Indian Oil’s March-quarter profit beats estimates on inventory gains
Indian Oil Corp Ltd on Wednesday reported a fourth-quarter profit that beat analysts’ estimates by a huge margin as higher crude prices boosted the inventory value of the country’s biggest refiner. The state-owned company reported a net profit of 87.81 billion Indian rupees ($1.20 billion) for the quarter ended March 31, compared with a loss of 51.85 billion rupees a year ago. Analysts were expecting the refiner to log a profit of 55.06 billion rupees, according to Refinitiv IBES data. Inventory gains are booked when oil prices rise by the time a company processes oil into fuel. Brent crude prices jumped about 23% during the March quarter. Revenue rose 18% to 1.64 trillion rupees. IOC’s April-to-March 2021 average gross refining margin – the difference between the cost of crude oil processed and the selling price of refined products – jumped to $5.64 per barrel against $0.08 a barrel a year ago. The company, along with subsidiary Chennai Petroleum , controls about a third of India’s 5 million-barrels-per-day (bpd) refining capacity.
Indian refiners set to curb spot buying to make room for Iranian oil
Indian refiners, anticipating a lifting of US sanctions, plan to make space for the resumption of Iranian imports by reducing spot crude oil purchases in the second half of the year, company officials told Reuters. The world’s third largest oil consumer and importer halted imports from Tehran in 2019 after former US President Donald Trump withdrew from a 2015 accord and re-imposed sanctions on the OPEC producer over its disputed nuclear programme. US President Joe Biden’s administration and Iran have been involved in indirect talks to revive the pact for Tehran to curb its nuclear activities in exchange for a lifting of sanctions. Analysts expect Iran to ramp up crude exports to 1.5 million barrels per day in the fourth quarter when sanctions are lifted. India, used to be Iran’s second biggest oil client after China, buying as much as 480,000 bpd in the fiscal year beginning April 2018. Several Indian state refiners, whose refineries are suited to the crude, have committed to buy Iranian oil once sanctions are lifted. State-run Bharat Petroleum Corp, which plans to tap the spot market for 45% of its overall imports, will buy Iranian oil if sanctions are lifted, a company spokesman said. High sulphur distillate-rich Iranian crude suits BPCL’s Kochi refinery and costs $2-$2.5/barrel less than similar grades, he said, adding that Iran’s proximity means India also has lower freight costs. Hindustan Petroleum Corporation (HPCL) also said it would buy Iranian crude if the price is right and it is suitable. “HPCL will consider buying Iranian oil depending on techno economic suitability as and when sanctions are lifted and situations are conducive for commercial transactions,” chairman MK Surana said. Top refiner Indian Oil Corp is also expecting to reduce spot purchases and can easily process about 2 million tonnes (14.6 million barrels) of Iranian oil this fiscal year, said a company source, who declined to be named as he is not authorised to speak to media. The IOC plans to buy 56% of its imports through term contracts this fiscal year. Indian refiners have raised the share of spot purchases versus term contracts to gain from cheaper barrels available in a surplus market. After the halt in Iranian oil, Indian had diversified its imports and raised its share of US oil. An official at Mangalore Refinery and Petrochemicals Ltd said his company would also cut spot purchases and buy Iranian oil. The resumption of Iranian oil supplies will help India replace lower supplies from Iraq and Kuwait, also members of the Organization of the Petroleum Exporting Countries, which has lowered output to support oil prices. India’s relations with Opec’s biggest member Saudi Arabia came under strain after it said the producer group’s output curbs were damaging to consumers. Tensions eased this month after Saudi Arabia provided India with oxygen to help it deal with a surge in Covid-19.
