Govt may shut doors on consolidation in public sector oil firms
Government may shut doors on further consolidation in the public sector oil companies but allow companies to diversify and grow organically to achieve the scales that match the performance of international and domestic private sector oil and gas companies. Sources in the government said that unpleasant experience in the last year’s merger of PSU oil refiner and retailer HPCL with upstream major ONGC has tilted the equation in favor of organic growth for state-owned oil companies. There is also a thinking that the government should have no role in oil being a non core sector and most operations should be privatized. The government’s fresh thinking could seal the fate of an earlier plan to create an integrated public sector ‘oil major’ by merging companies having synergy of operations. Under that plan, the first case of ONGC-HPCL merger was completed last year and there was another plan in works to split gas transportation company GAIL into two and merge one of the entities with either IOC or Bharat Petroleum Corporation. According to sources, the fallout of the fresh move could also be that PSUs may not be encouraged to bid for Bharat petroleum Corporation Ltd. (BPCL), where government is selling its entire 53.29 per cent equity to a strategic investor. The Centre is hoping to bring in global oil majors such as Aramco, Total, Exxon to pick up its stake in BPCL that at current shares proices may be worth Rs 60,000 crore. “The projection for oil market remains subdued so putting additional pressure on oil companies to pick up government equity at this juncture is not called for. The companies need to diversify and grow operations by making investments at right places. Putting extra debt burden by pushing through M&A is not required so the consolidation plan would remain on hold for now,” the source quoted earlier said. ONGC’s acquisition of government’s share in HPCL has pushed the upstream oil major from debt free status into one where debt levels have reached closer to unsustainable levels. In one of the most expensive buys, ONGC last year paid Rs 36,915 crore to buy government’s entire 51.11 per cent stake in HPCL. But the deal brought down ONGC’s cash reserves to Rs 1,013 crore as of March 31, 2018 from Rs 10,799 crore as of March 31, 2014 and saddled it with Rs 25,593 crore debt in FY18. Moreover, post merger HPCL didn’t even recognise ONGC as its promoter for almost one-and-half-years before a Securities and Exchange Board of India (SEBI) rap forced it to list its majority owner as a promoter. The things could get worse if an M&A is pushed onto IOC that has already has minuscule cash balance. Though the company is showing relatively fair financial performance, a consolidation exercise would push it to add debt in its books that could weaken its operations. The company is in the midst of an expansion diversification exercise that could suffer if debt get added to its books. IOC is sitting on special oil bonds (liquid holdings) of value running into few thousand crores, but this could only part-finance any M&A deal. The proposal to merge oil PSUs was earlier mooted during the time Mani Shankar Aiyar. It was identical to the one that was explored by the current government — to merge HPCL and BPCL with ONGC, and OIL with IOC to create two large integrated oil and gas corporations. However, Aiyar’s idea was spiked by an official committee that studied the matter in 2005 but felt that a merger or formation of the holding company was not advisable at that juncture. The proposal was again revived in 2014 by the BJP-led government, but again in September 2015 a high-level panel on the recast of public sector oil firms did not favor mergers to create behemoths and instead suggested greater autonomy by transferring government shareholding in oil PSUs to a professionally managed trust. The talk of merger has once again started after then Finance Minister Arun Jaitley in his Budget for 2017-18 proposed to “create an integrated public sector ‘oil major’ which will be able to match the performance of international and domestic private sector oil and gas companies.” There are 13 oil PSUs ranging from upstream oil producers like ONGC and Oil India to downstream oil refining and fuel marketing firms IOC, BPCL and HPCL to gas transporter GAIL India Ltd and engineering firm Engineers India Ltd.
