ONGC, Sistema to merge Russian oil & gas assets

State-run ONGC and Russian conglomerate Sistema have decided to merge their oil & gas businesses in Russia under a joint venture in a no-cash deal where the Indian firm will have a 25% shareholding with a say in management.

The merger of three companies, Bashneft, RussNeft and Imperial Energy, will make ONGC a shareholder in the Russian firms’ annual oil production of 25 million tonne and in the output of their refineries which have a capacity of 20 million tonnes besides discovered oil fields, Trebs and Titov.

State-run Indian Oil Corp (IOC), India’s largest refiner, will join ONGC in the venture, an oil ministry official said.

ONGC will merge its wholly-owned subsidiary Imperial Energy into the new company. ONGC Videsh, the foreign arm of the state-owned giant, India’s second-largest company by market capitalisation, had acquired Imperial in 2008 for $2.1 billion. Imperial produces about 1 million tonnes of crude oil annually and all its assets are in Russia.

Officials with direct knowledge of the matter said that ONGC would be practically managing oil and gas assets of the merged entity due to its experience. ONGC’s shares were down 0.26% at Rs 1,301.60 from the previous day’s close.

Sistema, a diversified group, had been scouting for a strategic partner with experience in oil and gas sector, ONGC’s chairman & managing director RS Sharma said in a statement. Sistema is a financial corporation that manages companies with a presence in telecommunication, high technology, energy, aerospace, banking, retail, tourism and healthcare services. The deal will be concluded by June 30, statements issued by ONGC said.

A Sistema statement said the prospective partners had agreed to jointly invest in future in “key” countries. The names of the key countries could not be ascertained.

“It is a frame-work agreement. We will soon negotiate specific terms of an agreement in this regard,” an ONGC official said. The frame-work agreement was signed on Tuesday by Sistema chairman Vladimir Evtushenkov and ONGC Videsh managing director RS Butola during Russian president Dmitry Medvedev’s India visit.

State-run oil companies are also interested in joining the consortium, the official said requesting anonymity. The proposed consortium would be led by ONGC Videsh.

The new firm will also hold Trebs and Titov, the major discovered fields estimated to have 200 million tonne recoverable reserves, equivalent to 35% of ONGC’s total crude oil reserves. The fields were awarded to Bashneft in a recent auction where ONGC had also participated but was disqualified. The deal is significant for a country like India that imports over 70% its oil and gas consumption.

Sistema has a 75% direct stake in Bashneft that produces 13 million tonnes of oil from fields in Russia. It also owns refineries with a combined capacity of 20 million tonnes. It has a 49% stake in RussNeft that producing 12 million tonnes of oil. Sistema has a presence in Indian telecom sector through Sistema Shyam TeleServices.

Source : ET

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India seeks more oil, gas from Nigeria

Union Minister for Petroleum and Natural Gas Murli Deora on Thursday said Africa's largest crude oil and gas producer — Nigeria — was willing to increase oil exports to India besides liquefied natural gas (LNG).

“Nigeria is our close friend and willing to help us in meeting our growing energy requirements. This is a positive development for securing India's energy security,'' Mr. Deora said. He recently had a meeting with Nigerian President's special adviser Emmanuel O. Egbogah.

Mr. Deora said that during his meeting, he took up the issue of GAIL (India) and Petronet LNG picking up stake in the $8-billion LNG project at Brass in the Niger delta. “We expressed interest in sourcing LNG on long-term contract from Nigeria and discussed the possibility of GAIL and Petronet joining in a LNG project,'' Mr. Deora remarked.

State-run Nigeria National Petroleum Corp has a 49 per cent stake in the Brass project. French energy major Total, Eni of Italy and ConocoPhillips hold 17 per cent stake each. India wants additional Nigerian crude, Petroleum Secretary S. Sundareshan said. “Mr. Emanuel responded positively and said the Indian side should send a formal proposal to the Nigerian Government in this regard. We will be moving in this direction soon,'' Mr. Deora said. India's energy demand is expected to increase by over 40 per cent during the next decade but supply from its ageing oil-fields is expected to increase by around 12 per cent necessitating higher import of oil and gas assets abroad, he said. India wants to increase its crude oil import from Nigeria, which plans to raise its production to 4 million barrels from 2.7 million barrels a day by 2012. India imports around 13 million tonnes of crude oil from Nigeria annually.

Nigeria is the largest crude oil producer in Africa. Nigerian crude oil is light and sweet and commands a premium in the international market due to its quality.

Source: The Hindu

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Cheer gas

ONGC is banking on natural gas production to propel its future growth as industries wake up to the significance of the clean fuel in the fight against global warming. Gas production has become a profitable business for the company after the recent revision of administered (APM) prices. Margins are projected to go up further, as the country’s pipeline network widens, releasing suppressed demand for gas.

ONGC, interestingly, is adding more reserves of gas than crude oil to its asset portfolio. That would mean a higher share of gas in the company’s revenue in the years ahead. ONGC expects to increase natural gas production to 100 million standard cubic meter per day (mmscmd) by 2015 from 60 mmscmd now. “We have added gas reserves at a much faster pace in recent years compared to crude oil,” DK Pandey, ONGC’s director for exploration, told FE. “Natural gas is a clean source of energy and environment friendly. It is also becoming profitable now,” Pandey said.