Now, Mitsui arm challenges Rs 2,400 crore retro tax order from govt
The government is facing a fresh international challenge to the policy of retrospective tax amendments adopted by it. Now, Earlyguard, a British subsidiary of Japanese conglomerate Mitsui & Co, has commenced arbitration under the India-UK Bilateral Investment Treaty after income tax authorities raised a Rs 2,400-crore demand related to a transaction that took place in 2007. While Earlyguard commenced arbitration proceeding in February, the Mitsui & Co disclosed the details, while releasing its financial results earlier this month. The Japanese giant said the tax department has demanded capital gains on the sale of shares of Finsider International Co — a UK company that owned a 51% stake in iron ore miner Sesa Goa — by Earlyguard. “Although Earlyguard treated the capital gain properly according to the tax laws at that time, the payment notice has been issued,” Mitsui & Co said. In earlier filings too, it had disclosed that a tax notice had been received in January 2020. Neither the tax department, nor Mitsui responded to requests for a comment. Like several other entities, proceedings against the Mitsui subsidiary started years after the government decided to retrospectively amend the Income Tax Act to levy capital gains tax on transactions that took place outside India but involved assets located in the country. The amendment was introduced by the then FM Pranab Mukherjee in 2012 after the government discovered that it could not realise any tax on the sale of Hutch Whampoa’s 67% stake in an Indian telecom firm to Vodafone in what was then the largest deal in the country. Since there was no way to catch Hutch, tax officials came up with a demand on Vodafone, accusing it of not deducting tax while making the final payment. Vodafone challenged the notice but lost the case in the High Court, while its stand was accepted by the Supreme Court. Mukherjee and his team then came up with the retrospective amendment, which was cited as part of the tax terrorism that even BJP complained about. While the Narendra Modi government promised not to use retrospective tax tools, it has done nothing to either stop the earlier proceedings, leave alone reversing it. In fact, officials in the finance ministry have been justifying the move and have challenged two adverse international awards against the amendment. First Vodafone and then Cairn Energy Plc have won arbitration cases in international tribunals, for violation of bilateral investment treaties. Both the cases have been challenged by the government, which has argued that taxation is the sovereign right of Parliament and is not dictated by commitments under investment agreements. In several cases, officials have sought to justify the stand on the grounds that tax was not paid in any jurisdiction.
India grapples with LNG oversupply after deadly virus dashes demand
India’s liquefied natural gas importers are asking suppliers to defer deliveries as measures to curb the spread of the deadly Covid-19 virus have cut demand for the fuel. At least three companies, including Indian Oil Corp., have asked to delay shipments slated for May and June delivery, according to traders with knowledge of the matter, who requested anonymity as the discussions are private. Inventories at import terminals in western India, such as Dahej, are near full capacity, the traders said. The deferrals illustrate the extent of the natural gas glut in India, which has worsened over the past several weeks. While Indian firms have been accepting most contracted LNG deliveries, they have disappeared from the spot market since the virus worsened last month and shipments became too pricey. To make matters worse for suppliers, a cyclone in the vicinity of several import terminals in western India has also forced diversions and rearranged delivery schedules, said traders. More deferral from India could result in an oversupply of prompt cargoes in the spot market, which will weigh on prices that have rallied to the highest seasonal level in seven years.
Cairn’s Air India lawsuit may not delay selloff plan
Cairn Energy’s move to sue Air India (AI) in a US court to force recovery of the $1.2-billion international arbitration award it won is unlikely to have any impact on the privatisation of the state-run airline, a top government official said on Monday, asserting that all efforts were being made to stick to the deadline of inviting financial bids by September. “As such there is no impact on Air India privatisation. The government of India is defending the case and we are confident that it will have no impact on the disinvestment process,” the department of investment and public asset management (Dipam) official, who did not wish to be named, told TOI. The assessment in the government is that Cairn is seeking to put pressure on the Centre to withdraw the review of the arbitration panel award. Although the government has alerted public sector companies that it is not unduly worried, sources indicated. On privatisation, the Dipam official acknowledged that there has been some delay in the strategic sales due to the pandemic, which had hurt physical meetings. “We had thought of winding up some transactions in the first quarter of this year but now two months have been affected due to the pandemic so that timeline is impacted,” the official said, adding that due diligence for Air India and BPCL sales were on. Both are in advanced stage of their eventual privatisation.
