New Delhi: The government’s petroleum subsidy burden, projected at Rs 30,125 crore for the next financial year, is on the right lines and will be adequate to cover its share of burden of under-recoveries of oil marketing companies (OMCs), subject to major shifts in global crude oil prices, experts say.
The government had announced a revised figure of petroleum subsidy for the current financial year at Rs 60,000 crore and pegged the subsidy at Rs 30,000 crore for 2015-16 in the Union Budget tabled in Parliament on Saturday. The next financial year’s estimate of petroleum subsidy comprises Rs 22,000 crore towards cooking gas and the rest Rs 8,000 crore for kerosene sales.
Analysts estimate OMCs’ gross underrecoveries to land at Rs 77,000 crore in FY15 and Rs 42,500 crore in FY16, based on an assumption of a crude oil price of $60 a barrel and a rupee-dollar exchange rate of 62.
Underrecoveries are the losses OMCs incur on selling regulated fuels such as diesel, liquid petroleum gas (LPG) and kerosene below their cost prices.
According to equity research firm Prabhudas Lilladher, the fact that the government’s overall subsidies are not seen rising in the next financial year is a major highlight of this year’s Budget. “The petroleum subsidy has seen a decrease of 50 per cent owing to lower crude oil prices. With the beginning of direct transfer of LPG subsidies and low crude prices, the maneuverability of the government to provide less has been high,” the firm said in a report.
In 2013-14, when the Indian basket of crude oil price averaged at $105 a barrel, OMCs’ gross underrecoveries on subsidised sales stood at Rs 1,39,000 crore, including Rs 62,000 crore losses on diesel, Rs 46,000 crore on cooking gas and Rs 30,000 crore lost on kerosene sales below cost of supply. Of the total gross underrecoveries, the government had to shoulder the burden by Rs 70,000 crore (50 per cent), while the upstream firms had to bear Rs 67,000 crore (48 per cent).
In 2014-15, the Indian basket of crude oil price has averaged at $89.8 a barrel in the 10 months between April 2014 and January 2015. OMCs have suffered gross underrecoveries of Rs 67,000 crore during this period including Rs 10,000 crore losses on diesel, Rs 34,000 crore loss on cooking gas and Rs 21,000 crore lost on kerosene sales. The government has borne a half of this under-recovery burden. It has also revised the budgeted petroleum subsidy of Rs 63,427 crore to Rs 60,270 crore, attributing the Rs 3,157-crore savings to “discontinuation of post-administered pricing mechanism (APM) subsidies”, according to Budget documents.
Analysts expect global crude oil prices to average between $70 and $80 a barrel in 2015-16. OMCs’ gross underrecoveries are broadly estimated to be close to Rs 55,000 crore based on a crude oil price of $70 a barrel and rupee-dollar exchange rate of 63. In that case, the government and the upstream firms might have to bear Rs 28,000 crore each as subsidy burden, assuming the compensation is split in half.
In the medium-term fiscal policy statement, part of the Budget documents, the government say: “With deregulation of diesel prices and rationalisation of LPG subsidy, it is expected that the provision for fuel subsidy kept in the Budget should suffice.” It added that in the current financial year, there was scope for some saving in the subsidy bill for petroleum and the easing of international prices of crude oil, provided the “much-needed opportunity” to introduce some reforms in fuel prices and clear some of the financial burden.
The government has also listed in the macro-economic framework statement for 2015-16, the launch of direct benefits transfer in LPG, new gas pricing policy and the de-regulation of the diesel prices as the major policy reforms in the subsidy regime witnessed in the first nine months of FY15.
(Source: Business Standard March 7, 2015)
MOVE AFOOT TO FILL UP FIRST CRUDE VAULT
New Delhi: The oil ministry plans to fill up the country’s first crude storage facility in this fiscal itself, utilising the Rs 2,400 crore allocated by the government in the budget.
It plans to seek Parliament’s approval next week to use the money to fill up the underground facility – in Visakhapatnam – by taking advantage of the crash in global prices. The facility can hold 1.3 million tonnes (mt) of crude.
The Visakhapatnam facility will be commissioned later this month. After it becomes operational, India will join the US, Japan and China to have strategic reserves.
The facility has two compartments of 7.55 million barrels and 2.20 million barrels. Hindustan Petroleum will use the smaller compartment for its 166,000 barrels-per-day Vizag refinery.
