State oil firms’ credit profile to improve a tad in FY20
Financial profiles of state-owned oil marketing companies would improve marginally in FY20 driven by higher Ebitda and better gross refining margins (GRM), India Ratings and Research has said. The rating agency projects combined gross leverage of the three large state-run OMCs — Indian Oil Corporation, Hindustan Petroleum and Bharat Petroleum — to be between 1.9x and 2.2x during FY20 compared with 2.5x of FY19 and 2.5x in FY18. However, any higher-than-expected shareholder payout or subsidy receivable could have a negative impact on the expected credit profile, it added. Hopes of a stable government and a strong March 2019 quarter helped by record marketing margins have driven a 10-12 per cent rally in shares of IOC, BPCL and HPCL since January 1. IOCL and HPCL gained 12 per cent since the beginning of the year while BPCL rose 4 per cent as against 9 per cent Sensex return. Ind-Ra expects shareholder returns including dividends and share buybacks, which increased to ₹223 billion in FY19 to reduce in FY20.
GST Council has to decide on levy of GST on petroleum products: Pradhan
Minister of Petroleum & Natural Gas Dharmendra Pradhan on Wednesday said that any decision regarding levy of GST on petroleum products has to be decided as per recommendation of the GST Council. As per the section 9(2) of the CGST Act, inclusion of all excluded petroleum products, including petrol and diesel in GST will require recommendation of the GST Council, Pradhan in a written reply in the Rajya Sabha said. “Goods and Services Tax Council shall recommend the date on which goods and services tax shall be levied on petroleum crude, high speed diesel, motor spirit, natural gas and aviation turbine fuel. Thus while, petroleum products are constitutionally included under GST, the date on which GST shall be levied on such goods, shall be as per the decision of the GST Council,” Pradhan said. The prices of petroleum products in the country are benchmarked to international product prices. Generally, the prices of sensitive petroleum products in the country are higher/lower than other countries due to various factors, including prevailing tax regime and subsidy compensations by the respective governments, Pradhan had earlier said.
Start-up of H-Energy’s Jaigarh LNG import terminal in India delayed
Indian natural gas company H-Energy Pvt Ltd will delay the start of its liquefied natural gas (LNG) import terminal at Jaigarh to the fourth quarter of 2019, the company’s Chief Executive Officer Darshan Hiranandani said on Wednesday. H-Energy, a unit of real estate group Hiranandani, initially aimed to start full commercial operations at the new floating LNG terminal at Jaigarh, on India’s west coast, by the fourth quarter of 2018, but later pushed this back to the first quarter of this year. The terminal is a floating storage and regasification unit (FSRU) capable of handing 4 million tonnes per year of LNG. It will connect to the national gas grid at Dabhol through a 60-km (36-mile) pipeline that is expected to also be ready by the fourth quarter, according to a presentation by Hiranandani at an LNG conference in Singapore. Monsoon rains and the Indian elections have delayed the start-up of the terminal, he told reporters on the sidelines of the conference. The company is also building a 635-km pipeline connecting Jaigarh to Mangalore, which will likely be ready by 2023, he said. Work on that pipeline has also been moving slower than initially expected due to a road highway widening in the region, he said. On the east coast of India, H-Energy is developing a terminal using an offshore floating storage unit (FSU) in Andhra Pradesh. The company aims for that project to serve as an “LNG hub” for other LNG projects in the region including the Kukrahati LNG terminal in West Bengal that it is also developing. The contract for the Andhra Pradesh FSU is expected to be awarded by end of this year, he said. The Kukrahati LNG terminal will have an initial capacity of 3 million tonnes per year and will be connected through a gas pipeline to Shrirampur, near the Bangladesh border in the Nadia district of West Bengal. The pipeline will supply natural gas to power customers in West Bengal and Bangladesh, he said. Both the projects in eastern coast of India as well as the pipeline connecting to Bangladesh are expected to be ready by mid-2022.
