MUMBAI: Reliance Industries (RIL),India’s second largest company by market value, is scouting for more shale gas assets in theUS,CanadaandPoland, investment bankers working on the potential assets said.
“RIL is looking for large shale gas assets, which will need investments of anywhere between $500 million and $2 billion,” one of the bankers looking for assets said. The company has chosen not to appoint a specific investment bank, but has given indications to bankers to scout for such assets. “They have hinted at looking at assets brought to the table.”
“We will not comment on market speculation,” RIL spokesperson said in a email response. Shale gas will strengthen energy security for theUSto a net exporter in several years.
RIl, which has more cash of R70,252 crore than its debt, has raised $1.5 billion as long-term loans through itsUSsubsidiary Reliance Holdings USA. RIL had invested in excess of $3.5 billion for three shale gas assets in theUSin the past few years.
The company has invested $2.14 billion in Pioneer shale gas fields, $1.04 billion in Chevron’s shale gas field and $0.59 billion in Carrizo fields. “There has been been a seven-fold increase in RIL’s share of gross production,” the company told its shareholders on its website.
“Petroleum and refining, which will be the core of RIL, will be a capacity driven business with no chances of growth year after year,” said Alok Deshpande, oil and gas analyst at Elara Capital, a brokerage. “In exploration and production, even with low investment, they can get a good find which can be their future growth avenues.”
TheUSenergy department is now accessing how exports could affect job creation, trade and domestic price of natural gas and is expected to release a report later this year. Some companies have been allowed to export gas in small quantities.
Cheniere Energy has been allowed to supply 3.5 million tonnes of liquid gas every year from 2017 toIndia’s largest gas distributor Gas Authority of India. Other gas producers are pushing for exports.
The demand for gas could come fromChina,JapanandIndia. “China’s large shale gas reserves could even be bigger than North America’s, yet the country is arranging long-term natural gas supplies via ships and new pipelines,” Peter Voser, Royal Dutch Shell’s chief executive, said at an industry conference inMalaysiaon June 5. “Between now and 2050, we see energy demand will double and gas will play a much larger role in meeting that demand.”
The rise inJapan’s demand is triggered by the closure of n-power plants following the 2011 Fukushima Daichi nuclear accident as it switches to gas to generate electricity. AsIndia’s demand for gas overshoots supply, many oil companies are scouting for gas field assets across the globe to reduce energy deficit.
On March 30, 2012,India’s largest hydrocarbon explorer Oil and Natural Gas Corp signed an agreement withConocoPhilips,America’s third-largest energy company, to cooperate in areas including equity partnership in shale gas assets and deep water oil and gas exploration blocks. The Indian company will ride on the technological expertise of theUScompany.
RIL acquisition of shale gas assets have given them an early mover advantage with their peers in theUS. One, it gives enough time to gain technological expertise and, two, prepare itself to bid for shale gas assets inIndia. Petroleum minister Jaipal Reddy told parliament on March 13, that his ministry is working on a strategic policy on shale gas assets and will be finalised by end of 2013 fiscal.
Chinese companies have invested roughly $17 billion in shale gas assets in theUSto gain expertise before it starts exploring in their home country.
BRING JET FUEL UNDER OIL REGULATORY BODY: PANEL
NEW DELHI: The Ministry of Petroleum and Natural Gas should bring aviation turbine fuel (ATF) under the Petroleum and Natural Gas Regulatory Board’s (PNGRB) regulatory scope by notifying the product so that the Board can take action to protect the interest of users, a Civil Aviation Ministry panel has said.
This is one of the recommendations put forward by an expert committee set up by the Ministry of Civil Aviation to bring down ATF cost for domestic airlines.
Currently ATF costs comprise about 40-50 per cent of operations of domestic airlines.
The PNGRB should also regulate all ATF infrastructure outside the airports including the pipelines as well as connecting intermediate storage infrastructure.
