NEW DELHI: With ONGC deterring from building a refinery in Rajasthan, state-owned Hindustan Petroleum (HPCL) has expressed interest in setting up a 9 million tonne unit at the site of the massive oil find at Barmer district.
HPCL, which owns a refinery at Mumbai and Visakhapatnam in Andhra Pradesh and is equal partner in the just commissioned Bhatinda refinery in Punjab, is keen to take up the project, sources privy to the development said.
Oil and Natural Gas Corp (ONGC), which owns 30 per cent interest in the Barmer oilfields of CairnIndia, had in 2005 committed to building the refinery but later started soft- peddling the project.
Sources said HPCL has now entered the fray and has proposed to take 51 per cent stake in the project. ONGC, which originally had the authorisation from the government for processing the Barmer crude at the proposed refinery, would hold 26 per cent interest.
Cairn India, which holds 70 per cent interest in the fields, currently produces about 175,000 barrels per day oil (8.75 million tonnes a year) from the Rajasthan fields and has potential to go up to 300,000 bpd (15 million tonnes).
Sources said Rajasthan government has started the process of land acquisition of about 926 hectares.
CairnIndia’s Barmer find is now estimated to hold 6.5 billion barrels (900 million tonnes) of oil equivalent in place.
Production from Mangala oilfield, the largest of the 24 finds in the block, started on August 2009 and currently Mangala, Bhagyam and Aishwariya fields are producing about 175,000 bpd.
ONGC, after the exit of its flamboyant chairman Subir Raha whose brainchild was the setting up of the refinery, got SBI Caps to do a Financial Appraisal Study for the Rajasthan refinery.
The study found that a 7.5 million tonnes unit at Barmer would give just 1.15 per cent return and the company sought fiscal support at the rate of Rs 1,300 crore per annum in interest free loan for first 16 years.
With state persisting with the project, the Centre appointed a BC Tripathi Committee, which recommended that the state government take 26 per cent equity in the project and give 50 per cent exemption in excise duty to make it viable.
After submission of the Tripathi Committee report, ONGC once again examined detailed feasibility for a 4.5 million tonnes unit capacity through EIL in 2010 and subsequent financial appraisal by SBI Caps in 2011.
As per the financial analysis of the merchant banker, the project was not viable on standalone basis and required interest free loan of approximately Rs 1,100 crore per annum for 15 years from Rajasthan government.
RN CHOUBEY TO HEAD OIL REGULATOR
NEW DELHI: The government has appointed Rajiv Nayan Choubey, a senior bureaucrat, to head upstream oil regulatory body, DGH.
Choubey, a 1981 batch IAS officer of Tamil Nadu cadre, will be the first bureaucrat to head the highly technical arm of the oil ministry, which has been marred in controversies for the past few years.
‘‘The Appointments Committee of the Cabinet (ACC) has cleared the appointment of Choubey as DG, directorate general of hydrocarbons (DGH),’’ a source said.
Choubey is an additional secretary rank officer and was previously development commissioner (handlooms) in the ministry of textiles.
The oil ministry had on April 30 given an interim charge of the upstream advisory body to its joint secretary (Exploration) A Giridhar after incumbent S K Srivastava moved to Oil India Ltd as the CMD.
Srivastava, who was director (operations) at OilIndiain 2009, was made the temporary head of DGH to replace the controversial VK Sibal, in October 2009. He was formally appointed DG, DGH in February 2010. Prior to his temporary charge, he was deputy, DG, DGH under Sibal.
Sources said in Choubey, who is likely to take over as DG, in DGH next week, the oil ministry is looking at setting things right at the regulatory authority.
OIL FIRMS CAMPAIGN TO JUSTIFY PRICE HIKE
NEW DELHI: Stung by the sharp criticism from all parties across the political spectrum — including two union Cabinet ministers from the ruling UPA government — for the recent R7.5-per-litre hike in petrol price, the three state-owned oil marketing companies — Indian Oil, Bharat Petroleum and Hindustan Petroleum — on Tuesday ran a nationwide ad campaign to justify step.
