Oil and Gas Deal Values Total $170 Billion in 2011

In conjunction with international partner Derrick Petroleum Services reports that the Global M&A activity for upstream oil and gas deals in 2011 totaled $170 billion in 726 deals. The data set is from our industry leading Global M&A Transactions Database and includes all upstream oil and gas deals with values disclosed.According to Ronyld W. Wise, President of Houston-based PLS, Inc., "Total deal value in 2011 dropped 19% from 2010 record levels, yet the number of deals increased 15% to a record of 726. The relative strength of WTI and Brent oil prices, which averaged $95 and $111 per barrel, respectively, provided good fundamentals for both buyers and sellers to execute the deals. Activity in 2012 is expected to remain at a healthy pace as the industry continues to deploy large amounts of capital toward production development. Currently, we tally over $100 billion of assets on the market."

The buyers are dominated by international interests seeking to shore up longer term supply by investing in both proven conventional reserves worldwide and unconventional plays in the North America. Yashodeep Deodhar, Managing Partner, Derrick Petroleum Services, aptly points out, "The Chinese dominance in buying global oil and gas assets is highlighted by the fact that Sinopec has been the number one cash acquirer over the last three years, spending more than $35 billion between 2009 and 2011 to build a truly global footprint. Sinopec's cash was welcome in large capital intensive projects such as Repsol and Galp's pre-salt developments offshore Brazil and ConocoPhillips and Origin Energy's APLNG project in Australia. With continued healthy cash generation ($7.3 billion in H1 2011), Sinopec is expected to continue major acquisitions of global oil and gas assets, likely within unconventional shale plays worldwide, in countries such as the United States, Argentina and Poland. Today's announcement of Sinopec's $2.5 billion joint venture with Devon in five U.S. new venture plays is evidence of Sinopec's continuing acquisition strategy."

        Table 1

        Global Oil and Gas Deals - 2007 to 2011 Totals

        Year            Deals           Value

                        (#)             ($ B)

        2011            726             $170

        2010            630             $211

        2009            460             $150

        2008            495             $116

        2007            470             $147

        

While the number of deals slowed in late 2011 due to uncertainty in the world financial markets, deal values in Q4 2011 set the high mark for the year. Highlights of Q4 2011 include KKR and partners' $7.2 billion acquisition of Tulsa-based privately held Samson Investments, Kinder Morgan's acquisition of El Paso ($7.2 billion attributed to the oil and gas assets included in the deal) and Statoil's $4.7 billion purchase of Brigham Exploration.

        Table 2

        Global Oil and Gas Deals - Top 5 in 2011

        Month            Buyer/Seller             Value ($ B)      Primary Country

        July             BHP/Petrohawk            $15.1            United States

        Feb.             BP/Reliance              $  7.2           India

        Oct.             Kinder Morgan/El Paso(1) $  7.2           United States

        Nov.             KKR et al/Samson         $  7.2           United States

        Nov.             Sinopec/Galp Energia     $  5.2           Brazil

        (1). Value of oil and gas assets only.  Part of $38 billion corporate acquisition.

        

Globally, the United States continues to lead upstream oil and gas deal activity with a 46% share of all deals and 51% of deal value followed by Canada with 27% and 9% share, respectively. According to Anders Wittemann, Associated Partner of Derrick Petroleum Services for EMEA, "Outside of North America, Europe, including the North Sea, in 2011 was the top region and reached a record high level at $14.4 billion or 8% of global share. This activity level, achieved by an extraordinary diversity of companies, has reaffirmed the strategic value and attractiveness of portfolios in the Europe/North Sea region."

        Table 3

        Global Oil and Gas Deals - 2011 Totals by Regions

        Region              Deals            Value

                            (#)              ($ B)

        United States       334              $86

        Canada              197              $16

        Europe/North Sea    47               $14

        South America       31               $13

        Former Soviet Union 25               $13

        Asia                18               $11

        Africa              36               $10

        Australia           30               $  5

        Middle East         8                $  3

        Total               726              $170

        

Corporate M&A activity, as opposed to asset purchases and joint ventures, represented 52% of global deal value in 2011. On a quarterly basis, corporate M&A share increased from 35% and 39% in Q1 and Q2 2011 to 65% and 62% in Q3 and Q4 2011, respectively. The high share of corporate M&A deals in the latter quarters points to the general uncertainty in the market which makes negotiating asset deals difficult. The same global trend also occurred in 2009 when the share of corporate M&A deals shot up to 73% from an average historical range of 35% to 45%.

