RIL carries out KG D6’s design capacity

Reliance Industries (RIL) has announced that it had successfully carried out an assessment of the design capacity of the KG D6 deepwater gas production facilities on December 23. A flow rate of 80 million standard cubic meters was achieved through the KG D6 facilities and delivered to RGTIL’s East West Pipeline,” says a company release. Presently, RIL is producing about 60 million standard cubic meters of gas.

Source: The Hindu

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A mixed year for upstream oil and gas sector

Despite major discoveries, NELP VIII met with lukewarm response.

Pat for India

Govt received 76 bids for 36 blocks out of 70 put on offer under NELP-VIII

26 bids for eight blocks out of the 10 offered under the fourth round of Coal Bed Methane

The Petroleum Ministry maintained that the successful completion of the bids in the face of global recession was in itself a major achievement

It was a clear case of ‘you win some, you lose some' for the oil and gas exploration and production activities in the country. In 2009, the segment experienced its moment of glory with the gas flowing from what is tipped as world's largest discovery of 2002 in the East Coast, and crude oil production from the tough terrain of Barmer fields, Rajasthan.

But, this really did not result in attracting the investors to bid for the latest and most ambitious oil and gas auction round (NELP VIII). The auctions evoked a lukewarm response with only 36 of the 70 blocks offered receiving bids.

The subdued participation was attributed to the ongoing gas dispute between the Ambani brothers that has questioned the sanctity of the production sharing contract (PSC), coupled with the impact of the economic slowdown.

The Government received 76 bids for 36 blocks out of 70 put on offer under NELP-VIII and 26 bids for eight blocks out of the 10 offered under the fourth round of Coal-Bed Methane (CBM-IV). For 16 deepwater blocks, 15 shallow water blocks and three on-land blocks, no bids were received.

However, the Petroleum Ministry maintained that the successful completion of the bids in the face of global recession was in itself a major achievement. “The response of bidders when compared to similar offers elsewhere in the world was one of the best during the year,” the Ministry argued.

In the upstream exploration and production activities, production has been nearly stagnant for over a decade. During the current financial year (2009-10), the production is expected to increase significantly, oil by 11 per cent (mainly due to production from Rajasthan and the Krishna-Godavari Basin deepwater block) and gas by 53 per cent (due to natural gas production from the KG Basin deepwater block) over the previous year.

Reliance Industries Ltd (RIL) operated Krishna Godavari Basin D6 block was put on production from April 1. This is expected to nearly double the supply of natural gas from the domestic sources, which excluding D6 production is close to 70 mscmd (ONGC fields and joint venture fields) currently.

At present, the gas production from D6 is 52 mscmd, which is expected to touch 70 mscmd in January, reach 82 mscmd in March and maintain the natural gas production in the range of 82-89 mscmd up to March 2012.

Imports

Today, the country's dependence on imports of meeting its crude oil requirements is more than 70 per cent. There has been a constant rise in import of crude oil during the last five years from 95.9 million tonnes in 2004-05 to 132.8 mt (provisional) for 2008-09. Cairn India's Barmer fields, Rajasthan, which commenced production from August 29, 2009, is projected to produce 2.2 mt of crude during the current financial year.

At peak production, it is expected to produce 8.9 mt a year of crude oil during 2011-12, which will account for about 25 per cent of the total domestic crude oil production, and reduce the country's crude oil import bill by about 8 per cent, at current crude prices.

Besides, carving out more areas for exploration for offer under various rounds of NELP and CBM, several measures have been taken by companies such as ONGC to accelerate hydrocarbon exploration and production. This is a continuous process, and not just restricted to 2009.

Tax holiday

Oil India Ltd made a successful listing at domestic equity browses. But, on the policy front, the sector was still left with lot of questions unanswered. Though for NELP VIII and CBM IV the Government clarified on the issue of seven year tax holiday for commercial production of gas, it has not indicated anything for the future rounds. In fact, the delay in providing clarity on tax holiday did have an impact on investors' sentiments in NELP VIII and could do so in future rounds.

The issue of gas pricing continued to haunt the Government in 2009 as well. With an intention of bringing more transparency in the existing gas pricing regime, it is examining a uniform domestic price for natural gas, which is now sold at rates ranging from $1 to $6/mBtu, depending on the source. The Government has asked GAIL (India) to undertake a study on pooling of prices of natural gas in the country. GAIL has engaged Mercados EMI Pvt Ltd to undertake the study.

The end of 2009 saw the Government beginning hunt for a new Director General for the Directorate General of Hydrocarbons after the unceremonious exit of Mr V.K. Sibal. On October 31, it appointed Mr S.K. Srivastava as the interim head of DGH after Mr Sibal was denied extension.

Source: Hindu Business Line 

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Finally, a shift to natural gas

Indian industry’s energy consumption pattern finally started shifting toward natural gas in 2009. This has led to a drastic reduction in consumption of liquid fuels like naphtha by sectors like power and fertiliser. Natural gas is a clean source of energy and is environment friendly. But the government’s efforts in the past to direct a shift in India’s energy usage pattern towards natural gas had been hobbled by the wide gap in the domestic demand-supply of the natural gas. The fact that international prices of natural gas were prohibitively high also did not help.

For example, the Union power ministry had envisaged a sizeable chunk of its capacity addition in the 10th Plan based on natural gas. However, most of these projects could not be commissioned in the absence of fuel linkage. The result was that coal continues to remain a fuel of choice for power generators and accounts for more than 50% of India’s primary energy consumption.