India to allow foreign companies to bid in oil sector selloff
India will allow global energy companies to bid during the strategic disinvestment of state-run oil companies, oil minister Dharmendra Pradhan has said. He added that the proposed partnership with Saudi Aramco and Abu Dhabi’s ADNOC for building a $44-billion mega refinery complex in Maharashtra was on “right track”. Reports from Abu Dhabi, where Pradhan is attending the energy conference and exhibition ADIPEC, quoted the minister as saying that the doors for foreign direct investments in India’s fuel retail market were opened by Prime Minister Narendra Modi when he met oil company bosses in Houston during his recent US visit. The Prime Minister’s round-table was attended, among others, by chief executives of ExxonMobil, BP, Royal Dutch Shell, Rosneft, Saudi Aramco and ADNOC. Agency reports quoted Pradhan as telling reporters in Abu Dhabi that India was “inviting” foreign majors and he was “enthusiastic” about their participation. The government is planning to hive off Bharat Petroleum (BPCL), the country’s third-largest fuel retailer and second-largest refiner in the public sector. It also holds the view that ONGC was free to sell Hindustan Petroleum (HPCL), the country’s secondlargest fuel retailer and thirdlargest public sector refiner. During Modi’s first term, the government had sold its entire 51 per cent stake in HPCL to flagship explorer ONGC with the aim of creating “world class” integrated oil company to compete with global majors.
Adani Gas Q2 net doubles to Rs 120 cr
Adani Gas Ltd on Tuesday reported more than doubling of its second quarter net profit on lower tax rate. Consolidated net profit in July-September was at Rs 120.06 crore, or Rs 1.09 per share, compared with Rs 50.66 crore, or Rs 0.46 per share, profit after tax (PAT) in the same period a year back, the company said in a statement. Revenue from operation soared 12 per cent to Rs 502.82 crore. The “increase in PAT reflects the reduction in tax expenses on account of changes made vide Tax Laws Amendment Ordinance 2019 as applicable to the company,” it said. The government had in September lowered base tax rate for corporates to 25 per cent from 30 per cent earlier. The volume of compressed natural gas (CNG) sold to automobiles increased 9 per cent, while there was a 6 per cent rise in sale of piped natural gas (PNG) to households. Overall, sales volume grew 7 per cent to 146 million standard cubic meters (mmscm) on the back of volume growth in both CNG and PNG distribution, the statement said. CNG volumes increased to 75 mmscm, while PNG sales grew to 71 mmscm. Gautam Adani, chairman, Adani Group said, “Adani Gas Ltd has expanded its footprint in the sector across the country with setting up gas stations.” The recent acquisitions in the city gas distribution licenses will successfully provide uninterrupted services across the geographical areas under AGL, he said, adding that French giant Total picking half of promoter equity in the company will help expand the network. Adani Gas is developing and operating City Gas Distribution (CGD) networks to supply PNG to industrial, commercial and domestic (residential) customers and CNG to the transport sector. Headquartered in Ahmedabad, the company has already set up city gas distribution networks in Ahmedabad, Vadodara in Gujarat, Faridabad in Haryana and Khurja in Uttar Pradesh. It has already started commercial operations at Porbandar in Gujarat and Palwal in Haryana, which the company won in the recent CGD bid round. In addition, its joint venture company has already commenced its commercial operations in the cities of Prayagraj, Chandigarh, Ernakulam, Panipat, Daman, Dharwad, Udhamsingh Nagar and Bulandsahar.