The suggestion has been made as due to lack of effective competition in the ATF market in the country, the oil marketing public sector undertakings maintain ownership and control access to the infrastructure, the committee has said.
The Committee has also recommended bringing ATF under the ‘Declared goods’ category so that it attracts a uniform 4 per cent sales tax across the country. At the moment the sales tax on ATF varies from 4 per cent to 30 per cent.
On an average the sales tax rate on ATF is around 20 per cent which makes aviation fuel price at Indian airports significantly higher than inSingapore, Hong Kong,Dubai,LondonandAbu Dhabi
In addition the Committee has suggested that States start charging a specific rate of duty on ATF instead of the ad-valorem rate as is done at present.
LINK PRICES OF PETROL, GLOBAL CRUDE OIL: DIGVIJAY SINGH
NEW DELHI: Senior Congress leader Digvijay Singh is critical of the current petrol pricing policy. Saying the government had no role in raising petrol prices, he pitched for these to be linked to international prices of crude oil.
Speaking to Business Standard, Singh hit out at oil marketing companies (OMCs) for their “failure”, saying, “Petrol prices should reflect the changes in international prices of crude.” OMCs, he said, should not wait for the government to tell them what to do about pricing.
Without mincing words Digvijay Singh said, “When petrol was deregulated, the prices should have been linked to international prices of crude on a daily basis. That’s the norm the world over.”
The current pricing policy, he said, had led to the steep rise in prices.
Rejecting the allies’ opposition to a rise in petrol prices, Singh said, “When petrol prices were deregulated in June 2010, the allies did not oppose the decision.”
ONGC IN TALKS WITH MITSUI FOR LNG TERMINAL AT MANGALORE
NEW DELHI: State-owned Oil and Natural Gas Corp (ONGC) is in talks with Mitsui Group ofJapanfor setting up a liquefied natural gas (LNG) import terminal at Mangalore as part of its diversification plans.
ONGC had in 2005 proposed to build a 5 million tonne a year LNG import and regassification terminal adjacent to its subsidiary Mangalore Refinery in Karnataka.
The plans were shelved after May 2006 exit of chairman Subir Raha. The idea of making ONGC a diversified firm with interest across the entire energy value chain was Raha’s brainchild.
The company, after Sudhir Vasudeva took as the Chairman and Managing Director last year, has again revived the diversification plan and is now actively looking at setting up LNG terminal at Mangalore to meet the fast growing energy needs in the country, sources privy to the development said.
ONGC plans to sign an agreement with Mitsui to explore opportunities for setting up a LNG terminal in India, specifically at Mangalore, or at any other mutually identified locations, they said, adding the duo would also market the imported fuel.
Sources said ONGC wants to use Mitsui’s 30 years of global experience to source LNG. A gas-based power plant may also be set up at a later stage.
Besides, the two would also explore opportunities of joint bidding for forthcoming exploration rounds, such as NELP (New Exploration License Policy) and Shale Gas Blocks.
Sources said ONGC feels domestic gas availability at 197 million standard cubic meters per day in 2015-16 will be way short of a demand of 290 mmscmd. The balance demand of 93 mmscmd would have to be met through imported LNG (24.8 million tonnes per annum).
Considering the huge potential demand of LNG, ONGC wants to join the race for setting up LNG terminal.
The country now has two operational LNG import facilities — 10 million tonnes unit at Dahej inGujaratoperated by Petronet LNG Ltd and a 3.6 million tonnes terminal of Shell-Total at Hazira.
Another 5 million tonnes facility is almost complete at Dabhol in Maharashtra, while Petronet is building an equal size terminal atKochiin Kerala by the year end.
State-owned gas utility GAIL India and Petronet plan to set up separate import facilities on the east coast. Shell has teamed up with Reliance Power for a floating LNG terminal off the Andhra coast while Indian Oil Corp ( IOC) is doing studies for a terminal at Ennore in Tamil Nadu.