“The Vishakhapatnam storage will be filled up with crude by March this year. It will result in a saving of over Rs 2,000 crore on crude imports and will also help to advance the dates for operationalising two other caverns,” a senior oil ministry official said.
India, which is dependent on imports for 80 per cent of its crude oil needs, is building two other underground storages of 1.5 million tonnes (mt) at Mangalore and 2.50mt at Padur in Karnataka to store about 5.33mt of crude oil to meet the country’s crude requirement for 13-14 days.
India has an existing reserve of 3-3.5 million tonnes, held by BPCL, HPCL and IOC. The government is considering raising the storage capacity to 15mt to cover for 45 days in a phased manner.
The oil ministry has now initiated studies to construct additional storage capacity of 12.5 million tonnes. An additional storage of 5mt was being considered at Padur in Karnataka and 2.5mt each at Chandikhol in Odisha, Rajkot in Gujarat and Bikaner in Rajasthan. It will take 4-5 years to build the 12.5mt stockpile.
Global crude prices have fallen from a peak of above $115 in June last year as increasing US shale oil output helped to create a glut amid sluggish global demand growth. They have risen to around $60 a barrel from a low of about $50 a barrel.
However, analysts are forecasting that global crude prices could fall further from the current levels as increased US oil production has added to a glut in the world market dominated by the Opec countries, who have decided against any production cut.
Weak demand, a strong dollar and booming US oil production are the three main reasons behind the fall, according to the International Energy Agency.
(Source: Telegraph March 7, 2015)
PANEL BACKS SPINNING OFF ONGC TECH SERVICES ARM
New Delhi: Spinning off the technical services arm of state-owned Oil and Natural Gas Corp. (ONGC) into a separate entity, stronger energy diplomacy, a reduced role for the Directorate General of Hydrocarbons (DGH), continuation of the production sharing contract (PSC) regime and market pricing for gas are among the key recommendations of a 10-member expert committee tasked with finding ways to reduce India’s import dependence in hydrocarbons.
“The technical services arm of ONGC should be spun off into a separate entity. The ONGC services arm should compete with other OFS (oilfield service) providers for its share of business from ONGC and should be free to render technical services to other E&P (exploration and production) providers,” said the panel, formed in March 2013 and led by economist and former finance secretary Vijay Kelkar, in its final report titled Roadmap for Reduction in Import Dependency in the Hydrocarbon Sector by 2030 which was put on the petroleum ministry’s website last month.
Over 3-5 years, this entity should compete for business from ONGC and should be free to render services to other firms.
Over a week ago, the petroleum ministry suspended Shashi Shankar, director, technical and field services, citing allegations of misconduct in a procurement. While queries emailed to an ONGC spokesperson remained unanswered till press time, in response to Mint’s query over the phone, Shankar said that he would revert. No response was received till press time and Shankar didn’t respond to a text message left on his cellphone.
“Such vertically integrated oil companies are a legacy of the Soviet era,” the panel said.
ONGC, which invested `22,700 crore during the 10th Plan (2002-07) and increased it to `1.7 trillion in the 11th Plan (2007-12), is planning to spend `2.65 trillion in the ongoing 12th Plan (2012-17).
The panel also recommended forming a group represented by core ministries and energy companies to make concerted efforts to develop a “a country-specific value proposition”. It suggested setting up a think tank focused on West Asian countries, given India’s energy imports from the region. It also suggested posting energy diplomats or specialists at global energy hubs.
India imports 80% of its crude oil and 18% of its natural gas requirements. The country follows the US, China and Russia in energy use, accounting for 4.4% of global energy consumption. The recommendation comes in the backdrop of competition between India and China to control natural resources and energy assets to fuel growth.
The DGH, the petroleum ministry’s technical arm, currently manages petroleum resources, monitors PSCs and assists the government in auctioning energy fields. It is manned by staff drawn from state-owned energy firms. The panel recommended that the DGH restrict itself to technical oversight of contractors and be “an independent regulator for the upstream oil and gas sector”.
The report said the primary responsibility of the management committee and DGH should be oversight of energy resources. They should focus only on ensuring adherence to standards and best practices “and not get involved in the cost assessment or fiscal oversight of the contract”, the report said.
