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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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This Country's Collapse Is Making It More Attractive

Commodities are notoriously cyclical. There's a saying that when things look awful in a sector, the industry is getting ready to turn to the good.

The same can be true of nations.

Sometimes a government has to go through hard times when it comes to outside investment. To make them realize how much they really need outside capital.

This seems to be the case in the petroleum sector of one country particularly these days: India.

The Indian Ministry of Petroleum & Natural Gas announced several key changes last week as part of its upcoming NELP licensing round. Making the petroleum sector here a lot more palatable for incoming players.

For one, the Ministry will now allow developers to explore for all hydrocarbon resources on a given property. That may sound like a logical step, but it hasn't been the case in the past. Previously, bidders were forced to declare whether they were seeking oil or gas--and even detail on any special targets like coal-bed methane (CBM) or shale drilling.

If a driller then discovered oil on a gas block, they were out of luck. It couldn't be developed. Likewise if you found a meaty CBM gas resource on a project licensed for conventional production.

The other critical regulatory change that's afoot relates to pricing. With indications being the government will allow a doubling of India's current natural gas price, to $8.40 per mmbtu.

That would be a major boon to gas producers in the country. It would also represent the second major natgas price hike within the last year. A sign the government is committed to creating a sustainable business environment for producers.

With these measures in place, the upcoming NELP bid round may generate a lot more buzz than previously expected. A number of high profile oil firms have been pulling out of India lately due to frustration with the regulatory regime. The government appears to be trying to reverse that trend--and prevent a full-scale collapse in a sector that had been pushed to the brink.

Might be time for another look.

Here's to the dark before the dawn,

By. Dave Forest


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