This trend has changed after Reliance Industries Ltd (RIL) started production from its D6 block in the KG basin in April. Fertiliser and power plants are switching to natural gas. This has helped fertiliser manufacturers to cut cost and increase production. That has in turn led to a reduction of Rs 4,000 crore in the government’s fertiliser subsidy burden. As per statistics available with the government, the fertiliser industry’s naphtha consumption declined by 64% this year.

Increased domestic availability of natural gas has led to a significant improvement in the power generation sector. Electricity generation from gas-based power plants was 30% higher during April-October this year. That led to a significant reduction in electricity shortage.

Meanwhile, the impact of KG basin gas on the country’s industrial production became clear, with the mining sector registering double-digit growth in the last two quarters. Significantly, KG basin gas started impacting Indian industry’s energy consumption even when the D6 block was producing much below the potential. Now that RIL has ramped up production from 40 million metric standard cubic metre per day (mmscmd) to 80 mmscmd, the pace of change is expected to gain momentum.

Source: Financial Express 

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IIM study suggests deregulation of oil sector

An Indian Institute of Management (IIM), Ahmedabad, study on the oil sector has suggested radical reforms, including complete deregulation, where private and public sector firms are free to price fuel as they deem fit. 

"Reform of the oil sector is long overdue. The problems in the sector emanate from the structure of central taxes and the system of subsidisation through prices," the study said. 

Currently, the government controls prices of petrol, diesel, domestic LPG and kerosene and compensates public sector firms through a complex mechanism that has squeezed out liquidity with the retailers and drained resources of upstream firms. 

It gives oil bonds to make up for a part of the revenue lost on selling fuel below cost and asks upstream operators like ONGC to bear the rest. "The social and fiscal costs arising out of the current method of subsidisation, and taxation are very severe," it said 

Suggesting radical reforms, the study said, "Complete deregulation of the sector allowing oil producers, oil refiners, marketing companies, and integrated operators to price their products as they deem fit" is needed. 

It said the fiscal costs were very large and much larger than that reported in the budget since they do not include the costs of diversion and tax avoidance that result from differential pricing. "Thus in the case of kerosene the cost of delivering Rs 2000 crore to the BPL consumers was in excess of Rs 24,000 crore."

Source: Economic Times

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RIL successfully tests its peak output capacity of K-G fields

Mukesh Ambani-run Reliance Industries today said it has successfully tested the design capacity of its massive eastern offshore Krishna-Godavari basin D6 field production facilities. 

"A flow rate of 80 million standard cubic meters (the peak production envisaged from KG D6 fields) was achieved through the KG D6 facilities and delivered" to the pipeline, a company statement said here. 

RIL, which is currently producing about 60 mmscmd gas from two of the 18 gas discoveries in the KG D6 block, has put deep-sea production facilities to produce 80 mmscmd. These facilities were successfully tested last week. 

"Within a month of emerging as the largest producer of natural gas in the country, RIL announces that it has successfully carried out an assessment of the design capacity of the KG-D6 deepwater gas production facilities on December 23," the statement said. 

80 million units of gas was delivered to the Reliance Gas Transportation Infrastructure Ltd -- the firm that owns the East-West pipeline that transports the KG-D6 gas from Kakinada on the Andhra coast to Baruch in Gujarat. 

"At present, RIL is producing about 60 mmscmd of gas which is being supplied to several priority sectors identified by the Government under its Gas Utilisation Policy," it said.

Source: Economic Times

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Natural gas prices have more than doubled from its six-year low

gAmidst the talks of economic recovery and improvement in global demand, the prices of most of the industrial commodities have more than doubled during March-November 2009. The gains also intensified due to a weaker dollar and the liquidity in the financial markets. Natural gas prices, however, seem to be driven more by its demand- supply equation rather than extraneous factor such as liquidity flows that seem to play key role in the prices of other commodities.

Unlike the major commodities, natural gas price experienced a continuous decline since the beginning of 2009, and reached a six-year low in August, only to show a rebound from early September. This behaviour has sustained in last one month from the time when natural gas’s energy counterpart, crude oil remained range bound, while the former has moved closer to its 2009 highs (chart-1).

To understand this price performance one needs to understand the characteristics and uses of natural gas. Natural gas, one of the common energy resources, is an odourless, highly flammable hydrocarbon gas, which has a wide range of industrial and household usage. It is widely used as a fuel for base load and combined cycle power plants. Liquefied Natural Gas (LNG) is a popular piped fuel, which is used for cooking and heating in most households in the developed world. Its industrial use as a fuel varies from that in boilers, baking ovens, air conditioning and in manufacture of fertilizers and petrochemicals. In recent years, compressed natural gas (CNG) is gaining in popularity as a relatively cleaner and cheaper alternative to auto fuels like diesel.

Globally, the natural gas usage accounts for about one-fifth of total energy consumption. US, Russia and Canada followed by Europe are the biggest producers as well as consumers of the commodity. The reason behind a sustained fall in prices in early 2009 was a continuous rise in storage inventories in the US, world’s biggest consumer of natural gas. Natural gas accounts for nearly a quarter of the US energy consumption. For this reason, the New York Mercantile Exchange future price derived from the spot deliveries taking place at the Henry Hub in Louisiana is considered the North American benchmark for the natural gas prices. US natural gas storage surged to a new all time high of 3,837 Billion Cubic Feet (Bcf), which was well after the prices started showing a turn around.

The turnaround was caused by the plunge in prices to a six-year low of $2.80 per Million British Thermal Units (mmbtu) in August ’09 even as the traditional demand season was approaching. However, rising inventory was more than offset by rising demand for heating due to colder than expected winter in northern hemisphere this year. So, in last few weeks, the price rise has been supported by the beginning of a strong heating season in the US and parts of Europe where temperatures dropped significantly in the first half of December. In most part of the US, temperatures were about 20% lower than normal. The early and strong cold weather thus reduced concerns regarding the abundance of natural gas in storage.

