NEW DELHI: State-run oil companies are ready to cut prices of petrol by about Rs 2 per litre after reporting strong earnings, signalling a surprise turnaround in the sector that scared investors with talk of astronomical losses from subsidised fuel sales.
Oil marketing companies could cut retail price of petrol by about Rs 1.67 per litre (about Rs 2 after taxes) from June 1 in view of the drop in the average rupee price of petrol in the international market, Hindustan Petroleum Corp Chairman & Managing Director S Roy Choudhury told reporters.
HPCL’s fourth-quarter net profit jumped to Rs 4,631 crore, more than four times its earnings a year ago.
IndianOil, which reported an over-three-fold jump in fourth-quarter net profit to Rs 12,670 crore, is also keen to pass on the benefit of lower international prices to customers.
IOC Chairman RS Butola said: “We will pass on the entire benefit to consumers. I would like to pass on 50 paise, 70 paise or 90 paise, whatever we gain, to consumers in the next pricing cycle.”
Profits of oil marketing companies were boosted by the highest-ever contribution of Rs 44,466 crore from Oil & Natural Gas Corp (ONGC).
Despite the generous contribution – given through state-mandated discounts on crude oil sales – ONGC’s fourth-quarter profit doubled to Rs 5,644 crore while PAT for the entire fiscal rose 33% to Rs 25,123 crore.
The state exploration company supplies crude oil at a rate linked to the dollar price of international grades of oil.
The depreciation of the rupee and an increase in international prices in the last quarter, thus, led to windfall gains for ONGC.
State-run refiners had earlier complained that their combined revenue loss from the sale of fuel at government-determined rates would amount to Rs 1.38 lakh crore in 2011-12, and they would post losses for the full year.
However, contributions from the government and upstream players such as ONGC, OilIndiaand Gail India have propped up their balance sheets.
Citing prospects of heavy losses, oil marketing companies had raised the pre-tax price of petrol by Rs 6.28 per litre last Wednesday, immediately after the budget session of Parliament.
CAG BEGINS AUDIT OF RIL, CAIRN & PMT BLOCKS
NEW DELHI: The Comptroller and Auditor-General has begun an “extensive” audit of the four oil and gas blocks being operated by Mukesh Ambani-owned Reliance Industries Limited (RIL), Anil Aggarwal-owned Cairn India Limited and the Panna-Mukta Tapi (PMT) assets, a joint venture of RIL, ONGC and British Gas, following an order issued by the government.
The audit will also cover the activities of the Directorate-General of Hydrocarbons and the Petroleum Ministry to verify whether revenue interests of the Government of India were properly protected and system/procedures of the Ministry and the DGH to monitor and ensure compliance with Production Sharing Contracts (PSC) were adequately followed. The government also expressed the desire to extend the audit up to 2011-12.
For the PMT fields, the audit would cover the period of 2006-07 to 2008-09 and for KG-DWN-98/3 and RJ-ON-90/ block it would be for 2008-09. The audit comes after the CAG, in its draft report last year, charged the Petroleum and Natural Gas Ministry with granting undue concessions and favour in allowing extensions and area granted to RIL in KG basin, Cairn India Limited’s Rajasthan block and discrepancies in the Panna-Mukta-Tapti JV.
The decision to refer four blocks/fields of KG-DWN-98/3, popularly known as KG D6, RJ-ON-90/1 and PMT fields was taken at an entry conference held between Joint Secretary A. Giridhar and Principal Director of Audit (Economics and Service Ministries (PD-ESM) A.M. Bajaj held recently. Officials of the DGH and the Petroleum Ministry along with team of CAG officials were also present during the meeting. The audit of the 12 other blocks would be carried out by Chartered Accountant (CA) firms appointed by the Petroleum Ministry who have experience in audit of E&P activities and are empanelled with the CAG office.
As the four blocks had reached the stage of determination of profit, petroleum and cost, it is imperative that an audit be carried out without any further delay. It was mentioned by Mr. Giridhar that the government wished to get the accounts audited up to 2011-12. It was decided to make a formal request to the CAG so that the audit could cover the period up to 2011-12.
The government would provide all assistance to the CAG audit from the DGH and the Petroleum Ministry and also decided to appoint nodal officers at the Ministry and the DGH to facilitate the audit process. The Ministry will soon be writing to the operators concerned — RIL, CairnIndia, BritishGas, ONGC — to provide unfettered access to their records.