As of January 1, 2012, the tally of upstream oil and gas assets on the market for sale stood at over $100 billion. Not surprisingly, approximately 30% of these are corporate M&A deals.

Looking forward, PLS and Derrick both expect the market for oil and gas assets to continue at a healthy pace driven in part by onshore North America's remarkable transformation from exploration, to exploitation to today's "manufacturing process," a technology that requires significant capital for full development of the resource. We expect the trend of independents such as Brigham, Petrohawk and XTO being sold to larger companies to continue especially in light of current North American gas prices and world oil prices.

Globally, growing Asian economies will continue to drive deal activity as buyers seek new oil and gas reserves and provide capital for world class exploration plays in areas such as West Africa, East Africa and Brazil deepwater.

PLS, Inc. and Derrick Petroleum Services are partners in providing U.S., Canadian and International clients with an industry leading Global and U.S. M&A database and related services. These databases are maintained 24/7 by a team of analysts and are accessible via the web.

SOURCE PLS, Inc.

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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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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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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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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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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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India targeting first-ever offer of shale gas blocks in 2012

India is planning its first-ever offer of shale gas areas for exploration in 2012, even as it targets the launch of the ninth and possibility last auction of oil and gas blocks later this year. "Shale gas (gas locked in sedimentary rocks) is an emerging area. It has become an important source of energy in a few countries who have been able to commercially exploit this resource," Oil Minister Murli Deora said at the signing of contracts for blocks awarded under the eighth round of the New Exploration Licencing Policy (NELP). India has so far only explored for oil and gas. 

Shale gas is the new focus area in the US, Canada and China as an alternative to conventional oil and gas for meeting growing energy needs. These unconventional deposits have raised estimates for US gas reserves from 30 years to 100 years at current usage rates. 

Shale gas deposits weren't considered worth tapping before Houston billionaire George P Mitchell pioneered new extraction techniques in the 1990s. Action is on to "develop a framework for an assessment of resource potential, which would lead to exploitation of this resource. Our intention and endeavour is to put in place a policy framework in about an year''s time," Deora said. DGH Director-General S K Srivastava said the oil regulator is working on a shale gas policy. 

"Several basins in India are known to hold shale gas resources. Primarily, our focus is on three basins — Cambay (in Gujarat), Assam-Arakan (in the North-East) and Gondwana (in central India). 

He said the first offer of shale gas areas was likely in one-and-half years' time. "You can say in 2012." 

Deora said the ninth round of oil and gas block auctions under NELP was likely in the third quarter of 2010. NELP-VIII, which concluded in October last year, attracted a minimum investment commitment of USD 1.3 billion in 34 oil and gas blocks that were awarded out of the 70 offered. 

"The total investment under the earlier NELP rounds stands at USD 13.8 billion," he said. Production Sharing Contracts (PSCs) for 31 exploration blocks awarded to 23 companies under the eighth round of NELP were signed today. 

"Out of 31 blocks, 17 blocks are awarded to national oil companies — ONGC, Oil India and NTPC. Forteen exploration blocks are awarded to private and foreign companies, including BHP Billiton, BG Exploration and Cairn Energy," he said. He said the government intends to move towards an Open Acreage Licensing Policy (OALP) regime as soon as possible. 

Under OALP, companies can suggest any block for offer at any time, without waiting for the regular bid rounds under NELP. "The blocks will be awarded to the party giving the best bid," he said.

Source: Economic Times

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Soon, oil firms to choose blocks for exploration

Oil exploration companies may soon be able to choose the blocks they want to take up for their hydrocarbon search.

“The Government's intention is to move to the Open Acreage Licensing Policy (OALP) regime as soon as possible,” the Petroleum Minister, Mr Murli Deora, said.