Sources said ONGC too wants to be part of the LNG business and it see Mitsui as the vehicle for entry into the lucrative business.
GAIL: SHALE INVESTMENTS TO HEDGE US LNG IMPORTS
KUALA LUMPUR: GAIL (India) Ltd has around $1 billion to spend on shale gas assets inNorth America, which will act as a hedge against planned imports of US liquefied natural gas, the company’s managing director said on Thursday.
“We need gas, so equity gas is also required,” B.C. Tripathi told reporters on the sidelines of the World Gas Conference inKuala Lumpur.
GAIL signed a deal with US-based Cheniere Energy in December to buy 3.5 million tonnes of LNG a year under a 20-year contract starting from 2017.
It has also been in talks with Macquarie Energy, which has a share in the US-based Freeport LNG project, and last year, agreed to buy a 20-percent stake in one of Carrizo Oil & Gas Inc’sUSshale gas assets for $300 million.
India,Asia’s third-largest economy, is already the world’s eight-largest importer of LNG. Those imports could rise five-fold in the next decade as its domestic gas output falls and demand surges.
MRPL GETS SPECIAL INCENTIVE FOR PHASE-3 EXPANSION
CHENNAI/BANGALORE: The Karnataka government has sanctioned a special incentive package to Mangalore Refinery and Petrochemicals Limited (MRPL), an ONGC company, for the Phase-3 expansion and upgrade. The package includes exemption from payment of entry tax on plant and machinery and capital goods during the initial period of four years from the date of commencement of project implementation.
MRPL recently completed its third phase expansion at its refinery in Surathkal near Mangalore, involving an investment of Rs 15,000 crore and commissioned the operations. With this expansion, the combined refining capacity of MRPL has touched 15 million tonnes per annum. In the third phase, the company has increased its capacity by 3 MMTPA.
The company has inve-sted close to Rs 10,000 crore for the first two phases of expansion. In the first phase, the company installed 3 MTPA capacity and increa-sed it to 12 MTPA in the second phase.
However, its poly propylene unit is still under construction and is likely to be commissioned next year, a company official said.
The state government has also exempt MRPL from paying entry tax on the crude oil required for third phase over and above the refining capacity of first and second phase for 15 years from the start of the comm-ercial production of third phase. It has provided exe-mption on CST for 15 years from the date of commencement of commercial production of third phase for all interstate sales made from the phase-3 throughput, the company said.
The government has also extended interest-free soft loan at the rate of 100 per cent of the eligible gross VAT during the first three years and thereafter at 60 per cent of the eligible gross VAT, on the sale of poly propylene, petroleum coke, LSHS, naphtha, LPG (incremental production), Mixed xylenes and ref-ormate to non-SEZ units for 15 years to be repaid in 15 years equal annual inst-allments thereafter, limited to Rs 500 crore per annum. The state government had exte-nded special incentive to the company for the first two phases also.
MRPL also plans to expand the capacity and is likely to sign a memorandum of understanding with the Karnataka government during the Global Investors’ Meet inBangaloreon Thursday, U K Basu, Managing Director, MRPL said.
CONCERNS OVERDONE FOR GAIL, GSPL
MUMBAI: Stocks ofIndia’s leading gas transmission companies, GAIL (India) Ltd and Gujarat State Petronet Ltd (GSPL), made new 52-week lows last month on concerns regarding lower volume growth and likely unfavourable regulatory action on rates and marketing margins.
However, most analysts believe these concerns are overdone and there is limited downside for these scrips from the current levels. While most analysts are bullish on them, among the two, GAIL seems to be the preferred choice, largely because it has lesser regulatory risk as a majority of its rates are already regulated. Further, GAIL’s non-gas-based petrochemicals business as well as exploration activities will aid future growth (beyond FY13), believe analysts.