Reliance Industries’ deal with Aramco: Mukesh Ambani wants chemicals to dominate Jamnagar refinery output
Reliance Industries (RIL), India’s most profitable company, has prepared a blueprint for its oil-to-chemical (O2C) play as it advances the negotiations with strategic investor Saudi Aramco to sell strategic stake in the business. According to the plan, RIL wants to convert 70 per cent of its output from Jamnagar refinery and petrochemical complex to chemicals. At present, the complex produces 90 per cent fuels – primarily petrol, diesel, naphtha, kerosene and Liquefied Petroleum Gas (LPG) – and the rest 10 per cent chemicals. “The ultimate goal is to achieve over 70 per cent conversion of the crude, which is refined in RIL’s twin refineries in Jamnagar, to high-margin chemical building blocks of olefins and aromatics,” said company sources. The present petrochemicals production includes polymers, polyesters, fiber intermediates, aromatics, elastomers and composites solutions. “Saudi Aramco is keen on the concept of billionaire Mukesh Ambani and that is why it expressed its desire to become strategic partner in the business,” said sources. The Saudi government-owned company, which is going for the world’s largest initial public offering, plans to pick up 20 per cent stake in RIL’s O2C business – which includes material assets such as two refineries and a petrochemicals complex in Jamnagar, Gujarat, besides stake in fuel retailing – for Rs 1100 billion. In the last annual general meeting (AGM) of RIL, Ambani announced the deal with Aramco. “As the world migrates from fossil fuels to renewable energy, we will further maximise O2C conversion and upgrade our fuels to high value petrochemicals. This upgradation will be implemented in a phased manner over the next decade to meet the rapidly increasing demand for petrochemicals, in India and the region,” Ambani vaguely mentioned about the O2C plan in the annual report. The fundamentals of the O2C strategy are to employ advanced molecule management to upgrade the refinery intermediate streams by value, said company officials. “Furthermore, RIL has developed a disruptive innovative technology, a Multizone Catalytic Cracking (MCC) process, which converts a wide range of feedstock to high value propylene and ethylene in a single riser,” they said. RIL’s Jamnagar complex is in the global limelight, as it has commissioned the world’s first fully integrated Refinery Off Gas Cracker (ROGC) and petcoke gasifiers, besides the existing twin refineries, which is the world’s largest single location refining facility. The Jamnagar site has complexity index of 21.1, one of the highest in the world. According to the deal, Aramco will supply 500,000 barrels of crude oil every day to RIL’s Jamnagar refinery (28 per cent of their requirement) on a long-term basis. “Aramco will be able to add substantial value through the feedstock that they supply to RIL,” said the company sources. Ambani focusses on sustainability and circular economy concepts to convert RIL’s O2C business as one of the top five petrochemicals companies in the world. RIL’s hydrocarbon business faced challenges because of weak global trade since 2018-end. Volatility in global feedstock prices, muted demand and incremental supply from new capacities led to the challenging environment. The refining business also witnessed uncertainty in oil supply due to heightened geopolitical tensions in the Middle East, sanctions on Iran, sharp production decline in Venezuela and armed conflict in Libya. The production of high-value light distillate cracks was lower due to moderation in the petrol demand across key markets. RIL’s gross refining margin fell for the seven consecutive quarters until June 2019, before recovering in the second quarter. The Jamnagar refineries are capable of producing Euro VI fuel.
PSUs may be barred from bidding for BPCL stake
State-owned entities may be barred from bidding for the Centre’s stake in oil-refiner-marketer Bharat Petroleum Corporation (BPCL), which could fetch close to Rs. 700 billion or two-third of the disinvestment revenue target of Rs. 1050 billion for this fiscal, as it does not want to repeat PSU-to-PSU deals similar to ONGC-HPCL or PFC-REC. A clause this effect might be incorporated in the expression of interest (EoI) and preliminary information memorandum (PIM) document for BPCL stake sale, sources told FE. State-owned oil retailer Indian Oil Corporation (IOC) was evaluating the option of throwing its hat in the ring and taking over the entire 53.3% government stake in BPCL. According to an internal note circulated among IOC top brass which FE has accessed, its marketing division discussed “the issue of taking the government stake in BPCL or the ONGC stake in HPCL by IOC”, in the light of the risks to its business from a possible privatisation of BPCL, at a meeting on October 25. The note also talks about the “enormous pricing flexibility” that BPCL might enjoy if its new owner turns out to be one with major crude oil assets and experience in oil retailing, a scenario which could be to the detriment of IOC’s financials in the short term. The government’s stake in BPCL is worth about Rs. 600 billion at current market prices, but it could go up to Rs. 700 billion as the transaction is expected to happen at a premium over the current prices. In FY18, the government had raised Rs. 369.15 billion by selling its 51% stake in HPCL to upstream major ONGC and in FY19, its REC stake was sold to PFC for Rs. 150 billion. Even though the Centre mobilised a record Rs. 1000 billion in FY18 and Rs. 850 billion in FY19 from disinvestment of its stake in various companies, some of its sheen was taken away by the fact that CPSE-CPSE deals played a major role in boosting the receipts. Currently, IOC owns 43% fuel retail outlets in the country while BPCL’s share is 23%. HPCL owns 24% of the domestic fuel retail network. At FY19-end, IOC had reserves and surplus of Rs. 1030 billion and a debt to equity ratio of 0.7. Saudi Aramco, the world’s largest integrated oil and gas company, might team up with an Indian company to bid for BPCL as it was looking at downstream investments in high growth economies, including India.