As can be seen from the second chart, the 2009 storage reached record high in the end of November and is way above its 5-year range and 5-year average. Nonetheless, due to the expectations of continued extreme cold in consuming regions the latest reported stock withdrawal (of 207 Bcf) also exceeded the 5-year (2004-2008) average withdrawal by 63% and the last year’s withdrawal by 78%. In the coming weeks while the extent of chill in the consuming regions could help prices, the speculative interest could also lend a support. Traditionally, a rebalancing of commodity indices takes place in the start of a calendar year, wherein the commodities with dismal price performance during the year gain a higher weight in an index depending on its performance. Accordingly, funds adjust their exposures in the futures market which can give a push to prices.

However, once the winter season is over, the prices may experience a corrective pressure given the flattening of the forward curve. The direction of natural gas prices then would be a function of the end of the season stocks and the status of industrial demand.

Source: Economic Times

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RIL ups LyondellBasell's non-binding proposal to $5-6 bn

Sources indicate that Reliance Industries (RIL) has updated its non-binding proposal for LyondellBasell (LB). CNBC-TV18 learns that the revised proposal has a significantly higher cash component of USD 5-6 billion from the earlier offer of USD 2 billion. CNBC-TV18's Nayantara Rai reports.

The Apollo Group, which have an exposure as lenders to LB of about USD 10 billion, have submitted a new restructuring plan in which they had said they would be willing to convert USD 18 billion of secured and bridged loans into equity and to an addition to that USD 2.8 billion as cash to backstop LB’s rights offer.

So for RIL to have any chance at all of getting a stake in LB would have to compete with the offer that had been made by Apollo and therefore just have to increase the cash offer.

The previous proposal was about USD 12 billion that included a cash component of about USD 2 billion. Sources say RIL’s updated proposal comprises a cash component of nearly USD 5-6 billion, which will then be significantly higher than what the Apollo Group has also submitted. We also gather that RIL is also simultaneously gaining support from the unsecured lenders.

Remember, LB has struck an agreement with these unsecured lenders. Sources say these unsecured lenders feel that perhaps they could expect a better deal from RIL.

The hearing will be on February 10, so we are going to have to really wait and see, which way the court swings towards because on one side you have RIL and on the other you have the Apollo Group, which are the lenders to LB and the possession of some of their assets, have an exposure of USD 10 billion and are willing to fork out USD 2.8 billion for the company.

Source: Money Conrol

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Lyondell creditors seek to expand examiner's probe

Creditors of bankrupt Lyondell Chemical Co asked a US judge on Wednesday to expand an investigation by a court-appointed examiner to ensure the petrochemicals company is fairly evaluating proposals from potential suitors. 

Lyondell's official committee of unsecured creditors said the examiner should ensure that potential bidders like Reliance Industries have a chance to compete against a reorganization plan offered by a group of the company's senior creditors, which includes current owner Access Industries and private investment firms Ares Management and Apollo Management LP. 

Reliance Industries has offered up to $12 billion to acquire Lyondell, according to sources. 

Lyondell's unsecured creditors said in court papers they believe Reliance's offer is superior to the one proposed by Access, Ares and Apollo. 

In the court document, the creditors said the senior lenders, Access, Ares and Apollo have "threatened to block" confirmation of any reorganization plan that does not meet their requirements, and were using their "influence to deter proposals from strategic investors." 

Spokesmen for Access and Apollo declined to comment and a representative for Ares was not immediately available. 

The unsecured creditors also questioned the propriety of $440 million of "adequate protection" payments made to the company's senior lenders since the company filed for bankruptcy in January. They argued the examiner should investigate why Lyondell is paying the money, which cannot be recovered.

"We are progressing toward emergence from bankruptcy protection and we are doing so in a fair and independent manner," Lyondell spokesman David Harpole said in a statement. 

"We believe that assertions to the contrary are ill-founded and inconsistent with the interests of all stakeholders." 

EXAMINER'S REPORT 

Lyondell is a US unit of LyondellBasell, which filed for bankruptcy protection after being unable to meet its debt obligations when demand dropped for petrochemical products during the global economic downturn. 

LyondellBasell, a Luxembourg-based holding company, is owned by investor Len Blavatnik through New York-based Access Industries. Lyondell took on billions of dollars of debt when Access Industries led a 2007 buyout of the petrochemicals company. 

The unsecured creditors have argued that the deal set the company up to fail and sued the banks and advisers responsible for putting the deal together. 

In October, US Bankruptcy Judge Robert Gerber approved the appointment of Georgia State University law professor Jack F. Williams as an examiner and he released his report earlier this week, court documents showed. 

The examiner was ordered to only look into certain issues, such as the company's debtor-in-possession financing arrangements. 

In his report, Williams said Stephen Cooper, who is vice chairman of LyondellBasell's supervisory board and chairman of its restructuring committee, may face "conflicting demands" as he tries to restructure the company and also deal with litigation from creditors. 

Lyondell's "governance structure is sound in theory ... However, to some extent in practice, the governance structure starts to erode," Williams wrote in his report. 

"The examiner found that the corporate governance processes in place at LyondellBasell are working appropriately to assure that LyondellBasell is making decisions with respect to our reorganization consistent with our fiduciary duties," Lyondell spokesman Harpole said. 