The message they sought to convey was that their combined profits are not “huge” but just enough to maintain their blue chip status and credit ratings at the global level.
The oil companies also said that a combined profit of R6,177 crore during 2011-12 on a combined turnover of R8,33,000 crore worked out to a mere 0.7% of turnover — which is not even sufficient to meet their capital expenditure requirements.
The campaign did not however pacify the political class, who termed it a “political gimmick” and “useless tactics”.
“The common man is the hardest hit from this hike and no explanation is good enough to justify it,” said senior BJP leader and former petroleum minister Ram Naik. “It is absurd to think that such campaigning would do any good when explanations from the highest UPA leadership including the PM, finance minister and the petroleum minister could not justify the hike.”
While Congress allies including the TMC and DMK sided with the Left and the BPJ to protest against the hike, even two union ministers — Vayalar Ravi and AK Antony — joined in the chorus. Overseas Indian Affairs minister Vayalar Ravi in fact rejected the oil companies’ claim that they are running in losses.
ONGC MAY BID FOR $5-BN CONOCO OIL SANDS ASSETS
KUALA LUMPUR: Oil and Natural Gas Corp (ONGC), India’s biggest government-owned energy explorer, is considering bidding for part of ConocoPhillips Canadian oil sands holdings worth around $5 billion, a source with direct knowledge of the situation told Reuters on Tuesday.
The Houston-based company has been looking to sell assets in a number of countries includingNigeriaas part of a global restructuring. ConocoPhillips recently completed the spin-off of its refining activities into Phillips 66, a newly created independentUScompany.
ConocoPhillips said in January that it is selling a stake in sixAlbertaproperties that produce 12,000 barrels of oil a day from an estimated 30 billion barrels of bitumen.
Asked whether ONGC Videsh, the overseas arm of ONGC, was interested in buying the assets, the source said: “It’s in the process. It is seriously looking at it.”
“The first round of bids is due soon and there is likely to be competition from other international parties, including possible Chinese interest,” said the source.
Government-run OilIndiais also looking to buy stakes in ConocoPhillips’ oil sand assets inCanada, its head of finance said last week.
Of the six projects offered, only Surmont, run in a joint venture withFrance’s Total, is producing oil. Located south of the oil sands hub ofFort McMurray,Alberta, the steam-driven development pumps about 25,000 barrels a day.
The partners are working to boost that to 136,000 bpd, starting in 2015. The other properties are the Thornbury, Clyden, Saleski,CrowLakeandMcMillanLakeassets. The land totals 715,000 acres.
In May, ConocoPhillips had hired BNP Paribas to help sell its Nigerian assets, including on-shore, off-shore oil and gas fields and a stake in its LNG Brass facility. The assets were expected to attract interest from Nigerian firms such as Conoil and Oando and Asian players includingChina’sSinopec,India’s ONGC and South Korean firm KNOC.
RS 20,000-CRORE REFINERY FOR RAJASTHAN?
NEW DELHI: Rajasthan wants a oil refinery. So what if it is landlocked, so what if it would require special concessions from the Centre and states to make such a project financially viable. Chief minister Ashok Gehlot has been pushing for it, and with the blessings of the Prime Minister’s Office, the state is finally set to get a 9-million-tonnes per annum refinery project.
The R20,000-crore plus refinery, originally conceived in 2004-05, will come up with joint participation of state-owned Hindustan Petroleum Corporation Ltd (HPCL) and Oil and Natural Gas Corporation (ONGC).
The exact equity participation is yet to be finalised, but a senior government official told HT that HPCL may pick up a 51% equity stake, ONGC 26% and Engineers India Ltd 5%, with the balance stock to be held by the state government.
“ONGC has informed the state government that its discussions over equity participation with HPCL are at final stage. ONGC intends to take 26% and HPCL 51%,” he said.
A Rajasthan government official said “The state has already started the process of land acquisition of about 5,719 bigha (926 hectares) for the refinery.”
Gehlot has already sought special exemptions from the finance ministry for the refinery, including exemption of the 50% excise duty for 5 years.