Sanjeev Prasad and Tarun Lakhotia of Kotak Securities, in a recent report, said: “Concerns are overdone on regulations and lower gas volumes for GAIL”. For GSPL, the likely trimming of its rates by the Petroleum and Natural Gas Regulatory Board (PNGRB), expected in the coming months, is partly reflecting in valuations. However, some analysts believe until clarity emerges on the issue, it could act as an overhang in the near term.
Thanks to lower production of domestic gas (due to a decline in Reliance Industries Ltd’s KG D6 basin output), gas transmission volumes of both GAIL and GSPL have been impacted in recent quarters. With domestic gas production still an issue, most analysts are expecting muted volume growth in FY13 for the two companies. Another issue is capacity utilisation. GAIL and GSPL are expected to see an increase in their capacities as new pipelines become operational. But the gas supply crunch will likely lead to under-utilisation of these capacities, which in turn may impact their return ratios.
While GAIL has lowered its transmission volumes expectation by three per cent to 120 million standard cubic metres a day (mscmd), analysts expect the same to remain largely muted at 118 mscmd in FY13. For GSPL, too, analysts expect the volume growth to be muted at around three-four per cent over FY12-15.
On the regulatory front, there are two major concerns. Firstly, the PNGRB is likely to revise the rates of new pipeline networks and, secondly, a cap on marketing margin could be on the cards.
While GSPL’s stock price is factoring in a rate of Rs 600 per mscmd, any significant reduction from these levels will rub off negatively on the stock. However, analysts don’t expect such a scenario. Alok Deshpande and Stuart Murray of Elara Securities say: “There is limited downside to the current tariffs as GSPL’s post-tax return on capital employed is around 14-15 per cent, only slightly above the regulated figure of 12 per cent”.
For GAIL, most of its pipelines are already charging regulated rates. However, gas transmission rates of the new DV-GREP (Dahej Vijaipur Gas Rehabilitation and Expansion Project) pipeline are likely to be scaled down by 21 per cent from Rs 53.65 per mbtu (million British thermal units), according to Kotak’s analysts. This cut will be largely driven by lower capital expenditure (capex). Nevertheless, this move will not impact the earnings significantly due to lower utilisation in initial years of operation (starting FY13).
The marketing margin charged by transmission companies is also under the PNGRB scanner. Analysts believe these can be fixed at Rs 0.2/cubic metre for gas sold by GAIL for FY13-16 (currently at Rs 0.2-0.32/cubic metre). But, given that 80 per cent of GAIL’s total gas volumes (from nominated and Panna-Mukta-Tapti fields) is marketed at margins determined by the ministry of petroleum and natural gas, the earnings impact of such a move is likely to be marginal.
While concerns such as lower gas transmission volumes, regulatory risks and higher subsidy share of upstream companies is largely priced in GAIL valuations, the pessimism seems to be overdone. For instance, Prasad and Lakhotia of Kotak note: “GAIL’s current stock price implies negative value for its new gas transmission pipelines. The pipelines have value (valued on discounted cash flow or simply on cash invested) that will crystallise as visibility improves on LNG (liquefied natural gas) imports and domestic gas supply. GAIL’s total capex on the three new pipelines is Rs 12,800 crore (Rs 101/share). However, a reverse valuation would suggest that the market is ascribing a negligible value of Rs 3/share to the three pipelines.”
Further, analysts believe as itsKochiand Dabhol terminals achieve full utilisation levels in FY14, transmission volumes are likely to improve. GAIL’s plans to double capacity of high margin yielding petrochemicals business by FY14 would further boost earnings growth. The business contributed 27 per cent to GAIL’s FY12 profits. On the flipside though, uncertainty on subsidy sharing mechanism will weigh on its earnings and the stock. Overall, analysts have one-year target price ranging Rs 380-420 for GAIL, indicating an upside of 16-29 per cent.
For GSPL, too, most analysts are positive due to attractive valuations with one-year upside potential 9-12 per cent.