Lyondell had hoped to emerge from bankruptcy protection by the end of 2009 but recently extended its bankruptcy financing and is now looking at an exit sometime in 2010. Earlier this month it requested that the court extend its exclusive right to come up with a reorganization plan to September 2010. 

Lyondell also, earlier this month, settled the lawsuit filed by its unsecured creditors, but the creditors have challenged the validity of the settlement and may ask the examiner to look into it. Under bankruptcy law, Lyondell controlled the right to settle the suit brought by the unsecured creditors . 

The court is expected to hear the creditors' request on Jan. 12. 

The case is In re: Lyondell Chemical Co., US Bankruptcy Court, Southern District of New York, No. 09-10023.

Source: Economic Times

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Will the petroleum regulator stand up?

Much has already been written about how regulation of anti-competitive behaviour leads to increased allocative efficiencies and consumer welfare. Less, however, seems to have been written on whether the structures of regulation put in place secure these desirable ends.

This is particularly true of India where independent regulation is of relatively recent origin. It will be worthwhile to take a close look at the state of regulation in the petroleum and natural gas sector, which has been consistently in the news of late.

The petroleum sector consists of four sub-sectors, namely, exploration and production, oil refining and marketing, natural gas transportation and marketing, and crude oil and petroleum products pipelines. Of these four, the first, referred to as upstream, is supposed to be regulated by the Directorate General of Hydrocarbons (DGH), while the remaining three downstream sub-sectors fall under the domain of the Petroleum and Natural Gas Regulatory Board of India (PNGRB).

The DGH was created by a government resolution in 1993 and was posited as the regulator of the upstream sector. Nothing could be farther from the truth. It is neither independent nor a regulator. When the instrument of creation, a Ministry of Petroleum and Natural Gas order, derives its genesis from a mere resolution, rather than a statute, then independence would remain an illusory concept. The DGH operates under direct and complete administrative control of the ministry. It functions with the assistance of an advisory council and members of the council and staff of the DGH are appointed on a deputation/tenure basis by the ministry in consultation with the DGH chief. In terms of its mandate, the DGH is predominantly an advisory, rather than a regulatory, body. As per the ministry order, the DGH has been mandated to regulate only one area — preservation, upkeep and storage of data and samples pertaining to petroleum exploration, drilling, production of reservoirs et cetera and to cause the preparation of data packages for acreages on offer to companies. In all other areas relating to various aspects of exploration and production, it is only supposed to advise the ministry.

In the downstream sector, we have a genuine regulator, owing its existence to a statute and not to a mere resolution. The Petroleum and Natural Gas Regulatory Board Act was passed in 2006 and the PNGRB was notified on October 1, 2006. The PNGRB has been vested with very tangible regulatory powers and the statutory nature of its genesis gives it its independence. But despite its powers and independence, it is the ministry which seems to call the shots in the regulatory space. Before March 28, 2002, marketing and pricing of petroleum products, including transportation fuels, namely, motor spirit (MS) and high-speed diesel (HSD), was controlled by the government under a mechanism known as “Administered Price Mechanism (APM)”. The APM was dismantled by a notification on March 28, 2002. As a result, the theoretical position since October 1, 2006 is that all entities are free to price their products and the PNGRB is to regulate anti-competitive behaviour like predatory pricing. However, strangely, the government still fixes the prices of MS and HSD and the PNGRB appears to be either powerless or disinterested in doing anything about it. How can the government fix these prices now? What is the role of the PNGRB?

These issues have been examined brilliantly in a landmark judgment, dated October 5, 2009, by the Appellate Tribunal for Electricity, in appeal number 50 of 2009. The judgment, either directly or indirectly, establishes the following positions:

* Sections 11(a), 12 and 25 of the PNGRB Act, 2006, together give a wide amplitude to its duties and powers to foster fair trade and fair competition amongst the entities.

* The dismantling of the APM by the notification dated March 28, 2002 was a policy decision which has not been reversed by another policy decision. The government, therefore, cannot fix prices under the garb of policy.

* Section 2(x) of the Act specifically provides that it is only the entities which can fix the price and not the government.

* The above power given to the entities to fix the price cannot be usurped by the government.

* If the prices are to be fixed by the government as a sovereign, then it has to be declared as a public policy after observing formalities as provided under the Constitution.

After this judgment by the tribunal, the case is now before the PNGRB. It will be interesting to see whether the PNGRB asserts its independence and buries the ghost of APM once and for all.

Source: Business Standard

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DRILLING GAINS - Reliance Industries Ltd

Reliance Industries Ltd (RIL) has announced its third successive gas discovery in a deep water exploration block in the Krishna-Godavari basin, which the company had bagged in the fifth round of the new exploration licensing policy.

RIL holds a 90% participating interest in the block. Hardy Exploration and Production (India) Inc. hold the remaining 10% stake. The block is about 45 km off the Bay of Bengal coast and covers 3,288 sq. km. The discovery, named "Dhirubhai-44", has been notified to the government and the Directorate General of Hydrocarbons.

The potential commerciality of the discovery is being ascertained through more data gathering and analysis. Drilling for exploration on the block commenced in 2008. In February 2008, RIL made its first gas discovery in the same block and the discovery was named "Dhirubhai 39". In April 2008, the company made its second discovery in the block. RIL is likely to drill three additional exploration wells in the block before the end of 2010.

Source: Live Mint

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Govt may compensate oil companies in cash

Hit by under-recoveries, oil marketing companies (OMCs) may get a boost after the finance ministry on Tuesday hinted at cash compensation to offset revenue losses incurred on sale of subsidised fuel.