Speaking at the production-sharing contract (PSC) signing ceremony for the blocks awarded in the eighth round of oil and gas blocks auction (NELP-VIII), he said, “Under this policy (OALP), companies can suggest any block on offer at any time, without waiting for the regular bid rounds under NELP. The blocks will be awarded to the party giving the best bid.”

For the OALP to become operational, the establishment of the National Data Repository (NDR) is a pre-requisite. The Directorate-General for Hydrocarbons (DGH) is in the process of setting up the NDR, which will archive all the exploration and production data under one roof.

“Certain regulations regarding ownership of data and sharing of information in the public domain will be required to be formulated while setting up the NDR. These issues are being looked into,” Mr Jitin Prasada, Minister of State, Petroleum and Natural Gas, said.

PSCs signed

Under NELP-VIII, of the 70 blocks offered, only 36 attracted bids. Bids for two blocks were rejected and 34 blocks were awarded. Out of these 34 blocks, PSCs for 31 were signed on Wednesday and the remaining will be inked later. ONGC and its consortium won 17 blocks.

PSCs were signed with 20 companies for eight deepwater blocks, 11 shallow water offshore, and 12 onland blocks. Apart from ONGC, Oil India Ltd, and NTPC, those who signed the PSC include BHP Billiton Petroleum International Exploration Pvt Ltd, BG Exploration and Production India Ltd, Cairn Energy India Pty Ltd, Bengal Energy International Inc, Esveegee Steel Gujarat Pvt Ltd, Harish Chandra (India) Ltd, Jubilant Oil & Gas Pvt Ltd, and Jay Polychem (India) Ltd.

In addition, nine companies that have participating interest with operating companies such as Adani Welspun Exploration Ltd, Andhra Pradesh Gas Infrastructure Corporation Pvt Ltd, GAIL, GSPC, and Indian Oil Corporation, also signed the PSCs.

“Considering the global economic situation, the committed investment in NELP-VIII by these companies is $1.1 billion. The actual investment made under the earlier NELP rounds stands at $13.8 billion,” Mr Deora said. The Government plans to launch NELP IX in the third quarter of 2010 and offer about 30-40 blocks.

More attractive

The Petroleum Secretary, Mr S. Sundareshan, said, “Efforts are on to make the NELP regime more attractive.” As regards clarity on whether the definition of mineral oil will include natural gas for tax purposes, he said, “We have taken up the issue with the Ministry of Finance. There can be no question of NELP-IX without tax breaks being worked out for gas as well.”

On shale gas, Mr Deora said, “We have initiated action to develop a framework for an assessment of resource potential which would lead to exploitation of this resource. Our endeavour is to put in place a policy framework in about a year's time.” Shale gas is natural gas located in shale rock areas and is far beneath the earth's surface. Shale gas is one of a number of unconventional sources of natural gas.

Source: Hindu Business line

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Shale gas fields will be next on the block

Encouraged by the US’ success in the area, India is stepping on shale gas, a potentially abundant, yet untapped source of energy. It is preparing to start auctioning the fields which could be rich in this resource for exploration.

“The government’s intention and endeavour is to put in place a policy framework for effective exploration and production of shale gas in about a year’s time,” Union petroleum minister Murli Deora said on Wednesday. Shale gas is natural gas found in shale rock formations.

India’s shale gas reserves are estimated to be higher than its conventional gas reserves, although no definite assessment of the extractable quantity is available. Reliance Industries (RIL), the first among Indian companies to take exposure to the business through its investment in US shale gas acreages, is believed to be best-placed to play a leading role when India starts offering shale gas blocks for exploitation. Multinational energy giants like Exxon Mobil and Royal Dutch Shell are also expected to join the shale gas fray in India.

“The government will appoint an expert by early July to assess potential reserves and then create rules to tap unconventional energy sources before auctioning areas in about a year,” Bloomberg reported on Wednesday, quoting

SK Srivastava, director-general of hydrocarbons, India’s upstream hydrocarbon regulator.

Preliminary estimates show India’s shale-gas reserves may be larger than its proven conventional gas deposits, said PK Bhowmick, president of the country’s Association of Petroleum Geologists. India plans to join a boom in shale-gas exploration that has fueled more than $39 billion of acquisitions in the US by global energy companies.