ONGC chairman and managing director Sudhir Vasudeva confirmed that discussions were on, repeated attempts and mails to HPCL’s chairman and managing director S Roy Choudhury did not elicit any response.
Rajasthan has huge reserves of crude oil and natural gas, and produces about 175,000 barrels of crude per day from Mangla & Bhagyam fields of CairnIndia.
Sources said it still remains to be seen if the project will see the light of day, or it is being pushed to woo voters ahead of state elections in 2013. “An announcement on paper is very different from the project coming up,” a former petroleum secretary said.
RGTIL & GAIL MAY LOSE KG-D6 PIPELINE PERMITS
MUMBAI: The petroleum regulator has recommended cancellation of licences for five pipelines that state-run GAIL India and a Mukesh Ambani-controlled company were planning to build to transport natural gas from Reliance Industries’ D6 block, where output has fallen sharply, official sources said.
The oil ministry has received a communication from the Petroleum and Natural Gas Regulatory Board (PNGRB) saying the licence for one pipeline being planned by GAIL and four by Reliance Gas Transportation Infrastructure (RGTIL) should be revoked as work has not progressed on the projects for a long time.
GAIL and RGTIL did not respond to ET’s queries. A source close to RGTIL, which is controlled by Mukesh Ambani, said building pipelines would be justified only if gas was available, and if output from D6 rose, the company could build the pipelines quickly. D6 output has dropped to 34 mmscmd since hitting a peak of 61.5 mmscmd in March 2010.
It was initially expected to rise to 80 mmscmd. GAIL is one of the suitors considering picking up a stake in Reliance Gas, which has appointed JPMorgan, Citi and SBI Caps as advisors for the sale and is seeking a valuation of up to Rs 10,000 crore, industry sources say.
The pipelines that were planned include RGTIL’s projects to linkKakinadanear the D6 block with Chennai, Tuticorin,Bangalore, Mangalore and Haldia, and GAIL’s pipeline from Haldia to Jagdishpur. GAIL India executives said the company was keen to build the Jagdishpur-Haldia pipeline.
“There has been a delay in building the Jagdishpur-Haldia pipeline and lack of gas in KG-D6 is a constant concern, but we remain keen to build it and have done considerable pre-project work and will be applying for some preliminary permissions soon that will allow us to start some groundwork on the pipeline,” said a senior GAIL executive.
“I’m currently not aware of the PNGRB order, but it is only the ministry’s mandate to issue or cancel licences; so I’m not overtly concerned,” he added. The deadline to build this pipeline expires in December 2012.
Industry sources told ET that RGTIL not building the Kakinada-Haldia pipeline is one major reason why GAIL is unable to build the Jagdishpur-Haldia pipeline, “That is a problem, but we know how to overcome it and will be going ahead with our plans soon,” added the GAIL executive.
Analysts, on the other hand, believe this is unnecessary blame game as the crux of the overall delay is the sheer lack of gas availability in KG-D6 due to the fall in production. “Earlier, RGTIL and GAIL had planned to cover industrial clusters across UP, West Bengal and South India through these pipelines and have a loop over the entire area, but now due to the fall in gas production at KG-D6, it is difficult to justify investments in these pipelines; so obviously both these companies are going slow,” said a senior energy analyst with a brokerage.
RGTIL currently operates the $3.75-billion east-west gas pipeline that transports gas fromKakinada, the landfall point of D6, to other industrial hubs in the country.
Last year, PNGRB had questioned RGTIL on its failure to start pipe-laying works for these projects and asked it to reply as to why its licence to build and operate these pipelines should not be cancelled.
Also, Andhra Pradesh Gas Infrastructure Corporation had submitted an expression of interest to build these two pipelines as RGTIL was going slow on these projects and RGTIL had raised objections against it.
OIL PRODUCTION WOES FOR ONGC
MUMBAI: The ONGC stock, which has managed to do a little better than the broader markets, post the good results last Tuesday, may face difficulty in sustaining this performance. ONGC surprised the markets with better-than-expected set of numbers for the March 2012 quarter, thanks to a lower-than-expected share in subsidy, which improved its net realisations and boosted profits. However, concerns have risen with declining domestic oil production from ONGC’s mature oil wells.
