April 17 (Bloomberg) -- India postponed its largest auction of oil and gas fields on concern that the absence of a tax break for natural gas production will keep domestic and overseas bidders away.

“The confusion over the tax holiday for gas continues and that needs to be resolved,” Oil Minister Murli Deora said by telephone today.

Companies bid for fewer fields than offered by Asia’s third-largest energy consumer last year after a seven-year income-tax holiday for gas was scrapped and the deadline was extended three times. India started this year’s auction when energy producers are cutting investments because of falling crude prices amid the global recession.

“It is largely expected that interest in the auction would not be great,” said Deepak Pareek, an analyst at Mumbai-based Angel Broking Ltd. “Yet the government decided to announce the auction last week.”

India offered 70 oil and gas areas for auction on April 9 to domestic and foreign companies in a bid to increase local output and reduce dependence on imports. Investors remain concerned about the withdrawal of the tax break, Oil Secretary R.S. Pandey said that day.

Investors are interested in bidding for oil and gas areas in India even as oil prices fall in a global economy that is going through a recession, Deora said. The auction schedule will be decided after monthlong national elections that started yesterday, he said.

New Deadlines

“The new government will set the new deadlines and decide on the roadshows for the auction,” Deora said.

Contracts for the 24 deep-water blocks, 28 shallow-water blocks and 18 on-land blocks on offer were scheduled to be signed within four months of the closing of bids on Aug. 10.

“Companies look for fiscal and political stability when promising to invest huge amounts of money in oil exploration,” said Pareek. “Currently, India doesn’t offer either.”

India received bids for 45 of the 57 blocks auctioned last year, of which 44 were offered to companies, including BHP Billiton Ltd., the world’s largest mining company, and Oil & Natural Gas Corp., India’s biggest exploration company. A bid for one field by Cairn Energy Plc was rejected.

Oil prices have tumbled 66 percent from their peak in July, forcing companies to spend less of exploration. Worldwide spending on oil and gas exploration may drop 12 percent in 2009 to $400 billion, Barclays Capital Research said.

To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net

Last Updated: April 17, 2009 05:43 EDT