India seeks more oil, gas from Nigeria

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

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

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

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

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

Source: The Hindu

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Cheer gas

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

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

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

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

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

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

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

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

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

Source: Financial Express

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Shale gas exploration acreages to be available from next year

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

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

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

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

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

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

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

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

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

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

Source: Economic Times

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Reliance Industries: Buy

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

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

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

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

Entrenched position

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

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

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

Big-ticket expansion

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

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

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

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

Financial performance

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

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

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

Risks

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

Source: Hindu Business Line

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

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

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

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

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

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

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

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

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

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

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

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

Source: Economic Times

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

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

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

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

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

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

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

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

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

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

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

Source: Economic Times

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GAIL first quarter net rises to Rs. 886 cr

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

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

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

JV with RIL put on back-burner

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

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

Source: Hindu Business Line

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