“Safeguarding the fiscal interest of the state… should be the primary responsibility of the revenue agencies,” it added.
The centre’s plan to start hydrocarbon exploration stems from broader concerns that India’s energy import bill of around $150 billion is expected to balloon to $300 billion by 2030.
The report, though, said it’s possible to cut annual import bill by as much as $70-80 billion with policy reforms and institutional measures.
The committee also recommended the continuation of the PSC framework, citing “global best practices and the suitability to the Indian geological context”. PSC allows for cost recovery by exploration and production (E&P) companies before they pay the government its share. The panel has effectively contradicted the recommendations of another committee headed by C. Rangarajan, former chairman of the Economic Advisory Council to the Prime Minister, which favoured a revenue-sharing regime. Explorers want the existing PSC regime to continue.
“The committee has reservations against accepting the ‘biddable’ Revenue Sharing Contract (RSC) model due to the inherently misaligned risk-return structure which leads either (i) to lower levels of production due to resultant reduced exploration efforts and lower recovery ratios or (ii) to high windfall gains to operators encouraging contract instability due to political economy factors,” the report said.
This comes in the backdrop of allegations levelled by the Comptroller and Auditor General that Reliance Industries Ltd (RIL), under PSC, overstated its expenses at the KG-D6 basin, resulting in loss of revenue to the exchequer. “The committee has proposed two fiscal regimes either of which could be deployed: i. Model I: PSC linked to Investment Multiple, with modified contract administration including self-certification of costs by the contractors ii. Model II: PSC with ‘biddable’ supernormal profits tax,” the report added.
Two members—B.N. Talukdar, director general of hydrocarbons, and S.V. Rao, former director (exploration), ONGC—opposed the recommendation. Talukdar wrote, “There is no mention about the third model i.e. draft Revenue Sharing Contract Model which has been prepared in line with the recommendation of the Rangarajan Committee. This draft Revenue Sharing Contract is being discussed at Govt. level after obtaining various comments from the stakeholders. This alternative model could very well be the third possible model in addition to the above two”.
“If Operator interest wavers, as it is repeatedly assumed, a final call could be taken for Model II, after an improved mechanism for the trigger is in place,” Rao wrote in the report.
Spokespersons for the petroleum ministry and RIL didn’t respond to emailed queries.
The panel has also recommended “transition to market-determined gas prices by 2017 or next pricing period.” The NDA government last October revised the current price of natural gas to $5.6 per mmBtu from $4.2 mmBtu. The prices will be revised every six months.
The other recommendations include providing `7,000 crore to DGH from the oil industry development cess for setting up a National Data Repository and including oil and gas under the proposed goods and services tax framework.
(Source: Mint March 7, 2015)
CCI REJECTS ANTI-COMPETITIVE CASE AGAINST IOC, MAHANAGAR GAS
New Delhi: The Competition Commission of India (CCI) has rejected charges against Indian Oil Corporation (IOC) and Mahanagar Gas of unfair business practices with respect to distribution of compressed natural gas (CNG).
In a complaint, Bharat Garage, a partnership firm engaged in the distribution of CNG, had alleged an agreement was between IOC and Mahanagar Gas was anti-competitive, limited the production/supply of CNG and caused an appreciable adverse effect on the competition.
Finding no prima facie case, CCI in recent order noted the agreement wherein IOC would be selling the product of the Mahanagar Gas through its outlets “is not exclusive in nature thus, such an agreement does not seem to be anti-competitive in nature”.
CCI has also rejected the allegations of cartel-like behaviour levelled against the two firms.
With regard to allegations pertaining to charging of commission by IOC, issue regarding the termination of agreement with the complainant, non-supply of
CNG by Mahanagar Gas, among others, CCI said these “prima facie, do not point to any activities/conduct contravening provisions of…the (Competition) Act”.
Mahanagar Gas was charged with the function of ensuring an adequate supply of CNG to customers in the state of Maharashtra.
In order to discharge this function, the firm had executed agreements with dealers and oil companies for the distribution of CNG.
(Source: Business Standard March 7, 2015)
80% OF LPG USERS OPT FOR DIRECT TRANSFER IN GUJARAT
AHMEDABAD: Gujarat has reported 80 per cent penetration of the Direct Benefit transfer of LPG (DBTL) scheme Pratyaksh Hanstantrit Labh (PaHaL) of the total active LPG consumers in the State.