Finance secretary Ashok Chawla said that the government would not issue oil bonds to government-owned oil companies. However, he said, the government is likely to compensate them for losses suffered on sale of fuel at lower than market price by paying them cash.

Chawla said no decision has been taken on the compensation amount. “It is under consideration. The decision will be taken at the highest level,” he said on the sidelines of a SIDBI conference, adding that oil-marketing companies would receive cash before March 31.

At present, fuel retailers are incurring gross revenue loss of Rs 3.49 per litre of petrol, Rs 2.38 on diesel, Rs 18.13 on kerosene and Rs 250.67 on every 14.2 kg cylinder of cooking gas. At the present crude oil price level, PSU fuel retailers are projected to incur revenue losses to the tune of Rs 45,478 crore in the full financial year.

Chawla’s statement co mes on heels of petroleum minister Murli Deora me­eting prime minister Manmohan Singh to seek over Rs 20,000 crore worth oil bonds to oil companies.

Source: http://www.mydigitalfc.com

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ONGC agrees to a special oil tax

Keen to wriggle out of the stifling subsidy regime, upstream oil major ONGC has said it is ready to accept a special oil tax on any super-normal profits from high crude oil prices, if the subsidy-sharing regime is rationalised. It called for a specific model for equitable sharing of the ‘under-recoveries” with oil marketing companies (OMCs) also sharing significant burden and the CAG auditing the OMCs’ claims.

“A mechanism needs to be put in place wherein total under-recoveries are shared in equitable manner by all stakeholders, namely upstream oil companies, downstream oil companies, central and state governments,” ONGC said in a presentation to the Kirit Parikh committee on fuel subsidies.

The largest oil explorer’s comments are significant in the light of the government hinting at giving direct cash subsidy to OMCs, in place of oil bonds.

“Cash (provided for in the current year’s Budget) is an ideal manner of compensation for OMCs on which a decision has to be taken at the highest level,” finance secretary Ashok Chawla told reporters on Tuesday. Apparently, the government reckons that since the subsidy bill this fiscal is within manageable limits, it should try and eventually do away with the practice of issuing oil bonds.

Petroleum minister Murli Deora had on Monday demanded immediate issuance of oil bonds worth over Rs 20,870 crore to state-run firms to make up for the losses they incurred on fuel sales.

Now, ONGC and OIL together share a third of the total under-recoveries on LPG and PDS kerosene. The two companies had taken a Rs 32,000-crore hit on this account last fiscal.

ONGC said it cannot keep on contributing to reduce the under-recoveries of OMCs unless the subsidy burden-sharing regime is overhauled. The upstream major can still chip in under emergencies, like in cases of abnormally high international crude oil prices, provided the Comptroller & Auditor General of India (CAG) validated OMCs’ under-recovery claims.

Only a transparent subsidy regime would inspire confidence among various stakeholders, ONGC said.

A special oil tax (SOT) was first recommended by the BK Chaturvedi committee last year. ONGC said the proposal is acceptable to it, but suggested some modifications.

“While 100% rate has been recommended by the Chaturvedi panel, ONGC is of the opinion that that may not be advisable. However, SOT could trigger even at $60 per barrel, instead of $75 per barrel as recommended by the panel,” the PSU said in its presentation.

ONGC has suggested an SOT rate of 20% when international crude oil prices breach the $60 a barrel level, 40% on crossing $70 a barrel, 60% on reaching $80-90 range and 80% when prices go beyond $90 a barrel. The calibrated rate structure would help ONGC to retain a portion of price increase to cover its cost increases.

Besides, ONGC has also proposed that the central and state governments should clarify, through notifications, how tax liability for upstream companies would be computed based on post-discount price and not pre-discount price.

“It would be appreciated that along with an increase in crude price, the cost of inputs, that is, field services materials and equipment, expenditure on increased oil recovery (IOR) and enhanced oil recovery (EOR) schemes and expenditure on replacement/refurbishment/repairs and maintenance of ageing oil fields and facilities also increases,” the company said.

Quoting from a recent report from global investment advisory firm, Goldman Sachs, which said ONGC’s promoters have taken out cash of almost $20 billion from the company without consulting the minority shareholders, ONGC said, “This has also become a corporate governance issue since the board of directors is required to protect the interest of all shareholders, including minority shareholders.”

“Despite repeated objections raised by investors and more recently by independent directors on ONGC’s board, there has not been much headway,” the company said.

“This would take care of the concern of ONGC’s investors, especially FIIs who have been conveying that the existing mechanism of sharing of subsidies is not transparent and levy of additional tax by the government would be a preferable option,” the company argued.

ONGC also said the central government should consider taking on an increased share of the subsidy burden by reducing the excise duty on petroleum products while states can chip in by bringing down sales tax/ valued-added tax rates..

Source: Financial Express

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RIL discovers third gas reserves in KG basin

Reliance Industries (RIL), the country’s largest private sector company, has announced its third successive gas discovery in the exploration block KG-DWN-2003/1 (KG-V-D3), of NELP-V. The deepwater block KG-DWN-2003/1 is located in the Krishna basin, about 45 kilometers off the coast in the Bay of Bengal. The block covers an area of 3288 square kilometres. RIL holds a 90 per cent participating interest (PI) and Hardy Exploration and Production India Inc holds the rest.

The well KGV-D3-R1, the third in this block was drilled at a water depth of 1982 m and to a total measured depth of 4113 m. The objective was to explore the Miocene deep water lobe and onlapping wedges play fairway. Three reservoir zones were encountered at Miocene Level having gross thickness of 4, 23 and 16 metres. The potential of these were evaluated through a wire-line based technology called Reservoir Characterization Imager (RCI).