Uniper says it sees Wilhelmshaven LNG terminal by 2023
German utility Uniper believes the planned Wilhelmshaven floating terminal for liquefied natural gas (LNG) can come on stream in the year 2023, its chief financial officer said in a call on Tuesday. Sascha Bibert, in a call with reporters on nine-month financial results, said that there is good demand for the gas and interest from suppliers of sea-borne gas into Germany. Uniper, which trades LNG and has LNG offtake commitments from U.S. producers, will be a facilitator of the 10 billion cubic metres regasification project, while various possible partners are interested in booking capacity or buying shares in a future terminal operator.
ONGC seeks buyers for KG Basin gas
Oil and Natural Gas Corp is seeking buyers for the first gas from its KG basin fields, which would begin production next month after years of delay. ONGC is auctioning 0.75 million metric standard cubic meters a day (MMSCDM) of gas for three years from its KG-DWN-98/2 fields, bids for which are to be submitted by November 19. ONGC is spending more than $5 billion to bring these fields to production. It has set a reserve price of $5.61 per million metric British thermal unit (mmBtu) and the minimum bid quantity at 0.05 MMSCMD. Bidders will have to quote the number of days they would need to offtake gas after being awarded—with preference for the bidder with fewer days in case of a price tie. Bidders will make a single bid electronically. Other bidders will be asked to match the highest quoted price. Reliance Industries and partner BP too are set to e-auction 5 MMSCMD of gas from its KG basin fields on November 15. They plan to supply gas from April. These new domestic gas supplies will likely replace some of the liquefied natural gas (LNG) imports that have expanded 7.9% in the first half of 2019-20 and make up half of country’s gas consumption. But a recent collapse in the global LNG market has made it tougher for ONGC and RIL-BP to extract high prices. RIL-BP’s reserve price for KG gas is linked to three months dated Brent with a slope of 8.4%. At the current crude oil rate of $62 a barrel, it comes to $5.21 per mmBtu. ONGC’s reserve price is linked to the average three months rate of LNG delivered to west India plus a constant of $1and a marketing margin of $0.20 per mmBtu, which comes to $5.61for October. The global LNG market is in a slump due to a combination of excessive supply, slowing major economies, and warmer-than-usual winter in key importers like Japan and China. Spot LNG rates are currently at their lowest for this time of the year in a decade. The glut is expected to keep prices low next summer. Bidders for ONGC gas will have to quote for all three years while RIL gas buyers have the option to seek volumes for two to six years. ONGC and RIL have freedom to sell their gas at market rates, which must not breach the government-set ceiling, currently at $8.43 per mmBtu.
GAIL plans two million tonne polycarbonate plant
State-run natural gas major GAIL plans to set up an around 2 million tonne polycarbonate plant, a senior official said. According to statistics, the demand for polycarbonate stood at 148.61 thousand tonnes in 2018 and is projected to grow at an annual rate of 7 percent till 2030 to reach 371.03 thousand tonnes. “We are working and exploring the possibility of producing speciality chemicals polycarbonate. Now, the entire polycarbonate demand is met through imports as there is no domestic production,” GAIL executive director for marketing and retail) Kamal Tandon said here Tuesday. Polycarbonate is a group of thermoplastic polymers containing carbonate groups in their chemical structures and used in industries like electronic components, construction materials, data storage, automotive, aircraft, railways, and security components and other applications. “Currently the entire market for polycarbonate is served by imports. We are exploring this opportunity and plan to set up 1.6-2 million tonne plant,” Tandon said. When asked about how much will the investment into the proposed project, he said it is still being finalised and approvals are pending. “Once we finalise the plans we will seek approvals and move forward including investment, location among others,” he said.