As per the latest figures shared by the public sector oil players, as on March 2, about 79.7 per cent or 4.8 million active LPG consumers have joined the PaHaL scheme in Gujarat.
Officials claimed Gujarat’s performance for coverage of 80 per cent LPG customers as satisfactory especially considering the fact that the scheme was initially introduced in 54 districts of the country on November 15, 2014 and was later launched in rest of the country on January 1, 2015.
According to the official statement, Rs. 302.04 crore has been transferred since November 15, 2014 through 880 million transactions.
Currently, a fixed permanent advance of Rs. 568 is also given to every consumer. This has been revised to become variable every month, equal to the actual subsidy due at the time of booking with effect from April 1, 2015 and subject to a maximum of Rs. 568.
PaHaL will save subsidy by reducing the incentive to divert subsidised cylinders and also provides an easy exit route for those who do not want to avail subsidy on domestic gas cylinders.
(Source: Business Line, March 7, 2015)
ONGC’S WESTERN OFFSHORE OUTPUT SOARS TO 5-YEAR HIGH
NEW DELHI: This is the highest production from Mumbai Offshore during the last five years. Production started increasing from an average 315,000 BOPD in February 2015 to over 325,000 BOPD this month.
The continuous endeavours of ONGC to augment production from its ageing as well as New & Marginal Fields has resulted in such achievement. Addition of couple of high producing new wells in a marginal field B-193, installation of high volume Electrical Submersible Pumps (ESP) in D1-field, undertaking massive hydro-fracturing job are among some exclusive hi-Tech initiatives which have resulted in additional oil gain.
However, the diversion of well fluid from Cluster – 7 fields to the newly engaged FPSO, Sterling-II, is the primary contributor behind this recent rise in production. The Cluster – 7 consists of B-192, B-45 & WO-24 marginal fields- located in the Mumbai High-Deep Continental Shelf of Bombay Offshore Basin.
The average distance of these fields are about 210 km to the west of Mumbai city in water depth of around 80-88 mts. B-192 is an oil & gas field whereas B-45 & WO-24 are gas fields. Since, these fields are remote, isolated and marginal in nature, ONGC planned to develop them as a Cluster (which is technically called as ‘Cluster Development’) to make the development techno-commercially viable.
The FPSO arrived in the field in November 2014. Positioning of FPSO at location, its installation and hooking-up with under water systems is a highly technical & challenging operation which involves continuous requirement of divers and requires stable weather conditions.
Despite the unprecedented harsh winter of 2014, FPSO was made operationaland well fluid could be flown into it on 26th February 2015. The production from the Cluster fields which was earlier at 7,500 BOPD without FPSOhas jumped to over 14,000 BOPD. The engagement of the FPSO reduced the back pressure substantially and improved the flow from the producing wells.
The various technological interventions implemented by ONGC during the last one year have already resulted in 7-8% increase in oil production from its Western Offshore fields. The results have instilled confidence that further increase in production is also possible.
Meanwhile, the Competition Commission has rejected charges against Indian Oil Corporation and Mahanagar Gas that they indulged in unfair business practices with respect to distribution of CNG.
In a complaint, Bharat Garage, a partnership firm engaged in distribution of Compressed Natural Gas (CNG), had alleged that an agreement executed between IOC and Mahanagar Gas is anti-competitive and limits the production/supply of CNG and causes an appreciable adverse effect on the competition. CCI has also rejected the allegations of cartel-like behaviour levelled against the firms.
(Source: Millennium Post, March 6, 2015)
SHORT-TERM BORROWINGS BY OIL MARKETERS MAY FALL THIS FISCAL
Mumbai: Short-term borrowings of oil marketing companies (OMCs) are likely to drop by half in fiscal 2015 as lower global crude prices and reduced subsidies allow these firms to cut their reliance on external funding.
For the nine months ended December, short-term borrowings of the three OMCs—Indian Oil Corp. Ltd (IOC), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL)—have dropped by between 30-40%, according to analysts and company officials. This could fall further in the fourth quarter, bringing the savings to nearly 50%, they said.
At HPCL, short-term borrowings so far this fiscal are at `15,000 crore, a 37% drop compared with `24,000 crore during the same period last year, said an official with the company.