Production is likely to dip further in FY13 despite good reserve ratios, which will accrue benefits in the longer run. Oil production from its international subsidiary, ONGC Videsh Ltd (OVL), is also under pressure as geo-political problems inSyriaandSudanpersist. These concerns have led analysts to cut their earnings estimates for the company for FY13 and FY14. For instance, analysts at BRICS Securities have lowered their FY13 and FY14 earnings estimates by 14 per cent and 21 per cent, respectively, on account of lower oil production from the nominated blocks and OVL.
Apart from the high reserve accretion, what also stands in ONGC’s favour is valuation. The stock, at Rs 254 levels, is trading at a PE of about eight times, which is near the lower end of its historical band of 7-12. These should provide support on the downside.
A decline in crude oil production from domestic fields has been observed during the three months and full year ended March 2012. Crude oil production declined to 5.78 million metric tonnes (MMT) in the March 2012 quarter from 5.96 MMT in the December 2011 quarter, while output at its joint ventures inched up from 0.78 MMT to 0.81 MMT owing to higher production by CairnIndia. For FY12, too, crude oil production from ONGC’s domestic fields stood at 26.9 MMT, down 1.3 per cent over FY11. Even though ONGC has guided for FY13 domestic oil production of 27.54 MMT, most analysts don’t see the company achieving the target. Analysts at Asian Market Securities attribute this to lower production from mature oil fields.
Due to the decline in output from mature fields, analysts at BRICS have again lowered their production estimates from ONGC’s nomination blocks for FY13 and FY14 by eight per cent and 10 per cent over their earlier estimates to 24 MMT and 24.5 MMT, respectively. They have also lowered their OVL production estimates for FY13 and FY14 to six MMT each, a reduction of 20 per cent and 30 per cent for both years, factoring in geopolitical problems inSudanandSyria. Even ONGC’s management, at the recently held analysts’ meet, had expressed concerns over OVL’s production and expects production inSudanto be impacted in FY13.
Positively, ONGC reported an ultimate reserve accretion of 84.13 MMT of oil equivalent (the highest ever in two decades, say Morgan Stanley analysts) with an impressive reserve replacement ratio of 1.79 in FY12 compared to 1.76 in FY11 aided by 23 exploration discoveries. This is a huge positive and would benefit ONGC’s oil production, albeit in the longer term.
Subsidy sharing for upstream companies (oil and gas producers) came at 39.7 per cent (Rs 55,000 crore) for FY12. Of this, ONGC shared Rs 44,465.6 crore, lower than analysts’ expectations, which boosted its net crude oil realisations. However, in FY13, looking at the rupee depreciation, the overall subsidies are likely to increase. Analysts at Morgan Stanley estimate overall subsidies to touch Rs 1,62,000 crore (FY12 subsidies were about Rs 1,38,500 crore). Even if ONGC’s share in the overall subsidy burden remains the same as in FY12, Morgan Stanley’s analysts estimate net realisations to fall to $58 a barrel from their earlier estimate of $60 a barrel, implying a decline of five to seven per cent to their estimates.
For now, given the ad-hoc sharing mechanism and that the final burden typically becomes clearer at the end of any fiscal year, analysts expect it to result in volatility in quarterly earnings.
Some respite to ONGC, though, comes from higher gas production, which increased four per cent year-on-year during the March 2012 quarter to 6.03 billion cubic metres (BCM). Natural gas production in FY12 stood at 25.5 BCM. Mayur Matani at ICICI Securities expects gas production from domestic fields to reach 28.4 BCM by FY14, implying a compounded annual growth rate of 5.5 per cent in FY12-14. Growth in output is expected to come from joint ventures and new as well as marginal fields.
With the revision in earnings estimates due to lower domestic oil production, lower output from OVL and fall in net realisations due to higher subsidies, analysts have tweaked their one-year target prices too, which currently range between Rs 280-300. However, they add that any decision on fuel price hikes by the government can provide some upside to their estimates.