When the government fixed the price for natural gas from Reliance Industries’ D6 field in the Krishna-Godavari basin at $4.2 per mmBtu in 2007, it was seen as fairly high then, given that RIL had quoted $2.34 per mmBtu in an opening bidding for the supply of 12 mmscmd gas to NTPC’s Kawas and Gandhar projects in 2003.

But more recently, the government has set a gas price for Gujarat state Petroleum Corporation’s DeenDayal field in the K-G basin at $5.7 per mmBtu. Now RIL is also pushing for a higher gas price for D6.

Global upstream investment saw an 18% decline in 2009 as the industry was forced to cut down on its spending in the face of economic recession. In contrast, ONGC maintained its exploration pace. That has helped the company clock the highest ultimate reserve accretion in the last two decades.

ONGC added 83 million tonnes of oil and oil equivalent gas reserves in the fields operated by it in 2009-10. On a cumulative basis, ONGC has added over 250 million tonnes of oil and oil equivalent reserves in the last four years.

“Being a national oil PSU, we have to keep investing in exploration,” Pandey reasoned. ONGC has set a capital expenditure target of Rs 1,30,000 crore for the 11 th Plan—a 47% hike over the previous plan.

The company has already spent about 67% of the allocated fund during the first three years of the Plan. It has earmarked about Rs 24,000 crore for financing its domestic exploration work in the current financial year. At this pace, ONGC is likely to exceed the exploration spending target for the current Plan.

The company has targeted to drill 154 exploratory wells compared with 128 in 2009-10. The ten-year average success rate for the company works out to 1:2.5, which compares favourably with the industry ratio of 1 to 3. “Giant fields are discovered only in virgin areas. It is our mandate to explore the hydrocarbon potential of all sedimentary basins in the country,” the ONGC director explained

Source: Financial Express

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Shale gas exploration acreages to be available from next year

The Directorate General of Hydrocarbon (DGH) today said that shale gas exploration acreages in the country will be available from next year. 

At present, the Ministry of Petroleum is working on a shale gas regime to find out the most suitable one for the country. 

"We are expecting that by next year shale gas exploration acreages will be given. Currently, we are also working to find out a better shale gas regime. This shale gas regime will be a win-win situation for all," DGH's Director General Sunil Kumar Srivastava told reporters here. 

Areas such as Cambay basin, Krishna-Godavari basin and Assam-Arakan basin are considered as most prospective areas for shale gas exploration, he said. 

However, Srivastava said that given the variability of shale across India, a rapid pace of source development would probably come only after successful explorations in the initial basins. 

The government signed a memorandum of understanding (MoU) with the US on shale gas, where the US Geological Survey (USGS) is likely to do a resource assessment of certain shale basins in India, he said. 

Besides, the Government plans to move to the open acreage licensing policy (OALP) regime by 2012, he said adding the OALP will make India a favourable destination globally for exploration and production of crude and natural gas. 

This will enable upstream companies to bid for any oil and gas block without waiting for the announcement of bidding under new exploration licensing policy (NELP) regime. 

Commenting on ninth round of new exploration licensing policy (NELP), Srivastava said, "NELP-IX will be formally launched in September, followed by road show." 

The production from Reliance Industries' KG Basin block is on track and producing as much as they committed

Source: Economic Times

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Reliance Industries: Buy

Despite its June quarter results being in line with expectations, the stock of Reliance Industries Ltd (RIL), India's largest private sector company, saw no respite from its weak run. The markets seem to be have been spooked by the temporary cap on gas output from the KG-D6 basin. This, combined with concerns over overcapacity in the petrochemicals business has resulted in RIL's lacklustre run at the bourses.

However, the concerns may be overdone. There has been a string of positive recent events — the shale gas interest acquisitions in North America, continuing hydrocarbon discoveries and a favourable outcome in the protracted gas supply dispute with RNRL (which has paved the way for RIL's diversification into telecom and power).

Also, the company continues to be a veritable cash generating machine (FY10 operating cash flows of around Rs 20,500 crore) giving it the ability to muscle into any sector it chooses. Characteristically aggressive expansion plans hold the potential to propel growth.

RIL, which has underperformed the market for quite some time now, presents an attractive buying opportunity for investors with a long-term perspective. At the current market price of Rs 1,000, the stock discounts its trailing twelve months earnings by around 19 times, lower than the Sensex multiple of 22.

Entrenched position

Over the last fiscal, RIL has strengthened its formidable position in the energy business, thanks to the KG-D6 production, and the new refinery in Jamnagar.The oil and gas segment grew significantly with the KG wells ramping up gas production to around 60 mmscmd. This segment which generates the highest margins (in excess of 40 per cent), now accounts for almost 32 per cent of operating profits. The company's recent decision to cap gas production due to technical reasons and commence ramp-up to around 80 mmscmd only after two-to-four quarters is a short-term negative. Nevertheless, the long-term growth story looks intact.

RIL has enjoyed a traditional advantage in refining, its biggest revenue contributor (in excess of 70 per cent), with its high complexity refineries enabling processing of cheaper, heavier crude to earn superior gross refining margins (GRMs). With Reliance Petroleum's new SEZ refinery coming into its fold, RIL's capacity has almost doubled to around 1.24 mbpd. The segment reported low operating margins (4 per cent) in the June 2010 quarter. However, with GRMs expected to improve from last fiscal's lows, thanks to improving demand and widening differential between light crude and heavy crude, RIL could benefit.

