, it needs to decide where to drill. They send sound waves through the rocks beneath the seabed and record the signals that bounce back to build a picture of what lies below. And the company may study earlier surveys or carry out new ones to identify promising spots. Say the company identifies a promising spot. It now needs to drill an exploratory well to test whether its geologists are right. So in deep water, that means bringing specialized vessels, equipment and crews far offshore. Suppliers and people need to reach the site, and if equipment fails, fixing it out at sea isn't easy. The ministry estimates that a single deep water exploratory well will cost roughly 125 to 150 million dollars. Now suppose the well finds oil or gas. The company still needs to establish how big the discovery is, how quickly the oil or gas can flow, and how much it can actually extract. And then it has to work out what bringing it into production would require. It could be more wells, equipment on the seabed, processing facilities, and a way to get the output to buyers. For oil, that could mean a pipeline or a ship carrying crude to a refinery, and gas generally needs treatment before it can reach fertilizer plants, factories, or gas distributors. So if the discovery is far from existing infrastructure, the company may need a long pipeline or more complicated processing and shipping arrangements.