GAIL INDIA SETS YIELD CUT-OFF FOR UP TO RS 7.5 BILLION BOND SALE
MUMBAI: GAIL India Ltd fixed a coupon of 9.14 percent for a bond sale that could raise up to Rs 7.5 billion ($135.06 million), four bankers with direct knowledge of the deal said.
GAIL India is issuing 8-year bonds with separately tradable redeemable principal parts, with redemptions taking place between the fifth year to the eighth year, said the bankers.
The bond has a call option at the end of fifth year, they said.
RIL SEEKS HUGE RISE IN KG-D6 GAS PRICE
NEW DELHI: Mukesh Ambani-led Reliance Industries Ltd (RIL) has sought a two-three fold increase in the price of gas being produced from its Krishna-Godavari (KG)-D6 fields, alsoIndia’s largest gas producing field, off the eastern coast. In a recent letter addressed to the empowered group of ministers (EGoM), which will decide on whether or not to raise the price of KG-D6 gas before 2014, RIL has said the price of gas from KG-D6 should be linked to the price of imported LNG secured under long-term contracts.
Against the KG-D6 gas price of $4.2 per unit, the landed price of imported LNG secured through long term contracts is around $10-12 per unit.
“While the price of $4.2 per unit certainly needs revision, its linkage to imported LNG is not correct,” said a former petroleum secretary on the condition of anonymity.
“At present, the gas that you are planning to import fromTurkmenistanexclusive of transportation and other charges is $7-7.5 a unit at their border. So if a third country can sell you gas at that price, why should our own domestic gas be priced any higher, he added.
RIL has been seeking revision in the price of gas from the KG-D6 field citing contractual requirements. “Given the provisions of the PSC, the contractor is obliged to conduct sales of gas at the best available arms-length prices for similar sales in the region where gas is freely sold,” RIL said in its letter.
Stating that a large number of KG-D6 customers are also buying LNG sourced at the PLL terminal at Dahej under term contracts, where the price of LNG is linked to international crude prices, RIL said that over 35% ofIndia’s gas demand is met by imported LNG.
RIL’s letter on gas price revision has gone to finance minister Pranab Mukherjee, who is also the chairman of the EGoM.
ESSAR OIL COMPLETES RS 10,000 CRORE EXPANSION AT VADINAR
JAMNAGAR: Crude refining major Essar Oil Ltd on Tuesday announced completion of its Rs 10,000 crore expansion project at Vadinar inGujarat, four months ahead of the schedule.
The total refining capacity will go up to 20 million tonnes (mt) a year or 405,000 barrels a day.
The company is also becoming self-reliant in its power requirement with the commissioning of its 500 megawatt (MW) imported coal-fired captive power plant in June-end, Mr Lalit K. Gupta, Managing Director and CEO, said here.
For the last four years, the Essar refinery is running at 125 per cent of its capacity, which expanded from 10.5 mt a year to 18 mt a year in March this year. Essar Oil’s own power requirement is 300 MW.
The captive power plant will bring down cost of refining by $1/barrel. The company has so far invested Rs 24,000 crore at Vadinar, he said.
With the Reliance refinery also inJamnagar, the westernmost city in Gujarat now accounts for 40 per cent ofIndia’s refined oil production. Essar Oil, at present, sources crude from West Asian countries such asAbu Dhabi,Iraq,Iran, and also Latin American countries.
RUIAS MULL STAKE DILUTION IN ESSAR OIL TO INCREASE LIQUIDITY
VADINAR (JAMNAGAR): The promoters of Essar Oil plan to dilute their stake in the refiner to increase the liquidity of the company’s stocks on the bourses, a top executive said.
Ruias, the Mumbai-based promoters of Essar Group, hold 90% stake in Essar Oil, the country’s secondlargest private refiner. The company on Tuesday commissioned its Rs 24,000 crore, 20-MMTPA refining facility at Vadinar inGujaratafter completing its optimisation project.
“Institutional investors, particularly from overseas, have been expressing concern over the lack of liquidity of Essar Oil stocks.