The audit scope includes looking capital expenditure, operating expenditure, and net cash income and individual items thereof are accurately and reliably reflected, and these amounts are supported by adequate documentation; the figures of individual items of capex/opex are reasonable, and also commensurate with original, revised budgets, plans, feasibility reports or other similar documents and there exists collateral evidence which would provide assurance regarding the authenticity of goods and services procured and provided.
COMMITTEE TO REVIEW PRODUCTION-SHARING CONTRACTS IN OIL SECTOR
NEW DELHI: The government has set up a committee to review existing production-sharing contracts (PSCs) in the oil and gas sector, including the profit-sharing mechanism with the pre-tax investment multiple (PTIM) as the base parameter and suggest changes, said an official statement.
The committee will be headed by C Rangarajan, chairman, PM’s Economic Advisory Council. The committee has been asked to submit its recommendations by August end.
The committee is also mandated to explore various contract models with a view to minimizing monitoring of expenditure of the contractor without compromising, firstly, on the hydrocarbons output across time and, secondly, on the Government’s take.
The committee’s brief also includes suggesting a suitable mechanism for managing the contract implementation of PSCs which is being handled at present by the representation of Regulator/Government nominee appointed to the Management Committee. It will also suggest suitable governmental mechanisms to monitor and audit the central government’s share of profit petroleum.
It will also examine structure and elements of the guidelines for determining the basis or formula for the price of domestically produced gas.
ONGC TO FOCUS ON DEEPWATER, SHALE STRATEGY TO DOUBLE PRODUCTION, TRIPLE PROFIT BY 2030
NEW DELHI: Oil & Natural Gas Corp,India’s biggest energy explorer, plans to focus on shale and deepwater areas to double production and triple profit by 2030 as it competes withChinato acquire assets globally.
“We have to form alliances, we have to go into frontier areas like shale and deepwater around the world,” Chairman Sudhir Vasudeva told reporters inNew Delhion Tuesday after the company said fiscal fourth-quarter profit doubled.
“Our aim is to increase domestic production twofold, revenue and earnings before interest, tax, depreciation and amortisation threefold and international production sixfold.”
The state-owned explorer plans to spend Rs 1.25 lakh crore ($22.4 billion) to increase output in the next five years and an additional $1 billion to acquire shale assets in theUSto meet demand inIndia. ONGC has been beaten by Chinese rivals in the quest for assets from Latin America toAfricaas the world’s most populous nations seek to secure energy supplies.
“The way China went and acquired assets overseas, ONGC should have done a long time ago because that’s the one way to grow,” said DK Aggarwal, New Delhi-based chairman and managing director of SMC Investments & Advisors. “With their past record, their targets seem ambitious, but it’s not impossible.”
Net income doubled to Rs 5,640 crore in the quarter ended March 31, beating analyst estimates, after ONGC sold crude at higher prices. The net selling price of oil rose to $44.32 a barrel compared with $38.75 a barrel a year earlier, according to a statement on Tuesday.
ONGC offers a government-mandated discount to state refiners, including Indian Oil Corp, the country’s largest, to partly compensate them for selling fuels below cost. Discounts rose to $77.32 a barrel in the quarter from $70.15 a barrel a year earlier, according to the statement.
“Our profit would’ve been much higher had we sold oil at market rates,” Vasudeva said. “All of that additional profit would potentially have been deployed to buy equity in oil and gas fields around the world.” The company said annual net income would have almost doubled had it not been for the fuel subsidy. Profit for the year ended March 31 rose 33% to Rs 25,120 crore.
ONGC’s oil production fell 1.5% to 26.9 million tonnes, according to the earnings release. Output by ONGC Videsh Ltd., the overseas unit, dropped 7.4% to 8.75 million tonnes of oil equivalent.
ONGC Videsh has 30 projects overseas, including 10 producing assets inSudan, South Sudan,Russia,Vietnam,Brazil,Colombia,VenezuelaandSyria.”We have to strengthen ONGC Videsh and expand into non-exploration businesses like LNG and power as well,” Vasudeva said.
ConocoPhillips and ONGC have signed an agreement to develop shale resources inIndiaandNorth America. ONGC will study investing in ConocoPhillips’sUSshale-gas assets and expects to strike a “substantial” deal soon, Chairman Vasudeva said on April 4.
FUEL SUBSIDY PULLS GAIL NET DOWN 38% TO R483 CRORE
NEW DELHI: Government-owned gas utility GAIL India on Wednesday reported a 38% fall in net profit for the fourth quarter to R483 crore against R783 crore in the same period a year ago as fuel subsidy to retailers IOC, HPCL and BPCL went up by a half.