The discovery namely “Dhirubhai - 44” has been notified to the government of India and the Directorate General of Hydrocarbons. The potential commerciality of the discovery is being ascertained through more data gathering and analysis.

The discovery supplements RIL’s understanding, of the petroleum systems within the block. 3D seismic has been acquired over the entire block area. Besides the above discoveries, several prospects have been mapped at different stratigraphic levels to fulfill the balance minimum work commitment of three wells.

RIL is likely to drill three additional exploration wells on the block before the end of 2010.

In August 2005, Reliance and HEPI were awarded D3 block under NELP-V. Reliance is the operator of the block.

Exploration drilling commenced on this block in 2008.

Source: Business Standard

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Mukesh Ambani ranked 5th best CEO in the world

Mukesh Ambani, who heads India's most valuable company Reliance Industries (RIL), has been ranked among top five best performing CEOs in the world by the prestigious Harvard Business Review.

Mukesh Ambani, the only Indian to feature among top 50 CEOs, is in the same league as Steve Jobs of Apple, Yun Jong-Yong of Samsung Electronics, Russian energy firm Gazprom's Alexey Miller and John Chambers of Cisco Systems.

He is also ranked number two among the top 10 emerging market CEOs with Miller at the top.

K V Kamath of ICICI Bank is the other Indian in the list of Top 10 Emerging Market CEOs. He is ranked at number 9.

The Harvard Business Review said it ranked CEOs of large public traded companies in a study conducted over 2000 CEOs worldwide. The entire group represented 48 nationalities and companies based in 33 countries.

It put Ambani in the list of "up-through-the-ranks leaders" along with the Samsung boss.

"Among the up-through-the-ranks leaders on our list are Yun Jong-Yong, who joined Samsung straight out of college and worked there for 30 years before becoming the CEO, and Mukesh Ambani, who joined RIL in 1981, when it was still a textile company run by his father.

"These CEOs may not all be household names, but here's an objective look at who delivered the top results over the long term," HBR said, ranking Steve Jobs as the top CEO in the world.

Jobs, it said, delivered a whopping 3,188 per cent industry-adjusted return (34 per cent compounded annually) after he rejoined Apple as CEO in 1997, when the company was in dire straits. From that time until the end of September 2009, Apple's market value increased by $150 billion.

He was followed by Yun Jong-Yong, who ran South Korea's Samsung Electronics from 1996 to 2008. "Yun is an  example of a leader who has stayed out of the limelight. During his tenure, he capably transformed Samsung from a maker of memory chips and me-too products into an innovator selling digital products such as leading-edge cell phones."

Miller was number 3 followed by Chambers. HBR said none of the top three CEOs had a MBA. Ambani and Chambers were the only two on the top five to hold degrees in business administration.

"CEOs who were promoted from inside the company tended to have stronger performance than those brought in from the outside," said HBR.

Several CEOs that were "most respected" according to other reviews were nowhere in HBR's top 50. These include Jamie Dimon of JPMorgan Chase, Satoru Iwata of Nintendo, Sam Palmisano of IBM and Rex Tillerson of Exxon Mobil.

Many other celebrity CEOs also failed to make the cut. They include Carlos Ghosn of Renault-Nissan, Sergio Marchionne of Fiat, John March of Morgan Stanley, Jeffrey Immelt of General Electric, Daniel Vasella of Novartis and Robert Iger of Walt Disney.

"Some of these well-known CEOs have not necessarily done poorly; they are just not among the top performers in the world according to the total shareholder return they have delivered so far," HBR said.

The likes of Jack Welch, Warren Buffett, Larry Ellison and Bill Gates do not find mention in the list as HBR considered CEOs who assumed the job no earlier than January 1995 and no later than December 2007.

"On an average the top 50 CEOs increased the wealth of their shareholders by $48.2 billion," it said. They delivered a total shareholder return of 997 per cent during their time in office. That translates into a spectacular annual return of 32 per cent.

Source: http://www.business-standard.com

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NTPC not to suffer Rs 30,000 cr loss: Govt

The State-run NTPC will not suffer Rs 30,000 crore loss if it was to get natural gas at prices higher than those committed by Reliance Industries five years ago, Power Ministry has told Parliament.

"There is no loss to NTPC on account of fuel cost as the fuel cost is a pass-through to beneficiaries (customers)," Minister of State for Power Bharatsinh Solanki said in a written reply to Rajya Sabha.

It has finally reiterated RIL’s stand that there is no justification for NTPC to talk about the savings of Rs 30,000 crore when it is buying gas at USD 11 per mmbtu when it can get gas at USD 4.2 per mmbtu from RIL’s KG D6 basin. 

NTPC had taken RIL to court seeking implementation of the Mukesh Ambani-run firm's 2004 bid to supply 12 mmscmd of gas at USD 2.34 per mmBtu for 17 years.

"NTPC's tariff is determined by Central Electricity Regulatory Commission (CERC). As per the regulation for fixing the tariff under the Electricity Act 2003, the fuel cost (price of gas) is a pass-through to beneficiary states/union territories who in turn realise this from consumers," he said.

Source: PTI

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NTPC not to suffer Rs 30,000 cr loss: Govt

The State-run NTPC will not suffer Rs 30,000 crore loss if it was to get natural gas at prices higher than those committed by Reliance Industries five years ago, Power Ministry has told Parliament.

"There is no loss to NTPC on account of fuel cost as the fuel cost is a pass-through to beneficiaries (customers)," Minister of State for Power Bharatsinh Solanki said in a written reply to Rajya Sabha.