India’s biggest energy explorer ONGC awarded a $26-million contract to Schlumberger in April to explore shale gas in east India, according to chairman RS Sharma. Drilling wells to assess reserves may be completed by the end of this year, he said. Shale rocks have been found in Gujarat, Assam, Jharkhand.

Shale gas has proven to be a game-changer in the US energy market, significantly reducing the country’s dependence on imported LNG. It can help India as well to bolster its energy security. Shale gas reserves in the US have been known for a long time. However, drilling technology to facilitate commercial exploitation of shale gas was developed only recently.

The Indian economy is projected to grow at 8-10% a year over the long term. The country will need to ensure its energy security if it is to maintain its economic growth. Shale gas offers hope in this regard.

Coal accounts for over 50% of India’s primary energy consumption. Coal remains the predominant fuel for the domestic power sector. India has decided to reduce its carbon emissions on a voluntary basis as part of its commitment to contribute to the global efforts against climate change. If the country has to meet its global commitment, it must shift its energy consumption pattern toward gas, which is a clean source of energy.

Before shale gas production started in the US, the country used to be a big importer of LNG. Global LNG market is vulnerable to volatility in crude oil prices. When crude oil prices surged during 2005-2008, LNG prices skyrocketed. The price of LNG in the spot market then had hit $22 per mmbtu....

Source: Financial Express

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Oil gets extension for most exploration licences

State-run Oil India (OIL) has secured an extension for petroleum exploration licences (PELs) for 10 of its 16 independently held blocks in Assam and Arunachal Pradesh.

The company has, however, been asked to surrender five blocks, according to a company official. OIL had in 2009 written to the Ministry of Petroleum and Natural Gas, seeking extension of PELs for 15 of its 16 nomination blocks. "The ministry granted us PELs for 10 blocks after they saw our work programme. It, however, asked us to surrender the other blocks, which do not hold much potential," an OIL official told Business Standard. Through these blocks, OIL held a total area of approximately 5,367 sq km. Having posted a six-fold jump in its net profit at Rs 431 crore for the quarter ended March 31, it plans to spend around Rs 2,300 crore as on exploration and production this financial year "This extension will allow us to carry on with our exploration activities in these blocks. Had these not been granted, our business could have been adversely affected," the official added. OIL produced 3.6 million tonnes of crude in the year, a 3.3 per cent increase over 2008-09. It also produced 2.4 billion cubic metres of gas during the period, 6.4 per cent more than last year. The company added around 9.7 million tonnes of new hydrocarbon reserves in 2009. All of its current reserves, estimated at around 42 mt, are in Northeast India.

With the recent revision in administered price of natural gas from $1.79 to $4.2 per unit, OIL is expecting an upward revision in the company's top line by Rs 500 crore a year and net profit by Rs 315-340 crore. The company produces two billion cubic metres of natural gas a year, of which around 85 per cent is sold at administered prices. Gas sold to power and fertiliser customers in the northeast is given a 40 per cent 

Source: Business Standard

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Natural gas players: Attractive for a long term

Although natural gas players have weathered the storm much better in the past couple of months and are apparently fairly priced, retail investors can still find the sector attractive for long-term investments. 

The industry has showed a robust performance in the last quarter for FY10, which is likely to continue in future as the availability of gas increases and the necessary infrastructure is put in place. 

The total natural gas supply in the country has risen to 175 mmscmd from 114 mmscmd last year, thanks to RIL’s KG basin fields. While the domestic demand for gas remains robust, the companies transporting gas continue to earn higher revenues from increasing volumes. The four listed companies in the industry — Gail, Gujarat State Petronet (GSPL), Gujarat Gas Company (GGCL) and Indraprastha Gas (IGL) — posted a healthy growth in net profit for the Mar ‘10 quarter. 

The industry leader Gail posted a 17% rise in profits of its natural gas transmission business to Rs 506 crore in the quarter, as gas volumes jumped 39% to 114 mmscmd. Similarly, GSPL nearly doubled its bottom line to Rs 108 crore as its volumes nearly tripled to 36.2 mmscmd. 