The petrochemicals segment (accounting for around 20 per cent of revenues and 34 per cent of operating profits) is facing pressures due to overcapacity in the global market. However, feedstock synergies (in-house naphtha from the refining segment) and strong domestic demand outlook hedges the company to some extent. RIL is among the largest players globally in petrochemicals and has announced massive expansion plans in the segment. This could benefit the company significantly when the cycle turns.

Big-ticket expansion

The last quarter has seen RIL acquire stakes in significant shale gas acreages in North America. These ventures — with Atlas Energy, Pioneer Natural Resources, and Carrizo Oil and Gas — broaden RIL's upstream interests at a global level, and reduce the impact of cyclicality on the business. Shale gas is touted to be a game-changer in the natural gas business.

A key qualitative benefit for RIL is the access to technology, which may prove quite valuable in other potential markets. India plans to award shale-gas blocks by August 2011, by which time RIL's North American foray would have given it a formidable head-start.

Post the redrawing of the non-compete agreement with ADAG, RIL has re-entered the telecom sector by acquiring Infotel Broadband, the sole nationwide player in broadband wireless. The company has also announced ambitious plans in the power sector, and to scale up its retail business significantly. Besides, it is said to be in talks to acquire BP's fuel marketing assets in Africa. Reports also indicate a possible re-entry into fuel price retailing in India. Recent discoveries in the Cambay basin bode well. The company has also initiated steps to develop satellite fields on the East Coast and its other blocks in the country.

RIL's mammoth cash flows give rise to a problem of plenty. Favourable leverage ratios (net gearing of 24.2 per cent), huge cash balance (Rs 26,407 crore) and a formidable war chest in the form of treasury shares ensure that cash is not a constraint for expansion plans. While most of these projects are long-gestation in nature, they have the potential to catapult the company to the next growth cycle.

Financial performance

In FY 2010, high volumes in oil and gas, and refining saw the company grow consolidated net revenue by around 35 per cent to Rs 2,03,740 crore. However, a weak pricing environment resulted in profits growing at only around 4 per cent to Rs 15,898 crore and margins declining. GRMs declined sharply from $12.2 a barrel in FY 2009 to $6.6.

For the latest quarter, net revenue and profits at Rs 58,228 crore and Rs 4,851 crore respectively, were up 87 per cent and 32 per cent y-o-y driven by oil and gas, and refining segments. Margins however declined due to higher proportion of gas to oil, and higher depreciation costs. GRMs at $7.3 a barrel were down sequentially ($7.5) but higher than the year ago figure ($6.8). The performance was still good, given that the benchmark Singapore GRM had registered a steeper fall from the previous quarter. Return on equity is healthy at around 12 per cent.

Going forward, though growth may moderate in the near to medium term given the high base effect, expansion initiatives should see the company reporting strong numbers.

Risks

Sluggishness in demand due to uncertainties in the global economy could drag the company's performance, especially in the petrochemicals business. An unfavourable outcome in the ongoing gas supply dispute with NTPC will weigh negatively on the company.

Source: Hindu Business Line

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RIL to buy 3rd shale gas asset for $392 mn

Reliance Industries (RIL) has agreed to buy 60% stake in the Marcellus shale acreage in the US for $392 million, or around `1,810 crore, its third investment in four months in the promising new energy resource. 

RIL, India’s biggest company by market value, will immediately pay $340 million for the acquisition of the shale gas acreage in central and north-east Pennsylvania that is equally owned by Carrizo and its partner ACP II Marcellus, an affiliate of private equity firm Avista Capital Partners. It will pay $52 million more to cover part of the drilling costs in two years, the company said in a media statement. 

Carrizo will hold 40% of the gas acreage after the transaction is over, which is likely to happen by mid-September. The acquisition will provide RIL access to 104,400 acres of underdeveloped land with estimated net resources of 3.4 trillion cubic feet of gas. 

Houston-based Carrizo will be the so-called development operator of the venture, which means it gets to extract the gas. But RIL has the option to act as a development operator in some regions over the lifetime of the agreement, the statement added. 

The RIL stock closed flat at `1,006.95 in a weak Mumbai market. 

“Reliance will pay $6,258 an acre for the Carrizo deal, which will, in turn, add value of `8.3 a share,” said Deven Choksey, managing director of KR Choksey Securities. “The price paid by RIL for this deal is in line with the cost of other two (shale gas) acquisitions.” 

This is the cheapest of the three assets RIL has bought so far. 

In April, it had acquired a 40% stake in Atlas Energy's Marcellus share acreage in the US, gaining access to approximately 343,000 acres of undeveloped land with estimated gross resources of over 13 trillion cubic feet of gas. It paid $1.7 billion for this. In June, RIL bought a 45% stake in Pioneer Natural Resources for $1.15 billion, gaining access to 210,000 acres of land."We will continue to pursue such joint development opportunities with the best operators as well as on our own to build a substantial upstream business in North America," RIL chairman and India's richest man, Mukesh Ambani, had told shareholders at the company's annual general meeting in June. 