GAIL INDIA BOND ISSUE OVERSUBSCRIBED 5 TIMES
MUMBAI: State-run GAIL (India), which launched its bond issue yesterday, saw it being oversubscribed about five times. The company had launched a bond issue of Rs 500 crore, with a green shoe option of Rs 250 crore.
The total quantum of Rs 750 crore was mobilised at a cut off rate of 9.14 per cent which was “the lowest rate achieved in recent times”, GAIL said in a press statement to the Bombay Stock Exchange. Proceeds of the issue would be used to partly meet the firm’s capex plan for expansion. It would be repaid in five to eight years, with a call option at the end of the fifth year. Weak GDP numbers have sparked rate cut hopes, resulting in a rally in bond prices and spurring demand for corporate paper, say analysts.
RIL SHAREHOLDERS WAIT FOR AMBANI TO CHEER THEM
MUMBAI: After disappointing the Street last year, Reliance Industries (RIL) chairman Mukesh Ambani needs to cheer up 25 million shareholders on Thursday when he once again speaks to them at the company’s annual general meeting. Analysts, looking for some clue on how the company will use its huge cash reserves and how soon production of gas at the trophy KG-D6 basin can be upped, are hoping the RIL chief will have some news for them.
Should Ambani say something definitive on either issue, it would lift the company’s sagging share price. Since its last AGM on June 3, 2011, the stock has given up R72,891 crore in market value as also its numero uno status to Tata Consultancy Services. RIL’s market capitalisation on Wednesday was R2,33,586 crore with the stock closing at R714.10 on the Bombay Stock Exchange. The 30 share BSE benchmark index fell 10.5% between June 3, 2011 and June 6, 2012
RIL has bought back 26,124,974 shares till June 5 in a bid to boost earning per share. Analysts say the diversification into hospitality, broadcasting, retail and broadband has been discounted and they now expect RIL to earn more from exploration and production of gas.
Foreign institutional investors (FIIs) have trimmed their exposure to RIL stock only marginally. FIIs, which owned 17.7% stake in the company last June have cut it down to 17.55% as gas output from the KG-D6 basin has shrunk and refining margins dipped. Alok Despande,oil and gas analyst at Elara Capital, says, “The gross refining margins premium they commanded against the benchmarkSingaporeis declining as rivals build fresh complex refineries in Asia, which can refine complex crude like RIL refinery inIndia.” Output from KG-D6 gas fields is also a cause for concern. In the past one year, flows have roughly halved to 34 mmscmd until March 2012 from 60 mmscmd a year ago.
However, RIL’s balance sheet remains strong with cash of Rs 70, 252 crore aided by the sale of 30% stake in 23 oil and gas fields to British Petroleum for $7.5 billion. The firm is betting on broadband and retail for growth, choosing to play new themes.
“In the beginning of the second decade of this century, RIL envisages a new wave of growth through digital and consumer ecosystem,” Amabani had told shareholders at the 37th AGM on June 3, last year.
Not all analysts are convinced. Vidhyadhar Gande and Akash Gupta at Bank of America Merrill Lynch wrote recently they expected RIL’s earnings to be flat in 2013 fiscal and the compounded earnings per share to grow at 6% between FY08 and FY13, lower than the CAGR of 36% in FY03-08. Ambani, known for building size and scale in his core business, may have an ace or two up his sleeve.
However, more than anything the RIL chief will be hoping to settle the gas dispute with the government through an arbitration.
SWAN ENERGY MAY SELL STAKE IN PIPAVAV UNIT
MUMBAI: Mumbai-headquartered Swan Energy is in talks with state-owned oil and gas companies for selling a small stake in its upcoming floating LNG unit in Pipavav,Gujarat. Bharat Petroleum Corporation, Hindustan Petroleum Corporation, and Gujarat State Petroleum Corporation have been sounded out, people close to the development said.
Swan Energy wants to sell 20-30% stake in the floating storage and regasification unit to raise 400-600 crore, they added. Swan Energy declined to comment on the deal.