“…considering the crude is likely to stabilize around $60 per barrel, for the full year too, we expect a similar or a little less fall in our borrowings for the fiscal,” said an HPCL official, requesting anonymity because company policy bars the person from speaking to reporters.
When crude prices are high and OMCs are forced to sell some petroleum products at regulated prices, they incur operating losses and do not have cash flows to pay for crude oil purchases. As a result, they have to resort to short-term loans of three-six months from banks. This, in turn, leads to an increase in the company’s interest expenses.
With crude prices falling and subsidies on diesel removed, part of the pressure has eased. In addition, compensation for losses incurred on sale of regulated products such as kerosene and cooking gas have also become more regular.
“Unlike earlier times, the government is providing timely compensation of subsidy while the subsidy burden itself is coming down and this has helped in bringing down the short-term loans of OMCs,” said the HPCL official quoted above.
According to an 18 February report by Antique Stock Broking Ltd, the company’s net debt and interest cost have fallen by 33% and 58% respectively for the nine months ending December 2014. The under-recovery—or the subsidy HPCL claimed from the government (including unpaid subsidy from earlier quarters)—stood at `500 crore compared with `3,907 crore last year, an 87% fall.
BPCL may stand to benefit ever more.
The OMC expects its short-term borrowings to fall by almost 73% in the current fiscal, its management indicated in a conference call on 16 February, said an analyst with a domestic brokerage who attended the call. He declined to be identified as he is not authorized to speak to media on companies under his coverage.
A mail sent to BPCL last Thursday seeking details remained unanswered.
A 16 February note by Elara Securities said BPCL’s debt has reduced from `20,300 crore in the year ended 31 March to `14,000 crore in the first nine months of the current fiscal, primarily due to the receipt of outstanding compensation from the government (on a year-on-year basis), diesel deregulation and the fall in crude prices, resulting in working capital cycle improvement. Its interest cost, too, declined 61% from a year earlier.
IOC, too, expects a 40-50% drop in short-term borrowings this year when compared with last year, said a company official who declined to be identified. He, however, added that inventory losses incurred by OMCs may offset any boost to profitability from lower borrowings.
OMCs incur inventory losses when crude prices fall sharply in a short period of time, which leads to a discrepancy between the cost of purchase of crude and the sale price of the refined petroleum products.
An email sent to IOC on Thursday remained answered.
Without sharing specific numbers, a senior official at a public sector bank said, “OMCs had budgeted for a $110 per barrel of crude oil, while it came down to $40 on an average. Hence, the short-term borrowings of these companies would have also come down by that extent. We are yet to see the full impact of this, but it is surely happening.”
(Source: Mint March 7, 2015)
BPCL PARTNER PEGS FINAL GAS RESOURCES IN MOZAMBIQUE FIELD AT 75 TCF
Mumbai: A natural gas bonanza off the eastern coast of Africa has become a rare source of cheer for three of India’s state-owned oil exploration companies buffeted by record low crude oil prices.
The reason: Bright prospects in Mozambique, where the exploration arm of Bharat Petroleum Corp. Ltd (BPCL), ONGC Videsh Ltd (OVL) and Oil India Ltd (OIL) hold a majority stake in the Rovuma Area 1 basin. After completing the exploration programme, the field’s operator Anadarko Petroleum Corp. has pegged the final recoverable natural gas resource in the area at 75 trillion cubic feet (tcf).
The 30% share in the field jointly held by the three firms entitles them to more than 22 tcf of reserves. This translates to nearly three times the reserves at India’s biggest gas field in offshore Bassein operated by the Oil and Natural Gas Corp. Ltd (ONGC) that holds close to 8 tcf; or 16 times the reserves at the D6 block of Reliance Industries Ltd in the Krishna-Godavari basin in the eastern offshore of India.
Anadarko disclosed the new estimates to analysts in a conference call on 3 March, detailing its guidance for the next fiscal year. The transcript of the call was available on Bloomberg on 4 March.
The new guidance is a marked shift from the earlier range of 50-70 tcf projected by Anadarko and gives greater clarity on the available resource in the region.
BPCL’s upstream subsidiary Bharat PetroResources Ltd (BPRL); OVL, which is the overseas exploration arm of state-owned ONGC; and OIL together hold the majority stake in Mozambique at 30%.