It has finally reiterated RIL’s stand that there is no justification for NTPC to talk about the savings of Rs 30,000 crore when it is buying gas at USD 11 per mmbtu when it can get gas at USD 4.2 per mmbtu from RIL’s KG D6 basin. 

NTPC had taken RIL to court seeking implementation of the Mukesh Ambani-run firm's 2004 bid to supply 12 mmscmd of gas at USD 2.34 per mmBtu for 17 years.

"NTPC's tariff is determined by Central Electricity Regulatory Commission (CERC). As per the regulation for fixing the tariff under the Electricity Act 2003, the fuel cost (price of gas) is a pass-through to beneficiary states/union territories who in turn realise this from consumers," he said.

Source: PTI

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Reliance biggest wealth creator in FY 09

Reliance Industries Ltd (RIL) has emerged as the biggest wealth creator in FY 09, generating Rs 1,51,400-crore, which accounted for over 15 per cent of the total wealth created last year, a study said.

Brokerage firm Motilal Oswal, in a study released today, said oil and gas continues to be the biggest wealth creator during the last six-years--the first three years led by state-run ONGC and the next three by RIL.

Reliance Industries has emerged as the biggest wealth creator for the third time in a row. It has created Rs 1,514- billion worth of wealth contributing 15.6 per cent of total wealth created in FY 09," the study titled '14th Motilal Oswal Wealth Creation Study' said.

The Mukesh Ambani-led company is the largest contributor of wealth for the third time in a row, while real estate firm Unitech was the fastest wealth creater since 2004, the study said.

 Motilal said that Unitech's five-year stock price recorded a staggering compound growth of 122 per cent.

Apart from RIL, home-loan lender HDFC, pharma company Sun Pharma, auto major Hero Honda and software exporter Infosys Technologies have emerged among the top 100 wealth creators in the past 10-years.

      

"HDFC is ranked as the most consistent wealth creator by virtue of its 10-year price CAGR (compound annual growth rate) being the highest," the study said.

Source: PTI

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Melrose to progress Black Sea gas projects

Melrose Resources PLC, Edinburgh, plans to proceed with exploration, development, production, and gas storage projects on the western Black Sea shelf off Bulgaria and Romania in 2010. 

About $55 million of the company’s $169 million 2010 capital budget is contingent on receipt of government approvals to take the planned farmout of the Midia XV and Pelican XIII concessions off Romania and to initiate the Galata gas storage project off Bulgaria. Melrose Resources would become operator of the Romanian concessions with 32.5% interest. 

Exploratory drillsites off Romania will be selected from three good quality prospects, namely, Clara, Gasca (also known as Eugenia), and South East Midia (also known as Ioana), which contain combined gross unrisked potential of over 500 bcf of gas and around 20 million bbl of oil. 

The company plans to start production from Kavarna and Kaliakra gas fields off Bulgaria at 20 MMcfd and 25 MMcfd, respectively, from a respective 24 bcf and 57 bcf recoverable. 

Kavarna and Kaliakra fields are due on production July 1 and Oct. 1. The contingent budget includes $20.6 million for the Ana and Doina field developments off Romania and $27 million to complete Phase 1 of the Galata gas storage project off Bulgaria. Combined expected recovery from Ana and Doina is 288 bcf. 

Galata, with estimated ultimate recovery of 74 bcf, was shut-in in January 2009 when 90% depleted. 

Off Bulgaria, Melrose Resources will drill the East Kaliakra exploration prospect in midyear while a jack up is at hand to complete the Kaliakra development well. The prospect, judged to have a 34% chance of success at an unrisked 59 bcf, is adjacent to Kaliakra field. 

The company plans to shoot 500 sq km of 3D seismic but conduct no further exploratory drilling off Bulgaria in 2010.

Source: http://www.ogj.com

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Iraq offers seven contracts in second licensing round

Iraq—hailing the successful end of its second postwar bidding round and hopeful of boosting output to record levels has awarded 7 oil field service contracts out of the 10 it offered. 

"It is a very successful bid round," said Iraq’s Oil Minister Hussain al-Shahristani, adding that current production of 2.5 million b/d eventually could be increased to 4.765 million b/d if the companies that won fields meet production pledges. 

According to al-Shahristani, one of the largest contract areas on offer in the bidding round was 12.58 billion bbl Majnoon field, awarded to a venture led by Royal Dutch Shell PLC together with Malaysia's Petronas (OGJ Online, Dec. 11, 2009). 

That was followed by the 12.9 billion bbl second phase of West Qurna field, which was awarded to a venture of OAO Lukoil and Statoil ASA. 

The 4.1 billion bbl Halfaya oil field was awarded to a consortium led by China National Petroleum Corp. in partnership with Petronas and Total SA, while 863 million bbl Garraf field was won by Petronas with partner Japex. 

Angola’s Sonangol was awarded Najmah and Qaiyarah fields with 800 million bbl and 858 million bbl of reserves respectively, while the 109 million bbl Badra field was awarded to a consortium of state-controlled companies, including OAO Gazprom, Petronas, TPAO, and Kogas. 

Following the awards, al-Shahristani claimed that—in addition to pledges from companies who won earlier field-development contracts—international oil companies have committed to boosting Iraqi production capacity to 12 million b/d, a figure that would rival capacity of world leader Saudi Arabia. 

Such production would certainly come under the scrutiny of the Organization of Petroleum Exporting Countries, which in the 1990s exempted Iraq from its quota system. However, in view of al-Shahristani’s claims, OPEC will eventually want Baghdad to accept an output target and work with other members in sticking to it. 