The promoters are considering diluting their stake as soon as they find the market favourable to make the stock attractive to foreign investors,” said MD and CEO Lalit Kumar Gupta.
The dilution of stake will take place before market regulator Sebi’s June 2013 deadline for promoters to reduce holding in listed entities to below 75%, Gupta added. With the completion of the optimisation project, the Vadinar refinery can now process over 80% of ultra heavy and heavy crude.
Gupta said Essar Oil will be forced to find market for diesel inAustralia,New Zealandand northwest Europe, following a rise inIndia’s refining capacity. “Our gross refining margins will increase by $4-$5 per barrel due to completion of the optimisation project,” he said.
Essar Oil, which operates 1,400 fuel outlets in the country, is seeking government subsidy for private sector oil marketing companies. “The government offers subsidises to privatesector companies in the fertiliser sector, but not in the petroleum sector,” Gupta said, adding “While government-owned oil marketing companies continue to expand their retail network despite losses, we are compelled to increase sale of petrol, CNG, lubricants and non-fuel products and services.”
Meanwhile, Essar Oil has maintained that the company is not liable to pay interest on its deferred sales tax of Rs 6,300 crore, as claimed by theGujaratgovernment.
OIL NEAR $100 STILL A THREAT TO GLOBAL ECONOMY: IEA
KUALA LUMPUR: Oil prices near $100 a barrel are still a threat to a slowing global economy that is likely to consume less fuel than the International Energy Agency (IEA) had forecast, the IEA’s executive director said on Tuesday.
Brent crude this week dropped to a 16-month low below $96 a barrel before recovering to around $99, well off a peak of more than $128 in March but not low enough to stimulate, rather than hinder growth, Maria van der Hoeven said.
“Let’s be honest, we still confront a situation of near triple digit oil prices,” Van der Hoeven told reporters at a news conference in the Malaysian capital.
“This is placing a huge burden on budgets and that’s contributing to the risk of further economic slowdown.”
Increased supply from OPEC producers had helped ease the price, she said. The fall was important, she said, but producers and consumers could not yet claim victory in taming the oil price.
“I do hope the price will come down,” she told Reuters on the sidelines of an industry conference. “The market is well supplied, producers are supplying more than demand.”
OPEC output in May hit its highest levels since 2008, asSaudi Arabiakept production high despite the fall in prices.
Top oil producer Saudi Arabia pumped an extra 100,000 bpd in May, a Reuters survey of OPEC output found, taking output to 10.10 million bpd, the highest in decades.
Saudi Arabiahas said it is targeting an oil price around $100 a barrel, but is unlikely to throttle back on output just yet.
More comfortable inventory levels in consuming countries were enough to offset any concerns that rising Saudi output left less spare capacity in global oil production to meet any surprise supply outages, Van der Hoeven said.
“Of course it’s a trade-off between spare capacity and more comfortable consumer stocks,” she told Reuters. “Producers have clearly made every effort to ensure there is sufficient supply to the market.”
A slowdown in economic activity inChina,IndiaandEuropecould lead to global growth in fuel consumption coming in a lot weaker than the 800,000 barrels per day that the IEA has forecast for 2012, Van der Hoeven said.
“Oil demand growth could be markedly weaker than our base case assumption,” she said, declining to give a new estimate of global demand growth for the year ahead of the release of the IEA’s monthly oil market report next week.
It was too soon to say if there was enough oil on the market to meet the disruption to Iranian exports caused byU.S.and European Union sanctions, she said.
The sanctions aim to cutIran’s oil income and force the country to halt its nuclear programme, which the West suspects is aimed at developing weapons.
The IEA was ready to coordinate a release of oil from strategic stocks, she said, if a serious disruption in supplies made it necessary.
Leaders of the Group of Eight major economies raised the pressure onIranlast month by signalling their readiness to tap into emergency oil stockpiles quickly this summer if tougher new sanctions onTehranthreaten to strain supplies.
The G8 put the IEA — the West’s energy adviser responsible for coordinating reserves — on standby for action in the clearest sign yet that U.S. President Barack Obama is winning support for tapping government-held oil stocks for the second time in two years.
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