Individually, BPRL holds 10%, OVL has 16% and OIL holds 4%. Anadarko holds 26.5%, while the balance is held by a clutch of exploration companies such as Mitsui and Co. Ltd with a 20% stake, Empresa Nacional de Hidrocarbonetos EP at 15% and Thailand’s PTT Exploration and Production Plc at 8.5%.
A BPCL executive, on condition of anonymity, said this is the first time Anadarko has pegged a single resource figure, rather than announcing a range of recoverable reserves. This is because the exploration work is now over.
“This is, of course, a shift from earlier estimate, but it is still the gross recoverable reserve. It can be categorized as reserve only when the certification is done by the government,” he said, adding since the exploration programme is over, the current figure is not expected to vary much from the final figure.
The deepwater Rovuma Basin, Offshore Area 1, is spread over approximately 2.6 million acres in northern Mozambique. The exploration activities in the area have so far resulted in six of the world’s largest discoveries in 2010, 2011 and 2012. These natural gas accumulations are located in water depths of approximately 5,000 feet, according to Anadarko’s website.
“Mozambique is a phenomenal value-creation opportunity that will create a world-class competitive global LNG (liquefied natural gas) supply source, with over 1 million acres, we have discovered 75 tcf of gross recoverable resources and have proposed to build an initial development of two LNG trains at 10 million tonnes per annum, and make the facility scalable to over 50 million tonnes per annum. Several factors give this project cost advantage against other developments,” said James J. Kleckner, executive vice-president (international and deepwater operations) at Anadarko, in the conference call.
He said the company is closely working with its partners and the government to ship the first batch of LNG by 2019.
The Anadarko management also said the partners have already signed offtake agreements with various customers for 8 million tonnes of LNG after it is ready.
The BPCL executive quoted earlier confirmed that the offshore facilities to extract gas and build the onshore terminal will cost about $15 billion, out of which $10 billion will be debt and the remaining equity. Indian companies will have to chip in with $4.5 billion as their share of the total cost till 2019.
During an earlier interaction with analysts in February, the Anadarko management had indicated that the cost of setting up the LNG terminal might come down substantially as prices of most commodities required to set up the terminal are currently low.
However, the BPCL executive said the final investment figure will take some time to freeze.
The BPCL stock, which is the best performing among India’s oil marketing companies, rules at a premium especially due to its investments in its upstream venture in Mozambique and Brazil.
“Although BPCL’s shares are at a premium than its peers, of late, the premium has come down due to falling crude oil prices, which has reduced the price of LNG,” said Gagan Dixit, an analyst with brokerage firm Quant Capital Ltd.
Dixit explained that globally, in December, investments in LNG terminals on an average were breaking-even at an LNG price of $12.5 per million British thermal units (mmBtu), but now the price has come down to $8.5 per mmBtu. This has brought down the upstream share in BPCL’s stock price to `160 per share in February from `250 per share in December, he said.
On 5 March, BPCL’s shares on BSE closed at `775.30 apiece, up 0.70%, while ONGC closed at `319.80 per share, down 0.17% and OIL rose 1.10% to `493.70 per share. The exchange’s benchmark Sensex rose 0.23% to close at 29,448.95 points.
(Source: Mint March 7, 2015)
CAPEX CUT MAY HIT CAIRN INDIA’S PROFIT AND PRODUCTION GROWTH
As crude oil price softened, Cairn India management chose to slash its investments plans for next year to preserve cash and maintain dividends.
This could stagnate the company’s production growth as well as profit growth in the medium term. Investors may not view this kindly. Cairn India made its highest-ever annual capital expenditure of $1.1 billion in FY15 on existing assets as well as on new explorations as part of its $3-billion capex programme for the FY15 – FY17 period. This was projected to rise to $1.2 billion in FY16. However, with crude crashing from $115 a barrel to $60 now, its capex plan has been slashed nearly 60% to $500 million. Although the firm’s management maintained that the output in FY16 will remain higher than FY15, its earlier guidance of achieving 7-10% production volume growth over next 3 years is no longer valid.