Caveats 

Analyst BMI issued a caveat regarding the oil minister’s claims, saying that, “Although the second round was certainly a great success when compared with the disappointing first licensing round…a plethora of above and below-ground risks means that the 12 million b/d target should be viewed with caution.” 

Legal hurdles are among the risks as work has stalled in parliament on a new petroleum law for Iraq which aims at establishing the legal framework for exploration and development by international companies. Following elections in January 2010, a new government could raise objections to the current contracts. 

Security risks remain high, too, highlighted by a series of bombings in Baghdad, where 100 people were killed in early December. 

Industry analysts suggested that security concerns explain the lack of bids for three contracts. 

BMI also noted that the untapped fields on offer in the second round may prove to be “more technically challenging” than expected, which could result in reserves being downgraded. 

For the producing fields that were offered in the first licensing round, BMI said “the overproduction and poor reservoir management that persisted for decades may have irreparably damaged the fields, which could result in production coming in lower than targeted.” 

Source: http://www.ogj.com

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Nippon to lease domestic oil tanks to ADNOC

Nippon Oil Corp. has reached a final agreement with Abu Dhabi National Oil Co (ADNOC) for the UAE firm to store oil in an effort to bolster Japan's national reserves. 

Under the agreement, ADNOC will to store 3.9 million bbl of crude for 3 years starting this month at a reserve base in Kagoshima Prefecture in southern Japan. 

The basic agreement, which will allow storage equal to a day’s consumption for Japan, initially was announced in June and is expected to help improve the Asian nation’s energy security. 

At the time, Japan’s Ministry of Economy, Trade, and Industry said the agreement also would give Japan a preferential right to purchase the stored oil reserves there in times of emergency. 

The scheme will also allow Abu Dhabi to sell its oil in other East Asian countries, such as South Korea and Taiwan, by using the Japanese base as a distribution terminal. According to METI, Abu Dhabi supplies nearly 40% of Japan's oil imports.

Source: http://www.ogj.com 

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Israel utility signs to buy Tamar field gas

Dalia Power Energies, a private power company in Israel, has signed a letter of intent to buy natural gas from the Noble Energy Inc. group’s Tamar gas field in the Mediterranean off Israel. 

Dalia Power has a license to build a gas-fired power plant in Israel with operations planned to begin 2013. 

Noble Energy and its partners will deliver 200 bcf to Dalia Power under a 17-year supply agreement in exchange for at least $1 billion in total revenue. Sales volumes may be hiked to 700 bcf depending upon the final size of the power plant and extent of operations. 

The Noble Energy group is continuing discussions with other customers regarding the supply of natural gas from Tamar and plans to begin sales in 2012. 

Noble Energy operates Tamar, in the Matan license off Israel, with a 36% working interest (see map, OGJ, Feb. 2, 2009, p. 39). The discovery well exposed a resource of 5 tcf of gas in formations above 16,000 ft in 5,500 ft of water 55 miles off Haifa. 

Other interest owners are Isramco Negev 2 with 28.75%, Delek Drilling 15.625%, Avner Oil Exploration 15.625%, and Dor Gas Exploration 4%.

Source: http://www.ogj.com 

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Tullow may seek to bar Eni's Uganda entry

Tullow Oil PLC may try to block a plan by Heritage Oil PLC to sell its 50% interest in Ugandan Blocks 1 and 3A to Italy’s Eni SPA for as much as $1.5 billion, according to local media. 

Tullow owns Blocks 1 and 3A jointly with Heritage and is the sole owner of Block 2. Altogether, the three blocks are estimated to contain at least 2 billion bbl of oil. 

Last month, Heritage announced an agreement to sell to Eni its 50% working stake in Blocks 1 and 3A, which cover the northern and southern end of Lake Albert (OGJ Online, Nov. 24, 2009). 

“Following a strategic review, we have decided to enter into this letter of intent with Eni as we recognize the very large multibillion dollar investment that is required to develop the Albert basin and the related infrastructure,” said Heritage Chief Executive Officer Tony Buckingham. 

However, Uganda’s Daily Monitor newspaper reported Tullow Vice-Pres. Tim O’Hanlon as saying the entry of Eni into Uganda's petroleum industry was unfortunate and that his company would exercise its “right of refusal.” 

O’Hanlon said the Heritage-Eni agreement had “short-circuited” a process started by Tullow to source a partner to help develop the Ugandan oil fields. 

O’Hanlon said, “They [Heritage] have under our agreement to give us details of any deal they have entered. They have not. If they do and we can match the price, we have a right of preemption. This means Tullow will acquire those assets.” 

He said, “We always suspected their plan to exit. We say good luck. But in the choice of partner for future development, Uganda needs a holistic process. One that guarantees transparency.” 

O’Hanlon said while the Ugandan government approves or disapproves every agreement, the right of veto or preemption is a commercial matter and not a matter for the government to decide. “It’s purely a company-to-company affair,” he said. 

Uganda’s commissioner for the Petroleum Exploration and Production Department Ernest Rubondo told the Reuters news agency that the government is aware of Tullow's intention to assert its right of refusal. 

“Yes, Tullow has previously signaled to us of their intent to retain their partner's stake and we're watching. We'll discuss details when they come to us for approval of whichever firm is to take over their stake," he said. 

Earlier this week, however, Uganda said it backed the proposed takeover by Eni as the country needs larger companies to help it exploit its oil reserves. 

According to junior minister of energy and minerals Peter Lokeris the government fully supports Eni's plan because of the Italian company's expertise in oil production and refining. 

Eni "is active in 70 countries around the world, including Angola, Ghana, Congo, Gabon, and Mozambique," Lokeris said.

Source: http://www.ogj.com 

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