RIL, which owns the world's biggest refinery complex and India's largest gas field in the KG basin, has cash and cash equivalent of more than $6 billion. Its projected annual cash flow is pegged at $7-8 billion. Jefferies & Co was the financial advisor while BNP Paribas and Credit Agricole Corporate & Investment Bank was the strategic advisor to RIL. 

Shale gas is extracted from a common rock formation found in most parts of the world. The emergence of new drilling technologies has made the extraction of gas viable and has led to sudden an increase in the production of shale gas in the US, forcing gas prices to drop in that country. 

Led by ExxonMobil, which bought shale gas specialist XTO for $41 billion in December last year, big energy companies such as BP and Total are entering the shale gas business.

Source: Economic Times

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Govt to provide Rs 14,000 cr to oil companies as subsidies

The government will give Rs 14,000 crore in cash to Indian Oil, Bharat Petroleum and Hindustan Petroleum to make up for the losses incurred on selling fuel below cost in the first quarter of 2010-11 fiscal. 

The Finance Ministry today sought parliamentary approval for additional spending of Rs 68,294.30 crore that included Rs 14,000 crore "for providing compensation to oil marketing companies towards estimated under-recoveries on account of sale of petroleum products." 

Retailers IOC, BPCL and HPCL lost about Rs 20,275 crore on selling petrol, diesel, domestic LPG and kerosene below cost in the first quarter of this fiscal. Of these, losses of upstream firms like Oil and Natural Gas Corp (ONGC), made up for one-third or Rs 6,690.68 crore. 

The Finance Ministry will meet the rest by way of cash dole-outs after Parliament passes supplementary demands for grants. 

IOC, BPCL and HPCL had reported net losses in April-June quarter as the government support for selling fuel below cost did not come before accounts for the quarter were closed. 

In Q1, ONGC paid Rs 5,515.54 crore towards fuel subsidies, Oil India Rs 729.66 crore and GAIL Rs 445.48 crore. 

ONGC, state gas utility GAIL and OIL give discounts to the three retailers on the crude oil and LPG they buy to partly make up for the losses. 

For the full fiscal, IOC, BPCL and HPCL are projected to lose less than Rs 57,000 crore. 

The government freed petrol prices last month on June 25 and there will be no under-recovery on this motor fuel in the remaining part of the year. The three retailers currently sell diesel at a loss of Rs 2.76 a litre, kerosene at a discount of Rs 15.41 per litre and domestic LPG at a loss of Rs 170.57 per cylinder. 

The Union government paid about Rs 26,000 crore in fuel subsidies in the 2009-10 fiscal.

Source: Economic Times

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GAIL first quarter net rises to Rs. 886 cr

GAIL (India) on Monday reported a 35 per cent jump in net profit in the first quarter ended June 30, 2010, despite a near five-fold jump in fuel subsidy outgo. The company said that it would raise Rs. 500 crore through a maiden bonds issue in January next. Net profit rose 35.2 per cent to Rs. 886.80 crore in the April-June quarter from Rs. 655.80 crore in the same period a year-ago, GAIL Chairman and Managing Director B. C. Tripathi told reporters here.

The company's turnover rose to Rs. 7,163.50 crore from Rs. 6,119 crore. The increase was due to the government's move to more than double the APM gas price to $4.2 per mBtu (million British thermal unit) from $1.79 per mBtu and allow GAIL to charge a marketing margin of Rs. 200 per thousand cubic metres. The jump in net income was despite GAIL having to dole out Rs. 445 crore towards subsidies on petrol, diesel, domestic LPG and kerosene as against Rs. 75 crore.

Mr. Tripathi said the GAIL board on Monday approved borrowing of Rs. 1,250 crore from HDFC and raising another $150 million through the external commercial borrowing (ECB) route in December this year. The ECB would be the first tranche of $500 million the company planned to raise for funding its pipeline and expansion of its petrochemical project, he said. Mr. Tripathi said the company was doubling capacity of its petrochemical plant at Pata in Uttar Pradesh to 9 lakh tonnes at an investment of Rs. 8,200 crore.

JV with RIL put on back-burner

The company has put on the back-burner plans to set up a mega petrochemical plant overseas in a joint venture with Reliance Industries and has instead decided to invest Rs. 8,200 crore on doubling the capacity of its chemical unit in Uttar Pradesh. The expansion will take 42 months to complete, but GAIL would endeavour to commission the unit in 36 months, he said.

RIL and GAIL had on December 4, 2007, signed a memorandum of understanding (MoU) to jointly set up a mega gas-based petrochemical plant.

Source: Hindu Business Line

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RIL to drill two more wells in KG-D6 block

Reliance Industries (RIL) is set to drill two more wells in the KG-D6 block that may boost gas production from the field where output has stagnated since April at about 60 million metric standard cubic meters per day (mmscmd). 

“The government has approved RIL’s proposal to drill two more wells as part of D1 and D3 field-development plan,” an official in the Directorate General of Hydrocarbon (DGH) said. 

The directorate, a technical arm of the oil ministry, is the custodian of the country’s oil and gas assets. 

Experts in the oil ministry said that the two wells (A21 and B16) may help RIL increase gas production from the field and sustain the higher production. 

