Essar, Adani, GAIL buy bulk of Reliance gas; fertiliser companies skip
Essar Steel, Adani Group and state-owned GAIL have bought majority of natural gas from Reliance Industries’ newer fields in the KG-D6 block at USD 5.1-5.16 per unit but fertiliser companies skipped the auction that could have helped save at least Rs 8 billion subsidy annually. Essar Steel picked up 2.25 million standard cubic metres per day or about half of the available volumes in the country’s first transparent and dynamic forward auction that lasted for about five-and-half-hours on November 15, industry sources said. Gujarat State Petroleum Corp (GSPC) picked up 1.2 mmscmd while Adani Group and Mahanagar Gas Ltd bought 0.3 mmscmd, sources said, adding GAIL, acting on behalf of fertiliser companies, bought 0.3 mmscmd of gas. Fertiliser companies directly did not participate in the auction that could have helped them replace expensive imported liquefied natural gas (LNG). These companies buy some 3 mmscmd of gas on short-term LNG import contract at a price of over USD 9 per million British thermal unit and another 23 mmscmd on long-term contracts at delivered price of USD 11.5 per mmBtu. Reliance’s gas that they will get through GAIL will come for a delivered price of between USD 6.5 and USD 7 per mmBtu, they said, adding had they bid directly and bought more volumes they could have replaced expensive LNG, helping save at least Rs 8 billion in fertiliser subsidy annually. Hindustan Petroleum Corp Ltd (HPCL) bought 0.35 mmscmd and 0.10 mmscmd went to Gujarat State Fertilizers & Chemicals Ltd (GSFC)/Gujarat Narmada Valley Fertilizers & Chemicals Ltd (GNFC), sources said. In all, 15 customers across sectors such as steel, petrochemicals, city gas, glass and ceramic got gas in the tender, they added. Reliance and its partner BP Plc of the UK had sought bids from potential users for the 5 mmsmcd of natural gas they plan to produce from the R-Cluster Field in KG-D6 block from mid-2020. Bidders were asked to quote a price (expressed as a percentage of the dated Brent crude oil rate), supply period and the volume of gas required. Dated Brent means the average of published Brent prices for three calendar months immediately preceding the relevant contract month in which gas supplies are made. Sources said Reliance had set a floor or minimum quote of 8.4 per cent of dated Brent price — which meant that bidders had to quote 8.4 per cent or a higher percentage for seeking gas supplies. In the November 15 auction, bidders quoted between 8.5 and 8.6 per cent slope to corner all of the 5 mmscmd supplies available. This translates into a price of between USD 5.1 per mmBtu and USD 5.16 per mmBtu rate at Brent oil price of USD 60 per barrel. Sources said while bankruptcy-hit Essar bought gas to feed its steel plants, other buyers including Adani Group picked up the volumes for their city gas operations of retailing CNG to automobiles and piped cooking gas to households. The volumes are mostly planned for usage in western India, particularly Gujarat where the gas can be delivered through a single pipeline — East-West pipeline. The delivered price in Gujarat is likely to be around USD 6.50 per mmBtu, they said. Sources said GAIL bid at 8.5 per cent slope — the maximum fertiliser firms had mandated it to do. Initially, Reliance had set a floor of 9 per cent of dated Brent price, which translated into a gas price of USD 5.4 per mmBtu at USD 60 oil price. But consumers saw this as a very high price considering that imported LNG in the spot market is available at around USD 4 per mmBtu rate currently. To pacify the consumers, Reliance lowered the floor/minimum quote to 8.4 per cent of dated Brent price. The company did not immediately respond to an e-mail sent for comments. According to the bid document, the gas price will be subject to the ceiling price mandated by the government. The ceiling price for gas from difficult fields such as those in deep-sea currently is USD 8.43 per mmBtu. The government-mandated rate for other fields currently is USD 3.23 per mmBtu. Reliance and BP are developing three sets of discoveries in KG-D6 block — R-Cluster, Satellites, and MJ by 2022. R-Cluster will have a peak output of 12 mmscmd while Satellites, which are supposed to begin output from mid-2021, would produce a maximum of 7 mmscmd. MJ field will start production in second half of 2022 and will have a peak output of 12 mmscmd. Reliance has so far made 19 gas discoveries in the KG-D6 block. Of these, D-1 and D-3 — the largest among the lot — were brought into production from April 2009 and MA, the only oilfield in the block was put to production in September 2008. While the MA field stopped producing last year, the output from D-1 and D-3 has fallen sharply from 54 million standard cubic metres per day (mmscmd) in March 2010 to 1.68 mmscmd in July-September. Other discoveries have either been surrendered or taken away by the government for not meeting timelines for beginning production. Reliance is the operator of the block with 66.6 per cent interest while BP holds the remaining stake.