Iran’s Petropars to develop Farzad B gas field, Oil minister says
Iran has signed a $1.78 billion contract with Petropars Group to develop the country’s Farzad B gas field, Oil Ministry website SHANA said on Monday, after the failure of talks with Indian companies to develop the offshore site. Under the deal, the subsidiary of state-run National Iranian Oil Co (NIOC) will produce 1 billion cubic feet of gas per day within five years from the field, which is estimated to hold 22 trillion cubic feet (tcf) of reserves, of which 16 tcf are deemed recoverable. “Today is an important day … The contract to develop Farzad B gas field was signed between the National Iranian Oil Co. as the employer and Petropars Group as the contractor,” SHANA quoted Iranian Oil Minister Bijan Zanganeh as saying. Indian companies led by ONGC Videsh, the foreign investment arm of Oil and Natural Gas Corp, discovered the field in 2008, but talks on development rights came to nothing after former U.S. President Donald Trump withdrew from the 2015 international nuclear pact with Iran three years ago and reimposed U.S. sanctions against Tehran. “The Indians were not willing to take part in the project. We negotiated with them twice … but they refused to develop the field due to sanctions,” Zanganeh said. Foreign businesses of all types have stopped doing business with Iran for fear of U.S. penalties. U.S. President Joe Biden’s administration and Iran have been involved in indirect talks to revive the pact under which Tehran curbed its nuclear activities in exchange for a lifting of sanctions.
Fuel demand in COVID-hit India plunges in May
Domestic sales of gasoline and diesel by Indian state refiners plunged by a fifth in the first half of May from a month earlier as lockdowns to curb coronavirus infections hit industrial activities and consumption, preliminary data showed on Monday. Gasoline and diesel sales over May 1-15 fell by about 20 per cent, while jet fuel consumption slumped by nearly 38 per cent, versus April 1-15 levels, the data compiled by the state refiners showed. “Trucking activity is almost half of what it used to be in normal times,” SP Singh, senior fellow at Indian Foundation of Transport Research & Training, said. “Most of the business that they were getting from small and medium business has been hit due to lockdowns,” Singh said, adding only a fraction of 5.5 million trucks is currently running on roads due to lockdowns. Indian fuel demand had recovered to near pre-COVID levels in March but has been declining since April given restrictions amid a staggering spike in infections to record highs. India on Monday reported 281,386 new coronavirus infections over the last 24 hours, while deaths rose by 4,106. The South Asian nation’s total case load is 24.97 million with the death toll at 274,390, health ministry data showed. Federal health officials have warned against any complacency over a “plateauing” in the rise of infections and urged states to strengthen their medical insfrastructure and workforce. India’s demand for transportation fuels are expected to witness a sharper slump in May due to more impending restrictions, analysts say. Due to a decline in local fuel sales, Indian refiners have started cutting crude processing and imports. State companies – Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp Ltd – own about 90 per cent of India’s retail fuel outlets. Domestic fuel sales by state retailers over May 1-15, however, were higher versus a year earlier when there was a nation-wide lockdown. Below is a table of India’ preliminary fuel sales data with volumes in thousand tonnes. Product H1 May H1 Apr per centChg H1 May per cent Chg H1 May per cent Chg 2021 2021 2020 2019 Gasoline 799.3 998.2 -19.9 576.3 38.7 1100.2 -27.4 Gasoil 2209.1 2777.9 -20.5 1934.6 14.2 3098.4 -28.7 Jet Fuel 125.3 202.7 -38.2 42.4 195.3 309.4 -59.5 LPG 1116.6 1035.9 7.8 1199.2 -6.9 965.6 15.6
Govt to ‘defend’ its case legally if Cairn’s seizure plan proceeds
Amid reports of identification of Indian assets overseas worth $70 billion by UK’s Cairn for potential seizure, informed sources in the government said that the Centre is well aware of its legal rights and will defend its case in courts if such proceedings materialise. The assets identified by the energy major range from Air India’s planes to vessels belonging to the Shipping Corporation of India, according to reports. Sources also said that the government is yet to receive formal notice of any such claims and hence these reports are purely in the realm of speculation. “It is equally confident of winning its appeal in The Hague,” said an informed source. Sources further pointed out that Cairn did not pay a single rupee tax anywhere in the world in respect of the impugned transactions. Cairn had also lost its appeal before the income-tax tribunal. As per the reports, Cairn plans to move courts in the US to Singapore for seizure of the assets in absence of Indian government’s refusal to honour an international arbitration award.