Turnover for the quarter jumped 18% to R10,454 crore. Net profit for the 2011-12 fiscal inched up by a marginal 3% to R3,654 crore from the previous fiscal despite a spectacular 24% jump in annual turnover to R40,281 crore.
“Due to a heavy growth in subsidy, a 17% growth in profit after tax for the whole fiscal has diminished to 3%,” GAIL India CMD BC Tripathi said. Tripathi said that for the full-fiscal, GAIL’s subsidy liability jumped 51% to R3,183 crore. Piped gas tariff revision by the regulator Petroleum and Natural Gas Regulatory Board (PNGRB) affected the company to the extent of R283 crore.
GAIL’s gas transportation volume was impacted by the decline in gas production from Reliance Industries’ KG-D6 block, but the company replaced the shortfall with imported LNG.
Tripathi said gas now commands $14-15 per million metric British thermal unit (mmBtu) if shipped toIndiafrom overseas spot markets – about three times the regulated price gas is sold within the country.
GAIL will spend R7,354 crore this fiscal towards expansion, for which it would borrow R4,500 crore. Of this, $300 million (about R1,600 crore) would be foreign loans. The company would also issue Indian currency bonds in a week to raise R500 crore with a 50% green shoe option, Tripathi said.
During the year under review, petrochemical sales rose 7% to 448 tonne from a year ago, while LPG and other liquid hydrocarbon production jumped 5% to 1,439 tonne.
BPCL: RIDING HIGH ON E&P GAINS
MUMBAI: After scaling a 52-week high of Rs 768.40 on May 16, Bharat Petroleum Corporation Ltd’s (BPCL) stock came under pressure due to uncertainty regarding pricing of controlled products, as well as possible roll-back of petrol price increases. It has since wiped away the gains posted after the 12 per cent petrol price rise announced recently. While analysts believe a 10-15 per cent price rise in controlled products (diesel, LPG and kerosene) is the need of the hour, this isn’t coming anytime soon. Also, given the time lag in receiving the government’s share of subsidy, BPCL will continue to bear a higher interest cost burden. However, all isn’t lost.
Positively, the ramp up at the Bina refinery (Madhya Pradesh) and, more important, the exploratory success inBrazilandMozambiquewill act as a catalyst for the stock. Most analysts, thus, remain bullish on it and expect an upside of 28-30 per cent from the current Rs 692.
Harshad Borawake and Deepak Dult, analysts at Motilal Oswal Securities Ltd (MOSL), wrote in their post-results report, “E&P (exploration and production) upside potential differentiates BPCL from HPCL and IOC. BPCL’s E&P portfolio has turned out to be a huge success, with multiple discoveries in itsBrazilandMozambiqueacreage. We believe there could be significant upside, as more clarity on the reserve size at itsMozambiqueandBrazildiscoveries emerges. BPCL is our top pick among OMCs (oil marketing companies).” MOSL analysts have assigned a value of Rs 164 per share to BPCL’s E&P portfolio.
BPCL’s E&P subsidiary, BPRL, has seen significant discoveries in recent months. On May 15, it reported its 11th successful well in the Rovuma Area-1 block inMozambique. The company named this discovery ‘Golfinho’ and estimates total recoverable natural gas of 7-20 trillion cubic feet (tcf), taking the total recoverable gas reserves in Mozambique to 24-50 tcf. Even after considering BPCL’s small stake of 10 per cent in this block, it is significant (RIL’s KG-D6 basin has estimated proven reserves of 3.67 tcf).
Analysts remain bullish on BPCL’s E&P play as it gears up to drill newer blocks such as Atum, Orca and Black Pearl inMozambiquein the current year. The company plans to drill 10-12 wells annually till February 2015, though production (and, hence, monetisation) is likely only in FY19. Towards this, BPCL has raised its capex in E&P in FY13 to Rs 1,500 crore, a 76 per cent increase over FY12. This is against a 39 per cent rise in total capex to Rs 5,000 crore in FY13. The rest is spread equally between theKochiand Mumbai refinery expansions, retail outlets and LPG cylinders. Within E&P,MozambiqueandBrazilwill take a larger pie of the capex spend.