The two listed city gas distribution (CGD) entities — Indraprastha Gas and Gujarat Gas — reported profit growth of 28% at Rs 51 crore and 73% at Rs 62 crore, respectively in the March 2010 quarter. The volume growth for them was around 22%. 

As the availability of the natural gas is growing and demand remains strong, the transporting infrastructure is the only bottleneck in the future growth of the industry. All the companies have lined up heavy capex plans to extend their pipeline networks and increase their gas carrying capacity. 

Gail alone is investing nearly Rs 35,000 crore between FY10 and FY14 to double its pipeline network. GSPL, which has already incurred a capex of Rs 2,800 crore in the past 4-5 years to set up a pipeline network spanning most of Gujarat, is further planning a capex of Rs 1,500 crore to augment its existing pipelines and set up CGDs. 

IGL is also investing nearly Rs 3500 crore in next 5 years to expand its CGD business within the NCR region as well as Noida, Greater Noida and Ghaziabad. In view of the pending regulatory approvals, Gujarat Gas has not drawn any major capex plans except Rs 300 crore of annual capex. 

With this the gross block of the gas industry is expected to double within the next 3-4 years, which will necessitate the players that were debt-free so far to borrow. 

The players have started gradually cutting down on their dividend payouts to preserve cash. Although all the companies increased their dividends for FY10, the growth was lower than that in the profits marking lower payouts. Only in case of Gujarat Gas the payout increased as it gave a special one-time dividend of Rs 5 per share. 

The recent dismantling of administered pricing mechanism for natural gas will have a great impact on this industry, although it is not the ultimate consumer. Gail stands to benefit due to the$0.11/mmBtu marketing margin it will now be able to charge , while passing on the increased cost to its customers. Gail is expected to earn additional net profit of around Rs 200 crore from this. 

Contrary to the belief that the CGD businesses would find it difficult to pass on the price hike to the final consumers, Indraprastha Gas last week raised the CNG prices by around 25% across all its geographies. This won’t affect IGL’s volume growth, as gas still remains a cheaper option to liquid fuels and IGL holds a monopoly in its region. 

The impact on Gujarat Gas is insignificant as less than 5% of its gas came from APM sources. Gujarat State Petronet being a pure transporter of gas won’t have any impact from the development. 

The industry’s improving prospects have hardly remained a secret among investors. The industry has consistently outperformed the market over the past one year. With huge capex plans coming on stream, the industry is expected to continue with the growth momentum in the coming years. 

All the companies are currently trading in a price-to-earnings multiple (P/E) range of 13 and 18.5 as against the Sensex P/E of 20.3. These valuations appear attractive for long-term investment, considering the expected profit growth in the coming years.

Source: Economic Times

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Shale gas in Cambay basin

US-based minnow Joshi Technologies (JTI) is in talks with the DGH, the oil ministry, GSPC and ONGC about sharing resources to tap onshore shale gas reserves in Gujarat’s Cambay basin. Producing shale gas can be expensive, JTI tells us, requiring advanced technology.

“Vertical wells don’t yield shale gas,”says JTI, “You need horizontal wells with six to 15 ‘sophisticated fracturings’.” These horizontal wells can cost three times as much asvertical ones. JTI last met oil ministry officials in April to discuss a concerted development strategy for exploiting Cambay basin shale gas.

Last year JTI “accidentally” discovered shale gas 1350-metres below surface in a well at its Dholka field. “No major discovery has been made for a long time in the Cambay

basin,” we are told. 

“Shale gas is a new prospect which will boost exploration.” Growing shale gas production in the US has revolutionised the market there, and had a direct impact on global LNG prices.

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Added risks in gas exploration

The Supreme Court’s verdict on the Ambani dispute is likely to stifle private sector participation in future exploration and production.

The dust has settled on the Ambani vs Ambani imbroglio. However, the Supreme Court judgment along with the current set of policies will have far-reaching implications on the future of the exploration and production business in India.

First, the view held by the Supreme Court that exploration of oil and gas resources needs to be carried out exclusively by public sector undertakings (PSUs) is in contradiction to the very spirit of the New Exploration Licensing Policy (NELP). Most of the reserves over the course of the policy have been discovered by private enterprise (domestic as well as foreign)-led consortia.