Are OMCs shifting to alternate day fuel price revision mechanism?
Oil marketing companies seem to be moving towards a revised fuel price revision mechanism, shifting to the practice of changing petrol and fuel rates every alternate day rather than undertaking changes on a daily basis. In the last few days, pump prices of petrol and diesel have been revised every alternate day but the practice had not helped consumers as even under this system prices have only moved up making the fuel dearer. On Monday, OMCs kept retail price of petrol and diesel unchanged. So petrol still costs Rs 92.58 per litre and diesel Rs 83.22 per litre in Delhi, the same as previous day. Across the country as well, the petrol and diesel price prices remained static on Monday but its actual retail prices varied depending on the level of local levies in respective states. The price pause on Monday came after petrol and diesel prices were raised by 24 and 27 paise per litre, respectively, on Sunday. Prior to Sunday, there was no price revision on Saturday. Similarly, while fuel prices were raised on Friday, it remained unchanged in the previous day. “It seems oil companies are giving a sense of relief to consumers as fuel prices are not being raised on a daily basis. But still prices are not actually falling but being raised on very alternate day too this month,” said an oil sector expert not willing to be named. He said that the practice of daily price revision, started after deregulation of petrol and diesel prices few years had been done away by OMCs for past several months giving clear indication that administrative price regime is still working for the sector. Under daily price revision, OMCs revised petrol and diesel prices every morning benchmarking retail fuel prices to a 15-day rolling average of global refined products’ prices and dollar exchange rate. However, in a market where fuel prices need to be increased successively, alternate day price revision seems to be the flavour. It is worth noting that with 9 price increase in May, the retail price of regular petrol has already reached closer to Rs 99 a litre in Mumbai. Petrol prices are already over Rs 100 per litre in several cities in Madhya Pradesh, Rajasthan and Maharashtra. Premium petrol has been hovering above that level for some time now. Petrol prices have increased by Rs 2.03 a litre Delhi in May in the nine increases so far. Similarly, diesel prices have risen by Rs 2.49 per litre in capital this month. IANS had reported earlier that OMCs may begin increasing the retail price of petrol and diesel post state elections as they were incurring losses to the tune of Rs 2-3 per litre by holding the price line despite higher global crude and product prices. With global crude prices at around $ 69 a barrel mark, OMCs may have revise fuel prices upwards again if there is any further firming up.