Nearly 45% of the next year’s capex will be spent on core fields in Rajasthan, Ravva and Cambay, which contribute over 90% to the company’s current production. About 40% of the capex will go towards growth, mainly the Raageshwari gas field, for which it received management committee’s approval. The balance 15% of the capex will be spent on exploration work, informed the company’s MD & CEO Mayank Ashar in ateleconference call with analysts.
While the firm will be progressing ahead with polymer flooding of Mangala field under its enhanced oil recovery programme, similar programme for Bhagyam and Aishwarya now stands deferred. Similarly, development of satellite fields and upgrade of Mangala processing terminal too will not be undertaken in next fiscal.
Cairn India remains a cash-rich company, which generated over Rs 11,000 crore of operating cash flows each year in FY13 and FY14, and held Rs 1,643 crore in cash balance at end-Sept 2014 without any debt. This was after taking care of all its capex, paying over Rs 5,500 crore of dividends over last two years and a controversial Rs 7,500-crore loan to a promoter group company. Thus, the management’s reaction to alter capex plan on lower crude price may not go down well with investors. After all, in the petroleum E&P industry, investments are essential to ensure future production growth. On the other hand, conserving cash will raise doubts over its utilisation.
(Source: The Economic Times, March 7, 2015)
OIL WON’T SWING BACK TO $100 SOON: ANALYSTS
Last summer, after an unusually long period of relative stability, oil prices embarked on a downward journey, decreasing by half in just six months.
In the last few weeks, however, the market has worked on establishing a floor, enabling prices to regain some of the lost ground. Even so, they are unlikely to return to $100 a barrel soon, analysts say, and the consequences of the plunge have yet to play out fully.
The reasons for the sharply lower oil prices include increased supply from both traditional and non-traditional sources, such as shale; lower demand, particularly from high- intensity users such as China; and a change in the willingness of the Organization of Petroleum Exporting Countries (Opec), and Saudi Arabia in particular, to continue to play the role of swing producer (lowering production in response to declining prices, which in the past provided an earlier and broader floor for the market).
First, significant demand creation appears to be materialising more slowly than expected. Second, lower prices have created economic, financial and political pressures on some oil-producing countries – Nigeria, Russia and Venezuela – that, under certain conditions, could entail future disruptions in their supply to the global energy market. The impact has been to accentuate concerns about instability in countries such as Iraq and Libya.
Third, Saudi Arabia reaffirmed this week its November decision not to play the role of swing producer, and the oil minister added that this approach would be proven correct. Continued consolidation in prices is expected, though volatile at times, with a tendency toward higher oil prices over the course of the year. There will be no quick return to the $100 level.
(Source: Business Standard March 7, 2015)
ASIA FUEL OIL-BUNKER PREMIUM EASES TO NEAR 7-WK LOW ON LACK OF DEMAND
SINGAPORE: The 380-cst marine fuel premium eased to a near seven-week low on Friday, pressured by a lack of demand amid ample supplies.
The 380-cst bunker premium stood at US$3.90 (S$5.34) a tonne above cargo prices, down 33 cents a tonne from Thursday and nearly 40 per cent lower from last week.
Demand waned after the seasonally strong Lunar New Year passed, while onshore fuel oil inventories in Singapore have reached near eight-month highs.
Spot tenders from Indonesia’s Pertamina to sell up to 1.2 million barrels of low-sulphur waxy residue for April also weighed on the market. The tender will close on March 9, with bids valid until the next day.
Qatar’s Tasweeq is also offering 100,000 tonnes of straight-run fuel oil for April in a tender that will close on March 17, with a one-day validity.
One 40,000-tonne cargo for loading over April 6-10 and two 30,000-tonne cargoes over second-half April are available.
India’s Hindustan Petroleum Corp Ltd was said to have sold up to 30,000 tonnes of 180-cst fuel oil to Mercuria at a discount of around $18 a tonne to Singapore spot quotes, about 10 per cent firmer than its last sale of a December-loading cargo.
The cargo will load over March 18-22 from the port of Vizag.
Vitol bought from Lukoil 20,000 tonnes of 180-cst for March 31-April 4 at a discount of 90 cents 9 (S$1.2) below the average Singapore spot price over the remaining of March.
Hin Leong bought from Lukoil 20,000 tonnes of 380-cst for April 1-5 at a discount of 25 cents a tonne below the average Singapore spot price over the remaining of March.
(Source: Asia One March 7, 2015)