Oil India Ltd was the only government company that did well when it went to the stock market last year. Six months after its listing in September 2009, the company is preparing plans to make acquisitions abroad. In an interview with Ajay Modi, OIL chairman and managing director N M Borah rues the unpredictable nature of the oil subsidy and says the company would continue to focus on its core business of exploration and production. Edited excerpts:
What has been the impact of subsidy outgo on your PAT (profit after taxes)? Was OIL’s burden sharing in 2009-10 lower than 2008-09?
Subsidy has been lower in 2009-10, primarily due to lower crude oil prices. We are expecting an improvement in PAT during 2009-10 due to lower subsidy. But, there has also been a volume increase in crude oil production, which contributed to a higher top line and bottom line. In 2008-09, we had a substantial jump, o*f 12 per cent, in crude oil production. We sustained the increase in 2009-10. While a 12 per cent increase is not possible every year, we have registered a three per cent increase over the high base of 2008-09.
How was higher production achieved?
Increasing production has been a combination of technology induction and increase in drilling efforts. We increased drilling efforts by 30 per cent in 2009-10. An increase in drilling in the right areas leads to increased production. Additionally, technology like horizontal drilling and intensification of IOR/EOR has resulted in production improvement.
How much investment goes into such measures?
In 2009-10, our capex expenditure was about Rs 2,000 crore. This was mainly spent in our core areas of business, which are exploration, development and production. Usually, 45 per cent of our capex goes into exploration, aimed at augmenting reserves, while the remaining 55 per cent is spent on development and production.
The Kirit Parikh report suggested sweeping reforms. Its implementation would have been in the interests of the oil companies. However, so far no decision has been taken and there is lack of clarity on subsidy sharing for 2010-11. How does it impact OIL?
The uncertainty affects us, especially after we got listed. Our investors are keen to know what kind of subsidy we will have to bear. Our stand remains the same as earlier. We would like to have some kind of transparent and predictable mechanism. As of now, that is not in place. A predictable mechanism can help us to assess more firmly our future revenue stream and help the investors.
Will it be fine if the current mechanism (where the upstream oil companies like ONGC and OIL bear only auto fuel subsidy) continues?
I think that is a hypothetical situation. We still do not know for sure what would happen. Moreover, it will depend on the crude oil price.
What is your capital expenditure plan for 2010-11? Are you eyeing acquisitions overseas?
This year’s capex plan is almost double, at Rs 4,400 crore. Of this, around Rs 2,000 crore we have earmarked for acquisition of oil/gas assets overseas. We are looking to buy producing properties or at least a participating interest in some producing assets. We are also keen to acquire blocks where discovery has been made and development is pending or even in mature fields, where we can enhance production with our in-house competence. But, the amount of Rs 2,000 crore is only indicative. The actual amount will depend on the kind of target assets.
By when can we expect a deal?
It is difficult to give a timeline.
What is the status of OIL’s overseas projects?
OIL has presence in a few countries such as Libya, Nigeria, Yemen, Gabon, Timor Leste, Egypt and Iran. It is the operator in two areas in Libya and in Gabon, while it holds participating interest in blocks in other countries, as a consortium partner. All the blocks are in various stages of exploration. The most advanced stage is in Libya, where we have started an exploratory drilling campaign as the operator. Recently, as a member of an international consortium, we won a bid for developing a significant heavy oil resource base in Venezuela. Our partners in Venezuela are ONGC Videsh Ltd (OVL), Indian Oil Corporation Limited (IOCL), Repsol and PETRONAS.
How much money will OIL invest in Venezuela?
We estimate an investment of about half a billion dollars over six-seven years for the 3.5 per cent equity.
Does OIL have plans to float a subsidiary on the lines of OVL for its overseas business?
There have been some thoughts on these lines. But, we have not come to a decision.
What kind of activities is OIL undertaking in the downstream sector?
Our core competence is in exploration, production, design, engineering, construction,operation and maintenance of long-distance pipelines. We do not see a major shift from these areas in the foreseeable future. We are not going to become a downstream company overnight, because we do not have the core competence for that business segment.
On the upstream side, a lot of scope remains even within the country. The limited downstream activity that we have done and are doing is to spread our risk as a corporate entity. In case of some international upstream opportunities where the downstream business is also attached, we will go for it, since we have IOC as a partner.
Is the delay in APM gas price revision hurting OIL?
We have made a case that the price should go up. The cost of producing gas has gone up due to an upward movement in cost of equipment, oilfield services and manpower. We need to get a commensurate price.
How has the listing of the company helped OIL, especially in terms of valuation?
We have gained better visibility. OIL has always had low visibility and was confined to the northeast. There is an expectation from investors and it is a motivating factor to expand.
Source: Business Standard
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