Cairn Oil and Gas second quarter production disappoints; Cuts FY20 guidance
Vedanta-owned Cairn Oil and Gas, the country’s largest upstream player in the private sector, has posted a 4 per cent decline in average gross production to 178,744 barrels of oil equivalent per day (boepd) during the second quarter ended September 2019 as compared to the corresponding quarter a year ago, mainly due to operational issues in the flagship Rajasthan asset. The production posted was much below the projections made by the company to investors during the release of first quarter (April-June) financial results when it had projected output to reach around 200,000 barrels of oil equivalent per day (boepd) by September end. Post the company’s first quarter financial results, it had projected production to reach in a range between 260,000 boepd and 270,000 boepd by the end of March 2020. However, that has has now been cut to 225,000 boepd in light of the operational issues. Chief Executive Officer (CEO) Ajay Dixit told analysts during the company’s second quarter investor presentation that power-failure coupled with delay in capex projects has led to decline in production during the quarter and overall production guidance for the year. “In the oil business our guidance has been based on the development projects which we have been giving, in the past few months we had a couple of topics coming up simultaneously. One was a very significant power failure; besides normal decline we had certain failures in the asset because of this power failure. Once the total supply goes the entire reservoir sinks and it takes time to recover,” Dixit told analysts. He said that delay in execution of capex projects also resulted in flat production. “Our exit-rate would be in the range of 225 and it will steadily go beyond that in the next year. You will start seeing an increase in production from January when the commissioning of surface facilities start coming up and more wells get hooked-up,” Dixit said. The company had projected to hook-up 185 wells by the end of March 2020 during the first quarter of the current financial year but it has revised that projection downwards to 150 wells owing to operational issues. “As far as guidance is concerned, on surface facilities we are well on track but we have been facing some delays when it comes to drilling of wells, due to surprises in the geology. From the previous guidance if you noticed we are down on the number of wells to be drilled,” Dixit said. The oil ministry’s monthly production report has flagged deficit in production from Cairn Oil and Gas’ Rajasthan fields over the past year due to delay in upgrading of Mangala Processing Terminal (MPT), delay in hooking up online of 45 infill wells, closure of wells, as well as operational issues in Bhagyam, Aishwariya and ABH fields. Dixit had in October told ET EnergyWorld in an interview the company remains confident of achieving 260-270,000 boepd of production by end of March 2020. “We are not giving up on the exit rates so far. There are two parts of this. One, what we are currently producing could it have been better? The answer is yes. Where are we facing the problem? We are facing problems in the infrastructure part. We had a transmission line failure recently; we have only one incoming line from Rajasthan State Electricity Board, it collapsed. We have had a number of such failures happening repeatedly, in Bhagyam field and Rajashtan, this is one of the problems we face,” he had said. The CEO also said that a major jump in production is expected to come from the turnkey projects which are under implementation including drilling and hooking-up of wells and connecting them to the surface facilities. The company has said in its second quarter investor presentation it is investing close to $3.2 billion on blocks under Production Sharing Contracts (PSC) and $0.8 million on 51 Open Acreage Licensing Policy (OALP) blocks. The firm plans to drill 250 wells, hook-up 150 wells, and increase liquid handling capacity to 1.25 million barrels of liquid per day (mblpd) from 1.10 mbldp currently and expand gas processing capacity to 150 million standard cubic feet per day (mmscfd) from 80 mmscfd currently. Dixit had told ETEnergyworld in order to increase production in the near-term, the government should take some of the best practices or guiding principles from Hydrocarbon Exploration Licensing Policy (HELP) as well as Open Acreage Licensing Policy (OALP) and apply those to the current Production Sharing Contracts. He said multiple layers of administrative approvals cause the country to lose probable and potential resources and self-certification will help companies to produce faster. Commenting on the status of blocks won under OALP and environment clearances, Dixit said: “We do not want to avoid any process but the question also is whether for just exploration do you need to undertake land acquisition? Our request therefore is something must be done on the regulatory side and land acquisition must not be made mandatory for exploration or for data collection.” He informed Cairn had received environment clearance for 14 of the 51 blocks won under OALP and it may be unreasonable to expect them to start producing within 2-3 years.