“RIL has told us that the current (gas) production from the field is unlikely to increase beyond 60 mmscmd in the near future. It is making efforts to achieve the peak production of 80 mmscmd,” an official in the ministry said. 

“We do not wish to comment (on this subject),” RIL spokesman said in an email reply. The company’s current production of around 60 mmscmd comes from 16 wells of D1 and D3 and 5 wells of D26 fields, RIL said in a press statement issued on Tuesday. The D26 field is located next to D1 and D3 field in the same KG-D6 block. 

RIL has been producing crude oil and gas from D26 (also known as MA) field since September 2008. But major gas field, D1 and D3 commenced commercial production on April 2, 2009. 

The company managed to ramp up gas production from KG-D6 to 60 mmscmd in just nine months, but output is stuck at that level. RIL is, however, hopeful of achieving the peak production of 80 mmscmd by 2012, an oil ministry official said. 

The government had awarded the KG-D6 block (KG-DWN-98/3) to a consortium of RIL and Niko in 2000, under the first round of auction of New Exploration Licensing Policy (Nelp-I). In 2002, the consortium made the largest gas discovery of the time in the block. RIL holds 90% stake in the asset, while balance 10% is held by Niko.

Source: Economic Times

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ONGC plans to invest $5 bn to develop gas fields to boost output by 60 pc

Oil & Natural Gas Corporation plans to spend $5 billion to develop gas fields to boost output by almost 60% in six years, two people with direct knowledge of the matter said. 

The New Delhi-based explorer sought permission from the oil and gas regulator on July 16 to invest the funds in nine natural gas discoveries off India’s east coast to produce 35 million cubic metres a day by 2016, one person said, declining to be identified before the directorate general of hydrocarbons approves the plan. 

The amount is triple ONGC’s planned spending on its largest oil field and follows the government’s decision in May to double the price at which the explorer sells gas. India is ramping up gas output at the fastest pace in the world, according to BP’s 2010 Statistical Review of World Energy, after companies including Reliance Industries discovered new fields. “ONGC has been discovering new reserves for a while but the concern is being able to convert them to production,” said Rohit Ahuja, a Mumbai-based analyst with Centrum Broking in Mumbai. “The company is looking to address this with the very good discoveries they have in the east coast.” 

The producer of almost 25% of the crude oil used by India is starting new fields at home as output declined at aging areas off the west coast. Reserves added in fields operated by ONGC in the year ended March was the equivalent of 82.98 million metric tonne, the highest in the past 20 years, the explorer said April 26.

Source: Economic Times

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India plans to launch shale gas auction in august 2011

The identification of the gas producing areas will be done by early next year

Major Indian energy companies like Reliance Industries Ltd (RIL), which have so far been scouting overseas for shale gas resources, may get a chance to bid for domestic shale gas blocks in about a year. The country is looking to launch the first-ever auction of shale gas areas in August 2011.

The identification of the gas producing areas will be done by early next year. This will be followed by carving out suitable blocks. Jitin Prasada, minister of state for petroleum and natural gas, had recently called a meeting of officials in the Directorate General of Hydrocarbons (DGH) and his ministry to discuss the future potential of shale gas. “The DGH has accordingly prepared a roadmap for the shale gas auction,” said a ministry official.

This will be the second unconventional natural gas source in India after coal bed methane. Several basins — Cambay (in Gujarat), Assam-Arakan (in the North-East) and Gondwana (in central India) are known to hold shale gas resources.

In March this year, the ONGC board approved a pilot project for exploration of shale gas in the Damodar Basin at an expenditure of Rs 128 crore.

DGH and the ministry would study worldwide fiscal and contractual regimes before framing a shale gas policy. It is being worked out and is likely to be in place by the end of the current financial year.

The Petroleum and Natural Gas Rules, which govern the oil and gas exploration activity, will be amended prior to the floating of the first round of auction.

MILKING THE ROCKS

# Companies like Reliance Industries Ltd have so far has been scouting overseas for shale gas resources

# The identification of the gas producing areas will be done by early next year. This will be followed by carving out suitable blocks

# Shale will be the second unconventional natural gas source in India after coal-bed methane

# Basins like Cambay (Gujarat), Assam-Arakan (the Northeast) and Gondwana (Central India) are known to hold shale gas resources

# A policy is being worked out and is likely to be in place by the end of this financial year

# The Petroleum and Natural Gas Rules will be amended before floating the first round of shale gas auction

India is also likely to sign a cooperation agreement with the US Geological Survey later this year for knowledge sharing in the area of shale gas. The US has successfully exploited its shale gas reserves, which currently account for 20 per cent of the country’s gas production. An Indian delegation was also expected to visit shale gas sites in the US sometime this year, the ministry official said. Countries like Canada and China are also increasingly exploiting their shale gas reserves.

Hydrocarbon found in the form of shale gas has over the past few years transformed the energy scenario for the world’s biggest energy consumer, the US. Indian energy companies have shown interest in developing this resource. While RIL recently acquired a 40 per cent stake in Atlas Energy’s Marcellus Shale acreage in the US, the Y K Modi-promoted Great Eastern Energy Corporation Ltd is keen to take part in the shale business.

Companies worldwide are increasingly looking at investing in shale gas, which they consider a lucrative business.