Second, production-sharing contracts have been structured in such a manner that the contractor, who has taken all the risks in attempting to discover and bring gas to the market and has incurred a huge capital expenditure, has the first call on the revenue stream that flows from the sale of the gas. The contractor then needs to be reimbursed his operating costs and gets a share of the profit. Over a period of time, this share comes down and the government’s share of profit gas (it is the government’s share of gas under the production-sharing contracts in the gas fields awarded under various rounds of NELP) correspondingly goes up. The contractor is, therefore, encouraged to market gas, since the sooner he recovers costs, the earlier the government gets its share of gas/oil.

According to the model production-sharing contracts applicable from the first to the sixth round of NELP, the contractor of the block has to value the gas at arm’s-length prices that benefit the parties to the contract. Moreover, the production-sharing contract provides the contractor the freedom to market gas and sell its entitlement. However, according to the Supreme Court verdict, the contractor has to sell the gas at a price approved by the government and only as per the government’s gas utilisation policy. This verdict may stifle private sector participation in future exploration and production.

Third, the Union Budget for 2008-09 excluded natural gas from the definition of mineral oil, thus taking away the income tax holiday enjoyed by the operators under the NELP regime. Such an ad hoc change in policy is unfair, as it is not known in advance whether oil, gas or both will be discovered. The impact of this was felt when NELP-VIII was delayed and a number of investors expressed their concern over the issue.

Fourth, foreign companies are needed not only for their technical expertise but also to bear part of the investment risk involved in the exploration of oil and gas under a joint-venture agreement. While Indian companies will ultimately cave in to the government pressure, foreign companies will take their business elsewhere. British Gas, Norway’s Statoil and Brazil’s Petrobras walked out of the Oil and Natural Gas Corporation (ONGC) block in the KG basin due to procedural delays and lack of clarity on major policy issues.

Fifth, some commentators have recommended a pan-India gas pipeline network to be a prerequisite to encourage upstream investments. This is like putting the cart before the horse. Gas pipelines, unlike roads and railways, are not public goods and need to be commercially justified through an assured source of supply, guaranteed demand at a price and a pipeline tariff policy that gives them a reasonable profit.

Finally, as recommended by the Supreme Court, the government must clearly lay down a natural gas pricing policy. In the RIL case, the government tweaked the price formula determined by RIL through limited competitive bidding to arrive at a price of $4.2/mmBtu. There has to be clarity on the price discovery process. Usually, a production-sharing contract clearly spells out the price discovery process that will be adopted for gas, such as linking domestic prices to free-on-board prices of gas, or to crude oil, or to alternative fuels like fuel oil. The government also needs to clarify the meaning of “at arm’s length” and “competitive bidding”. The pricing formula, which varies from field to field, will have to be finely balanced, as a high price could deter customers from buying the gas, thus impacting the volumes. A low price, on the other hand, will delay the investment recovery, and the profit share of both the contractor and the government will reduce. What is surprising is that with the ink hardly dry on the Supreme Court judgment, the government raised the current prices ex ONGC/OIL’s nominated fields to equate them with RIL’s $4.2/mmBtu — this decision has no logical basis and seems more driven by the one-size-fits-all concept.

RIL recently clarified that prices of gas from other fields in the KG basin will be higher than those from the current producing fields. Similarly, the ONGC chairman has stated that gas from ONGC’s wells in the KG basin will need to be priced at around $7/mmBtu to compensate for the investment that the company will be making. The country should, therefore, be prepared to pay higher prices in the future, and the consumer has to be sensitised that the Reliance price ($4.2/mmBtu) is by no means a benchmark for the future natural gas prices.

The government needs to draw some lessons from the events pertaining to the KG basin gas discovery, so that we do not have a similar situation arising again, which will ensure that the development of the exploration and production sector proceeds smoothly, for the benefit of not only the contractor but also the government, infrastructure developers and the ultimate consumer.

RK Batra is a distinguished fellow at The Energy and Resources Institute (Teri) and Ruchika Chawla is fellow, the Centre for Research on Energy Security, Teri

Source: Business Standard

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