Cut cess on production: Oil firms
Even as tensions over US-Iran conflict is keeping India’s oil & gas industry on its toes, the stakeholders are looking forward to a spate of measures from the government in the upcoming Budget. Some of the major demands the industry players are looking forward in this year’s Budget includes, rationalisation of cess, natural and gas products to be brought under GST, increase in fuel subsidy among others. According to K Ravichandran, senior vice president & group head-corporate ratings, ICRA, at the current elevated crude oil prices, the ad valorem cess of 20% limits the realisations and cash accruals of upstream companies as compared to the earlier fixed cess per MT. “Thus, a downward revision in the cess on crude oil production from the current level of 20% may help upstream companies improve their earnings in a higher crude oil price regime,” said Ravichandran. Additionally, one of the prominent demands of the industry has been the exemption from the levy of GST on exploration activity. Also, the sector has been demanding the reduction in Minimum Alternate Tax (MAT) rate for exploration and production operations, which, at about 20% of book profits, is a significant deterrent for investment. Hence, the industry insiders are of the view that it would help in government clarifying the eligibility for a tax holiday under Section 80-IB of the Act and the definition of “mineral oil” which would include natural gas retrospectively, a long-running demand of the industry. BUDGET EXPECTATIONS • Rationalisation of cess, which currently stands at an ad valorem rate of 20% • Exemption of exploration activity from the levy of GST • Reduction in MAT rate for exploration and production operations • Natural gas and other four petroleum products to be brought under GST • Reduction in customs duty on LNG import to encourage consumption in various sectors • Increase of fuel subsidy for sensitive petroleum products from Rs 336 billion for 2019-20 (BE) • Benefit of deduction under Section 35AD to be extended to the city gas distribution entities Further, the industry has been demanding that natural gas and other four petroleum products be brought under the GST to enable free flow of credit and avoid stranded taxes. However, the proposal has so far faced severe resistance from States, who are of the view that it will eat away a large part of their revenue. Commenting on the pre-budget expectations, Abhishek Bansal, chairman, ABans Group of Companies, said, “ The government has opted out of keeping petrol and diesel prices under GST ambit in this budget session, but has indicated that it may bring it soon, which has given hope to the industry.” Petroleum products like kerosene, naphtha and LPG are under GST, however crude oil, natural gas, aviation fuel, diesel and petrol have not been kept under this ambit. “If the government brings ATF under GST, then it would help the troubled and loss-making airline industry,” Bansal added. Also, the industry stakeholders claim that in order to promote the use of natural gas as fuel, liquified natural gas (LNG) imports should be exempted from the customs duty as crude attracts nil duty in comparison to LNG, which attracts 2.5% duty.
Pieridae to buy Shell Canada oil and gas assets for C$190 mn
Canada’s Pieridae Energy will buy oil and gas assets in Alberta from Royal Dutch Shell for C$190 million ($144.77 million), Pieridae said on Wednesday, securing supply for its planned liquefied natural gas plant in eastern Canada. The deal will consist of all of Shell’s midstream and upstream assets in the southern Alberta Foothills area, which produce 29,000 barrels of oil equivalent per day, including 119 million cubic feet per day of gas. It will enable Pieridae to secure the remaining supply needed for the first phase of its proposed Goldboro LNG plant in Nova Scotia. If it goes ahead Goldboro will be Canada’s first east coast LNG project, producing 10 million tonnes per annum. “Not only does this deal help us secure the remaining conventional natural gas supply needed for the first train of the Goldboro LNG project, it makes Pieridae a major player in the Alberta midstream and upstream industry,” said Pieridae Chief Executive Alfred Sorensen. Shell and its partners are building Canada’s first LNG export terminal in northern British Columbia, but the company has scaled back operations elsewhere in the country, including in Alberta’s oil sands.
Canadian LNG terminal Woodfibre signs up BP as its first customer
Woodfibre LNG, a liquefied natural gas (LNG) project in Canada, said it had signed a unit of BP as its first customer, a crucial step towards developing the export facility. Woodfibre said on Wednesday BP Gas Marketing Limited had agreed to buy 0.75 million tonnes per year (mtpa) of LNG for 15 years starting in 2023, when the project in British Columbia is expected to come onstream. The facility’s capacity is expected to be 2.1 mtpa. It said it was also working on an agreement “for BP Canada to provide gas transportation and balancing services ensuring a reliable delivery of gas to the Woodfibre LNG export facility over the 15-year term”. Dozens of companies are planning LNG export terminals in North America to capitalise on gas made accessible from shale drilling technology. Signing up committed, long-term buyers is vital for financing and building such projects. Royal Dutch Shell approved its 14 mtpa project in Kitimat, northern British Columbia, in October, triggering a new cycle of projects to be built to meet an anticipated LNG shortage in mid-2020s. But the LNG Canada project is the only one in Canada to have progressed to construction stage. Woodfibre LNG is a subsidiary of Pacific Oil & Gas, part of the Singaporean conglomerate RGE. Pacific Oil & Gas operates two LNG import terminals in China, as well as other upstream and midstream oil and gas assets. LNG produced on the west coast of Canada is likely to be sold in Asia which accounts for about 75 percent of global demand. There are at least half a dozen LNG export terminal projects planned in Canada, and more in the United States.