Source: Business Standard

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ONGC: Expressed Interest to Buy BP Stake in Vietnam Gas Block

Oil & Natural Gas Corp. has expressed its interest to Vietnam Oil and Gas Group, or PetroVietnam, to buy BP PLC's stake in a gas block in Vietnam, the chairman of India's state-run oil and gas explorer said Thursday.

"Yesterday we have indicated our willingness to PetroVietnam to buy BP's stake. Let us see now," R.S. Sharma told Dow Jones Newswires.

BP holds a 35% stake in the block and is also the operator. ONGC owns 45%, while PetroVietnam has the remaining 20%.

BP announced Tuesday that it has agreed to sell assets in the U.S., Canada and Egypt to U.S. oil company Apache Corp. for $7 billion. BP also said it plans to sell gas fields and a pipeline in Vietnam, as well as exploration licenses in Pakistan to help pay for damages related to the Gulf of Mexico oil spill.

Source : online.wsj.com

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Oil ministry seeks Rs 13,500 cr for OMCs

Finance ministry contests figure.

The ministry of petroleum and natural gas has sought Rs 13,500-crore subsidy from the government to compensate the revenue loss incurred by the three oil marketing companies during the first quarter of this financial year. The ministry of finance, though, is not likely to grant the amount in the forthcoming first supplementary to the budget.

A senior finance ministry official said parliamentary approval would be sought only for Rs 14,000 crore subsidy that was due for payment to Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation Ltd for 2009-10.

“There will not be any provision for the current year in the supplementary, which will be presented in the monsoon session of Parliament, starting July 26. Subsidy for the current year would be given only after the sharing mechanism is decided. The two ministries have held several rounds of meetings but a final view will be taken by an empowered group of ministers,” said the official.

The Budget 2010-11 had provided only Rs 3,108 crore for petroleum subsidy for the current year but the ministry of finance would now need to make a provision of Rs 14,000 crore which the three companies have already accounted as accruals in their accounts for 2009-10.

The government has asked upstream oil and gas producing companies – ONGC, GAIL India and Oil India Ltd – to shell out Rs 6,500 crore as part of a subsidy-sharing mechanism for the April-June quarter. It will partially make up the revenue loss incurred by the marketing companies for selling auto and cooking fuels below international rates.

The underrecoveries have been calculated assuming an average crude oil price of $75 a barrel for the whole year. Speaking to Business Standard, petroleum secretary S Sundareshan said, “Underrecoveries came to Rs 20,000 crore, of which Rs 6,500 crore comes from the upstream companies. We have written to the ministry of finance to contribute the rest. Discussions will be held to arrive at the final figures.”

On what was the basis of the calculation of underrecoveries, the secretary said they were calculated on the trade parity formula devised by the Rangarajan committee.

Source: Business Standard

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Gas EGoM likely to okay supply for Lanco, GMR, Sravanthi power units

When the empowered group of ministers (EGoM) meets for gas allocation on July 27, it is likely to commit supply for power plants coming up in 2011-12.

Among those likely to get allocation are Lanco Infratech, GMR and the South India-based Sravanthi group. It would be a tough call for the EGoM, though, since the government has received requests totalling over 350 million standard cubic metres a day (mscmd).

Lanco is likely to get an allocation for the 742 Mw third phase of its Kondapalli power plant, near Vijayawada. The Gurgaon-based company has two operational gas-based power plants, at Kondapalli and at Karuppur in Tamil Nadu. Currently, it has units of 368 Mw and 366 Mw at at Kondapalli. The Karuppur unit is a small one, with 120 Mw capacity.

Officials said GMR was also seeking natural gas for 768 Mw capacity, while Sravanthi plans to set up a 228 Mw plant.

The Anil Ambani group has sought 28 mscmd for four gas-based power projects, including Dadri in Uttar Pradesh, Shahapur in Maharashtra's Raigarh district, Jambusar in Gujarat’s Bharuch and Samalkot in Andhra Pradesh.

The group that had fought a bitter battle with Mukesh Ambani-owned Reliance Industries Ltd for gas for its Dadri power project seems to have diluted the demand for this one. “Since Dadri power plant is under litigation in the Supreme Court over land acquisition, the request for Dadri is subject to case being resolved,” said an executive close to the development.

A senior official said the Ministry of Petroleum and Natural Gas would be briefing the EGoM on the production profile of the Reliance Industries’ D6 field. Following the scheduling of the meeting, the ministry had asked the directorate general of hydrocarbons to send a fresh estimate of D6 production, currently around 60 mscmd of gas. This was to be raised to 80 mscmd and remain at that level for eight years. The government has already made firm allocations for about 62 mscmd and a fall-back (temporary) allocation for another 30 mscmd.

Since the production equals the firm allocations, the new allocations might be made from the fall-back quantities. The meeting of the group would be the first one after the Supreme Court upheld the union government’s sovereign right over natural gas and made the Ambani brothers renegotiate a gas deal in compliance with the government policy.

Source: Business Standard

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Reliance Industries in talks to buy stake in Quicksilver

Energy major Reliance Industries is in talks with Texas-based Quicksilver Resources , including for a possible buyout of the US firm that develops shale gas and coal-bed methane, a newspaper reported on Monday. 

The talks also include buying a part stake or partnering Quicksilver for one of its major projects called the Horn River Basin assets in British Columbia, the newspaper said, citing unidentified sources familiar with the development. 