Somshankar Sinha and Vikash Kumar Jain, analysts at CLSA, wrote in a recent report, “BPCL’s continued successes in Mozambique also validates Shell’s ostensibly aggressive $2-billion bid for Cove (8.5 per cent partner in the Mozambique block) that valued BPCL’s 10 per cent stake at Rs 375 a share.” Analysts currently value the E&P business anywhere between Rs 164 to Rs 451 per share of BPCL, with further upside potential likely.
Higher-than-expected compensation paid by government and upstream companies enabled the OMCs (BPCL, HPCL and IOC) report net profit for the March quarter, as well as for FY12. While OMCs were fully compensated for their losses on controlled products (diesel, kerosene, LPG), they had to also bear losses on petrol sales (formally deregulated), due to their inability to fully pass on higher prices to consumers. Notably, BPCL posted losses on petrol sales of Rs 1,140 crore in FY12, while the total figure stood at Rs 4,900 crore for all the three OMCs.
On BPCL’s FY12 performance, on a consolidated basis, its profits were lower than standalone profits due to losses at the Bina refinery worth Rs 1,100 crore and some write-offs in domestic E&P. This, however, should change.
Analysts expect BPCL’s gross refining margins (GRMs) to inch up after capacity utilisation at Bina is scaled up to 100 per cent. This is because the Bina refinery is capable of earning much higher GRMs of $11 per barrel, given its high complexity configuration. IOC, too, will see an uptick in its GRMs after commissioning of its Paradip refinery in this financial year and so will HPCL, given the commissioning of its Bhatinda refinery. Thus, while the refining business of OMCs is expected to get better, the key overhang remains the subsidy issue. For BPCL, any delay in execution or monetisation of E&P assets could hurt sentiments.
IEA’S RULES FOR GAS ARE MISSED OPPORTUNITY
With the publication of its “Golden Rules for a Golden Age of Gas,” the International Energy Agency (IEA) has stuck to platitudes, missing an opportunity to develop detailed and credible standards that could speed international acceptance for drilling and fracking unconventional gas wells.
The golden rules, published on Tuesday, are the outcome of a process of consensus-building led by the IEA that has brought together governments, natural gas producers and environmental groups to address social and environmental concerns expressed about fracking and shale gas.
The report’s declared aim is to help the industry win a social licence to operate and “(pave) the way for the widespread development of unconventional gas resources on a large scale, boosting overall gas supply and making the golden age of gas a reality.” The prize is a vast increase in global gas resources that could improve energy security and help reduce greenhouse gas emissions by increasing the use of cleaner burning gas in place of coal. But overall the report is a disappointment.
Rather than spelling out best practices and prescribing detailed international standards that could serve as a benchmark for national regulations, lending them much-needed international credibility, the report is mostly couched in vague principles so broad they are virtually meaningless.
The golden rules amount to a list of 22 separate principles grouped under seven sub-headings like “watch where you drill”, “isolate wells and prevent leaks,” “treat water responsibly” and “ensure a consistently high level of environmental performance.”
These are all very sensible and worthy objectives. No one would argue with rule 5 “choose well sites so as to minimize impacts on the local community, heritage, existing land use, individual livelihoods and ecology,” or rule 10 “take action to prevent and contain surface spills and leaks from wells, and to ensure that any waste fluids and solids are disposed of properly”.
Nor would anyone disagree that regulators should “find an appropriate balance in policy-making between prescriptive regulation and performance-based regulation in order to guarantee high operational standards while also promoting innovation and technological improvement”. The rest are similarly uncontroversial — and just as meaningless.
As the report notes, no set of regulations can reduce the environmental impact of unconventional gas production to zero. Like any other industrial process, it has costs and benefits. Policymakers must make “trade-offs between reducing the risks of environmental damage … and achieving the benefits that can accrue to society from the development of economic resources.”
“In designing an appropriate regulatory framework, policymakers need to set the highest reasonable social and environmental standards, assessing the cost of any residual risk against the cost of still higher standards (which could include the abandonment of resource exploitation),” according to the IEA.
Making these trade-offs involves a political decision taken at the highest national level. But the IEA could and should have performed a valuable role helping policymakers understand them, and suggesting some basic standards to guide regulation in individual countries.
Unfortunately, the report ducks this responsibility.
Instead, it adopts the principles-based approach beloved of bureaucrats and industry when they can’t reach real agreement. Rather than prescribe detailed and inflexible rules, the report sticks to a list of “principles intended to guide regulators and operators”. It claims flexibility is needed because “what is reasonable will evolve over time,” as technology and industry best practice evolve.