Nepali Times
Is oil Nepal’s next big bonanza?


After an age in which Nepal only ever earned a mention in British papers in brief articles detailing the latest Maoist attack, the kingdom has been figuring unexpectedly large on business pages lately.

News from Kathmandu on 11 August that Cairn Energy, a Scottish oil and gas company, had agreed on a contract with the Nepal government allowing it to explore for oil and gas in huge swathes of the south sparked a sudden renewal of interest in a new version of 'Himalayan paradise'. (see 'Cairn strikes it big', #209)

While the government in Kathmandu was rubbing its hands with glee at the apparent endorsement of an oil-importing country's productive potential, Cairn bosses were more circumspect, saying it could take years of scrabbling about before it was known if there was any oil down there.

With hard-nosed investors bidding up Cairn's shares in London on the day it confirmed the successful conclusion of talks, it was clear that optimism was not confined to the Department of Mines and Geology in Kathmandu. The Edinburgh-based company has plenty of people who would be prepared to follow its bosses anywhere.

Helped by a series of massive discoveries in Rajasthan, an unfancied area of western India, Cairn has been lifted from the ranks of stock market also-rans into the premier league. Valued at ?560million in January, the company is now worth ?2billion plus. All four of the finds that powered the transformation were made on land the mighty Shell had not rated and had sold to Cairn for just ?4million.

While Mike Watts, the company's wily exploration director, first saw the potential in Rajasthan, Cairn's feats have ensured its chief, Bill Gammell, a star status in business circles to match his glamorous background. The son of a wealthy oil financier, Gammell became friends as a child with the future President George W Bush while their fathers talked business. He was a classmate of future Prime Minister Tony Blair at an elite Edinburgh school, Fettes College, where he excelled at rugby before going on to play the sport for Scotland.

Now with the company having discovered more than one billion barrels of oil in India he is sitting on a stake in Cairn worth more than ?15 million. As the terms of the company's Rajasthan licence gave the Indian authorities the right to 30 percent of any area in which oil is developed, the strikes promise a bonanza for the country's government.

Little wonder that for some the mere mention of Cairn possibly drilling summoned up images of an adventure in Nepal that could only end happily for all concerned. However, Cairn has been relying so far on little more than educated guesswork in Nepal where the only well ever drilled found nothing, some 36 years ago. A vast area needs to be studied using time-consuming techniques like seismic surveys of the deeps to help turn up leads. It could be years before any wells are sunk.

"We're in the early, early stages of exploration, of transient operations, risk capital," said Watts. When and if drilling starts, Cairn could easily fail to find oil or gas or not strike enough of the stuff to make installing expensive production infrastructure worthwhile.

Speaking on the third day of the Maoist blockade in Kathmandu last week, after Maoists forced a dozen big companies to closed down, Watts, who has spent years working in countries like Bangladesh, appeared to be relatively unconcerned by the security situation. "We're conscious there are security issues in Nepal like there are in many areas where oil and gas is sought and we will operate with a cautious pragmatic approach."

However, there is a risk exploration activity could be disrupted either directly or indirectly by political violence that Cairn may not have encountered elsewhere. Even if all goes to plan, sceptics surveying the oil provinces of the developing world could find plenty of reasons to wonder precisely who would be the beneficiaries of exploration and production in Nepal.

One British expert who asked not to be named noted Angola and Nigeria as the most grotesque but not the only examples of countries in which the discovery of huge amounts of oil had produced wealth aplenty for the already rich and powerful, corrupt or otherwise, but no end of misery for the poor. (see: 'The resource curse', #209)
Activists say the powerless have been the main victims of huge environmental damage resulting from oil spills and other ills. Following similar experiences across the globe, the World Bank recently made support for a pipeline linking Chad with Cameroon conditional on measures to guarantee Chad's newfound oil wealth would be used for poverty reduction.

"But initial returns are not encouraging and even though the oil money is flowing, there are no structures in place for distributing it back to the oil producing region," said a development expert.

In the case of Cairn oil industry, sources say Nepal can probably be pleased that it is dealing with a company that has a record of pioneering in countries like India. Bigger players might throw their weight around more.

Following warnings about possible environmental damage resulting from exploration in the Nepal tarai, Cairn has been quick to relinquish rights to explore all designated national park and wildlife areas on its acreage in Nepal, including Royal Bardia Park.

The company says it will explore only in consultation with local communities. However, there is concern among environmentalists about what the exploration will do to the India-Nepal Tarai Arc Landscape project, which aims to protect jungle corridors for tiger and wild elephant migration.

While the terms on which Cairn will look for oil have not been disclosed, there are said to be provisions of jobs and training for 300 to 400 Nepali staff during the initial survey period. "If we ever get into production we'll be doing community issues like we do in parts of India," Watts said. However, with Cairn obliged to prioritise the interests of its shareholders, the country's ministers and officials will have responsibility for ensuring an oil and gas business for which they have scarcely any experience.

Years of complaints about mismanagement by self-interested politicians and bureaucrats will have left few in the country confident that officialdom can meet the challenge.

Mark Williamson is a business journalist on The Herald in Scotland

(11 JAN 2013 - 17 JAN 2013)