Quicksilver, which is estimated to have sales of $900 million this year, currently has two large shale basins with proven reserves of around 2.4 trillion cubic feet, the paper said. 

Source: Economic Times

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IOC to acquire oilfields in Africa in $1-bn push

Indian Oil Corp, the country’s second-biggest refiner, plans to acquire oilfields in Africa as part of a $1 billion overseas investment plan, its chairman said.

“Africa is top of our list to buy assets because it is near India and has good quality crude,” Brij Mohan Bansal said in an interview at his office in New Delhi today. “We are planning retail outlets in Indonesia.”

State-run Indian Oil’s renewed plans to expand overseas came after the government freed gasoline prices from its control last month and said it will eventually allow refiners to set diesel rates, helping to increase cash flow. The refiner has set aside $1 billion for acquisitions overseas, Bansal reiterated.

“Africa offers many grades of crude and gives refiners security of supplies to have fields there,” said Vinay Nair, a Mumbai-based analyst with Khandwala Securities Ltd. “They will, however, still need financial support from the government to help make profits.”

The refiner delayed crude-processing and pipeline projects overseas, including Nigeria and Turkey, because of reduced cash flow after selling fuels below cost, Bansal said in July last year. Indian Oil and Turkish builder Calik Holding had planned to spend $4.9 billion to build a 300,000 barrel-a-day refinery in Ceyhan on the Mediterranean coast.

The companies, with Eni SpA, Europe’s fourth-largest oil company, had also planned to spend $2 billion on a pipeline from Samsun on Turkey’s Black Sea coast to Ceyhan to transport as much as 1.5 million tonnes of Central Asian crude oil a day.

Delay in plans 

The shares have increased 23 per cent in Mumbai trading this year, compared with the three per cent gain in the benchmark Sensitive Index of the Bombay Stock Exchange. The stock declined 3.8 per cent to Rs 374.45 today.

Indian Oil, which owns stakes in ventures in Africa and West Asia, had plans to invest in refinery and pipeline projects in Nigeria, former company spokesman M Kali Krishna said in October 2006.

Source: Business Standard

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Diesel subsidy may be set at Rs 1.49/litre

Diesel price decontrol may only be partial, unlike in the case of free pricing of petrol, as the government may continue to provide a fixed subsidy of Rs 1.49 per litre irrespective of the rise or fall in its market-linked retail price. 

The government freed up prices of petrol and diesel on June 25, but capped the increase in the case of diesel to Rs 2 per litre against a required hike of Rs 3.49 a litre. 

There is no clarity within the government about the balance Rs 1.49-a-litre hike needed to lift diesel to market rates. 

“What this means is that on diesel we will give a (virtually) fixed per-litre subsidy of Rs 1.49,” a finance ministry note circulated to top decisionmakers in the country said. 

Irrespective of variations in the pump price of diesel, the note says, consumers will continue to get the Rs 1.49-a-litre subsidy cushion. 

In its June 25 decision, an empowered group of ministers headed by finance minister Pranab Mukherjee fully deregulated petrol and diesel prices. While the price of petrol immediately rose to what it would cost in a free market — by Rs 3.5 a litre in Delhi — in the case of diesel the EGoM pegged the increase at Rs 2 a litre, Rs 1.49 per litre short of what the free market price would have been. 

While the assumption was that diesel prices would gradually rise to a free-market price, the government does not seem to be so clear. 

“There is no clarity who will bear this burden (shortfall of Rs 1.49 a litre),” a senior executive of a public sector oil marketing company said. 

The note pointed at the ambiguity in the EGoM decision. 

“I stressed this (fixed subsidy on diesel) at the EGoM and there was some discussion on it. But in various statements coming out subsequently this got muffled. So observers are not clear if diesel has been decontrolled or not,” a senior official said in the note. 

The oil ministry seems to think the EGoM freed pricing of both petrol and diesel. “The EGoM has deregulated both petrol and diesel prices on June 25 and it has not proposed any fixed subsidy on it,” an official in the ministry said. 

But he could not say why the government restricted retail price increase in diesel to only Rs 2 a litre while the then market price would have required an increase of Rs 3.49 a litre. 

The government’s statement issued on June 25 did say that “the pricing of petrol and diesel both at the refinery gate and the retail level will be market-determined”. 

But it was vague on moving towards a market-determined diesel price. “... in respect of diesel, the initial increase in retail selling price of diesel will be Rs 2 per litre ... Further increases will be made by the public sector oil marketing companies in consultation with the ministry of petroleum & natural gas,” it had said.

Source: Economic Times

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Shale: A home remedy for India’s gas problem

Taking a cue from the US, India is seriously looking at the unconventional shale gas, which, if successful, could mean a substantial improvement in the country’s energy outlook within the next few years. 

The government is gearing up with policy guidelines for shale gas exploitation and auction shale gas blocks within the next two years, even as various E&P players are moving ahead with their pilot projects. ONGC has tied up with Schlumberger for a pilot project in Damodar valley at a capital cost of Rs 128 crore. Similarly, Oil India has initiated a project in Assam, while Reliance Industries is active in Cambay basin. 