India May Become Guyana’s Most Important Oil Client
Nowadays one of the main buzz stories of the crude market has been focusing on Indian oil demand slumping as a consequence of the COVID-19 surge. As painful as India’s travails might be, the past weeks also seem to be giving traction to a new partnership, one that perhaps would aid the country in its quest of decreasing its massive oil imports bill. Considering its geographic remoteness from India, Guyana could be seen as one of the least viable alternatives to supply crude. Below the surface, however, there are many reasons indicating that India’s Guyana deal indeed would come to fruition. India needs new sources of supply, whilst the Guyanese government needs a reliable and long-term partner for its own equity, having so far failed to find a marketer for its crude. India has reached out to Guyana, lured by the opportunity of marketing the crude entitlement of the Guyanese government. Liza started producing in January 2020 and the first 3 entitlement cargoes were allotted to Shell. When the Shell tender ran out, newly elected President Irfaan Ali has directly contacted other Stabroek stakeholders and then opted for Hess, committing 2 Suezmax cargoes in January-February 2021. Simultaneously the new Guyanese authorities have launched a longer-term tender that would finally satisfy the new political elite – unfortunately for Georgetown only the Russian oil firm Lukoil presented a qualified bid of the more than two dozen interested companies so the Ali Administration has relaunched the process once again, saying that it would seek direct negotiations instead of the tendering process. Thus, the prize at stake are 5-6 Liza cargoes per year, of which at least two have already been taken and moved out. Of course, should an Indian company land the deal it would most probably go beyond the year 2021. Moreover, once ExxonMobil launches the 2nd phase of Liza (assumed to take place in 2022-2023) the number of cargoes would almost triple. Interestingly, the above-mentioned Liza cargo going to India was purchased and eventually refined by private refiner Hindustan Petroleum-Mittal Energy, however the talks on India potentially becoming Guyana’s marketer were conducted on a governmental level, implying that there might be a place for one of India’s state-owned refiners in the suggested scheme. According to India’s High Commissioner to Guyana, it would be the national NOC, the Indian Oil Corporation (IOC), that would be involved in the purchase scheme. It is against this background that the Indian government has initiated negotiations with Georgetown. To back its claim, India has bought its first-ever Guyanese cargo in March 2021, the Suezmax-sized cargo arrived on April 08. There have been no new India-bound purchases of Liza since. Thus, India’s overall share in Guyanese exports remains rather slim – most of cargoes have been split between Panama, the United States and China. As we will see below, Panama only acts a transhipment site and does not refine Guyanese crude, meaning that Liza’s most likely market outlets are located on the US East Coast and in southern. When checking various data providers on the final destination of respective Liza cargoes, Panama would come up as the most frequent one (averaged 78kbpd so far this year). In reality, none of the Liza cargoes actually end up in Panama, most of them are getting transhipped for further deliveries in the Pacific region. Thus, both Panama-bound Liza cargoes of April 2021 have eventually ended up in California – one in Benicia (San Francisco) and the other in Long Beach (Los Angeles). In March 2021, two nominally Panamanian cargoes went to California and the other landed in Quanzhou, China. There are two main tenets in India’s interest in Guyanese crude. The first, economic, stems from India’s willingness to diversify its crude imports away from the Middle East. Despite its current COVID-triggered difficulties, India’s appetite for crude will continue to increase in the upcoming years. India has been voicing its discontent with OPEC pricing and production policies and securing a new stream would come in very handy for Indian refiners. The second link between Guyana and India might be less evident however still deserves to be noted – the Indo-Guyanese represent the largest ethnic group in Guyana, making up almost half of the population. As opposed to the previous President David Granger (who was Afro-Guyanese and sought no overtures vis-à-vis India), Guyana’s new head of state Irfaan Ali is Indo-Guyanese and this cultural affinity seems to be drawing the two nations together. Even if New Delhi and Georgetown manage to iron out all differences in the upcoming weeks and the Guyanese government is not hindered by political obstructionism, increasing the government’s take to more than 1 cargoes every two month would require substantially increasing overall output levels, at least to stabilize it. Liza production has been hindered by recurring problems with the Liza Destiny FPSO, as recently as this April ExxonMobil was forced to cut down on production rates because of a discharge silencer, an element of the recently reinstalled gas compressor. Unfazed by the upstream helter-skelter, the Guyanese-Indian negotiations are poised to continue, primarily in an effort to find a mutually acceptable pricing formula. How to gauge the progress on the Indo-Guyanese talks? The next Liza cargo that should go to Guyana’s government is due this June – check out where it goes.