Saudi Aramco still undecided on BPCL stake purchase
The world’s largest oil company Aramco is yet to make up its mind to participate in disinvestment of Indian fuel refiner and retailer Bharat Petroleum Corporation Ltd (BPCL) where government intends to sell its entire 53.29 per cent stake to a strategic investor. Sources privy to the development said that Aramco, which kicked off the final phase of its $25 billion IPO on Sunday, is focused on Indian investment primarily to conclude the purchase of 20 per cent stake in Reliance Industries’ oil to chemical division and expansion of its upstream business in high growth markets including India. Entering India with a large scale investment in a public sector oil refiner and retailer is not on the horizon as on now, sources said. When asked specifically on its plan to acquire majority stake in BPCL whether solely or in a consortium, Saudi Aramco declined to comment. Aramco’s lesser focus on BPCL disinvestment may be a cause of worry for the Indian government that is betting big on the oil giant to takeover its entire equity in BPCL. In fact, Finance Minister Nirmala Sitharaman has indicated that BPCL disinvestment may be completed in current fiscal. While government is expected to launch a roadshow for BPCL disinvestment in key global markets soon, there is a strong belief that Aramco fits the bill perfectly with its sheer scale of operations and large size of the balance sheet. “For Aramco, its huge IPO is of prime concern now. It is selling 1.5 per cent stake in the market that could fetch over $25 billion.Other things, including investments in key markets would come thereafter. Moreover, with BPCL disinvestment requiring investor to pump in close to Rs 1lakh crore (about Rs 60,000 crore for government’s stake and balance for open offer), even a company of the size of Aramco will think twice,” said an global oil and gas analyst who did not wish to be named on the issue. Aramco in the past has remained upbeat about the prospect of investment in the Indian market, which is among the largest oil consumers in the world and where demand scenario is expected to remain firm next few decades.This mood has also reflected in the 658 page prospectus filed by the company in the run up to its IPO where apart from its intention to invest in RIL, it has said that company is focussing its downstream investments in areas of high-growth, including India. Indian government is also looking at Aramco’s investment in $60 billion oil refinery proposed in Maharashtra as well get its investment in oil marketing and retailing in the country. “The bag seems too full for Aramco already and if at all a decision of BPCL stake purchase is taken, Aramco may join hands with some other Indian or overseas player to pick government of India’s equity in the company,” said the source quoted earlier. Public sector Indian Oil Corporation (IOC) has also not ruled out its interest for BPCL but is waiting for a green signal from the government to consider placing its interest. However, IOC may not have the financial muscle to for large stake buy and government does not want to add debt burden on PSUs. In such a scenario, analysts believe a possible collaboration between Aramco and IOC may work out. IOC also has started limited foray in Saudi Arabia by helping set up few fuel stations. However, government officials denied build up of any such collaboration at this juncture. Government’s stake is worth over Rs 60,000 crore at prevailing price of BPCL shares on BSE. If the buyer has to further acquire 25 per cent share in an open offer as per takeover code, the total amount with rise close to Rs 1 lakh crore. This is considered too high even by international standards. On its part, DIPAM is working out a plan to offload entire government equity to a strategic partner, possibly a large overseas oil entity like Saudi Aramco, Total, ExxonMobil, Shell. However, with oil market globally facing a slowdown with demand not picking up despite supply squeeze, the appetite for a large acquisition becomes difficult. BPCL operates four refineries at Mumbai, Kochi in Kerala, Bina in Madhya Pradesh and Numaligarh in Assam with a combined capacity to convert 38.3 million tonnes of crude oil into fuel. It has 15,078 petrol pumps and 6,004 LPG distributors. The government proposes to raise Rs 1.05 lakh crore from disinvestment in the current financial year. It had exceeded asset-sale targets of Rs 1 lakh crore in FY18 and Rs 80,000 crore in FY19.