However, the project timelines are not short. ONGC, which has been researching shale gas in India since 2006, is expected to spend the next two years gathering geological data in its Damodar valley field, followed by drilling and resource estimation by 2013. In 2014 the company will be able to assess the feasibility and consider production from this pilot project. 

While state-owned players are trying to source shale gas technologies from foreign players, Reliance Industries has chosen to learn the trade by working on live projects. RIL has agreed to invest over $3.1 billion in two separate deals over the next four years to garner 3,08,000 acres of shale in the US. 

Shale is a common rock found across the world and the petroleum explorers are well aware of hydrocarbon deposits trapped in it for a long time. But its exploitation was considered impossible due to the solid nature of shale that prevented hydrocarbons to flow up. With development of newer drilling techniques in the past few years, it has become possible to tap this energy reserve. 

The US is today witnessing excessive availability of natural gas, which is depressing its imports, increasing its inventories and pressurising prices. 

A number of Indian sedimentary basins, including the hydrocarbon bearing ones — Cambay, Assam and Damodar — are bestowed with thick sequences of shale. Though not all shales are good candidates for shale gas exploration, substantial potential for gas from shale is expected from these basins. 

ONGC informed that parameters like productive shale volumes, gas content, thermal maturity, type and amount of organic matter, lithology & extent, mineralogy and saturation, need to be assessed before shale formation can be considered promising. 

While learning the technology to exploit these shale gas reserves is a key hurdle, lack of transporting and storage infrastructure for natural gas and policy framework are other impediments. The entire shale gas exploitation process also carries a number of environmental risks which need to be addressed for sustainable growth. 

Although it is too early, India’s ability to successfully exploit shale gas could go a long way in supporting its future growth. A home-grown remedy to domestic energy needs could indeed be the key in sustaining economic growth and strengthen India’s position in global economics.

Source: Economic Times

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RIL, Essar to hit the highway to fuel oil profits

With the government deregulating prices of petrol and planning to do the same in case of diesel, private fuel retailers like Reliance Industries (RIL) and Essar plan to aggressively expand their presence along India's national highways, giving public sector oil marketing companies (OMCs) a run for their money .

OMCs have traditionally controlled this high-volume business segment of the retail market. Intense compe tition from private players could put pressure on OMCs' retailing margins. "After price deregulation, there would be significant investments by private players in petroleum retailing, but they are likely to focus on highways," says Ajay Arora, an energy expert with global consultancy firm Ernst & Young.

Now that both refinery and retail prices of petrol have been deregulated, RIL and Essar can sell the fuel at any price of their choice.

This will put pressure on OMCs to keep their prices competitive, making the current practice of fortnightly price revisions irrelevant.

Competitive pricing is going to be the name of the game.

Both RIL and Essar have relatively larger and technologically more advanced refineries capable of processing a higher share of tough, heavy and sour crude oil which is cheaper. They also have the flexibility to produce more petrol and diesel out of the same barrel of crude oil. As a result, their refining cost is lower than that of PSUs like IOC, BPCL and HPCL, which have relatively older and smaller refineries.

However, refining facilities of private players are concentrated in a particular area unlike public sector players who have facilities across the country . For example, both RIL and Essar have their refineries in Jamnagar. This translates into higher transportation and distribution costs. "We are well-positioned to face competition from private players. Our overhead cost may be higher, but our distribution cost would be lower," IOC chairman BM Bansal told FE. Besides, OMCs have also acted fast in improving customer services at retail outlets.

Private players will have to further reduce their refining costs to offset the impact of higher distribution costs. Setting up new refineries to achieve geographical spread is not an option due to high capital costs. Continued from Page 1 Private players have been swapping products with O M C s t o s ave t r a n s portation costs. But it is difficult to say how long this understanding would hold once competition for market share intensifies.

The global slowdown of the last two years led to some demand contraction for petrol and diesel in North America and west Europe, both of which were favourite destinations for Indian petro-product exports.

However, the Indian market still remains lucrative, given the strong demand for auto fuels in the country.

So, it makes sense f o r p r iv a t e p l ay e r s , wh i ch h ave b e e n e x porting a sizeable quantum of their production, to expand their footprint in the domestic market.

Source: Financial Express

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Government approves $5.25 per mmBtu for ONGC gas

The government has approved a higher price of gas for ONGC’s C-Series fields in Mumbai offshore taking a step forward in its policy to bring all gas prices closer to market-determined rates. 

The C-Series gas priced has been fixed at $ 5.25 per million British thermal unit (mmscmd), which almost a dollar higher than the price at which Reliance Industries sells gas from the its fields in Krishna Godavari basin. 

Reliance gets $ 4.215 per mmBtu for the gas it produces from KG-D6 fields. The price for ONGC is a tad lower than $ 5.5 per mmBtu which it had sought earlier, said a oil and gas ministry official. 

The government had recently increased the price of gas sold at controlled price (administered price mechanism or APM gas ) by state owned upstream oil companies to $ 4.2 per mmBtu bringing it at par with KG D-6 gas. 

Natural gas produced from C-Series fields is sold to Gail which further markets it to end users. ONGC began production from C-Series fields last month and is currently producing between 0.8 to 1.2 million standard cubic meters per day from the wells drilled so far. 

The peak output from the field is expected to be 2.8 mmscmd after all the 15 wells are drilled after monsoon season. 

Source: Economic Times

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