Reliance seeks bids for gas from coal bed methane block in Madhya Pradesh
Reliance Industries has sought bids for gas from its coal bed methane block in Madhya Pradesh. Bids have been invited for sale of 0.82 million metric standard cubic meters a day (mmscmd) of gas for a period of one year beginning April 1, according to public notice by the company. Bidders are expected to quote a price in terms of percentage of the Dated Brent, which would be the average of Platts’s benchmark rates for three months preceding the supply month. Bids cannot be lower than 9.5% of the Dated Brent. The actual price gas buyers pay will be the higher of the bid price or the domestic formula price published every six months by the Oil Ministry’s petroleum planning and analysis cell. Potential buyers can start registering on the e-bidding platform from March 6 for the auction slated for March 18. The minimum volume one can bid for is 0.01 mmscmd. RIL has appointed CRISIL Risk and Infrastructure Solutions Limited to manage the auction.
Exxon Mobil’s total reserves drop by a third after COVID-19 oil price drop
Exxon Mobil’s global oil and gas reserves tumbled by a third last year as the COVID-19 pandemic crashed global oil prices and demand, the company said on Wednesday. The largest U.S. oil producer is reeling from the sharp decline in oil demand and a series of bad bets on projects when prices were much higher. It slashed project spending by a third last year, cut jobs and added to debt to cover its dividend. The reserves reductions were “a result of very low prices during 2020 and the effects of reductions in capital expenditures,” the company said in a filing. Total reserves for all products fell to 15.2 billion barrels of oil and gas at the end of 2020 from 22.4 billion the year before, mostly driven by oil sands in Canada and U.S. shale gas properties, according to a regulatory filing. The plunge in the value of oil and gas properties was worse than during the 2014 through 2016 downturn, when Exxon had a 4.8 billion cut in its reserves. The number of Exxon workers at the end of the year was 72,000, down from 74,900 at the end of 2019. Exxon has said it could cut 14,000 employees, or 15% of its global workforce, by the end of 2021. It reported a net annual loss of $22.4 billion for 2020 compared with a full-year profit of $14.34 billion in 2019. Exxon churned out profits since it merged with Mobil in 1999 and through the 1980s oil bust.
Economists bat for fuel tax cut to rein in inflation
Non monetary measures may be needed to rein in inflation from rising crude prices. Direct impact of a $10 per barrel increase in crude prices would add upto 23 basis points (bps) to inflation. Economists are batting for a cut in fuel tax which is inflating retail prices. Global prices of Brent and crude oil prices in India during January -February are lower than the comparable period year ago. However, at the pump, retail prices have gone up on an average 20-25% year-on-year due to high domestic excise taxes. In mid-February, the retail selling price of petrol was 2.8 times the base price of oil. “That is because, taxes (centre and states) on petrol are 170% of the base price, keeping retail prices high” said Radhika Rao, India economist at DBS. “Modest cuts in excise rates are likely, but not sharp (as it remains a key revenue source; contributed 0.7% of GDP) and thereby underpinning transport costs, in the inflation basket” Inflation has fallen under 6%, the upper tolerance limit. But the RBI’s RBI’s Monetary Policy Committee(MPC) minutes also flags members’ concerns and warning that core inflation needs monitoring, particularly due to rising global commodity and crude prices. Every $10 per barrel movement in oil price can push inflation higher by 20-30bps, according to an RBI study. ” For India, the relentless hardening of international crude prices is worrisome, especially as their impact on inflation is amplified by disproportionately high excise duties” said RBI deputy governor, Michael Patra, an internal member of the MPC in the minutes released earlier this week. Higher commodity prices are translating into higher inputs costs, especially in an environment in which demand is recovering. ” Proactive supply side measures, particularly in enabling a calibrated unwinding of high indirect taxes on petrol and diesel – in a co-ordinated manner by centre and states – are critical to contain further build-up of cost-pressures in the economy” noted RBI governor Shaktikanta Das in the minutes. BoA Securities has raised its FY’22 Center’s fiscal deficit by 30bps to 7.5% of GDP, expecting Rs5 per litre oil tax cut. Besides, the current account deficit too could widen along with a drain on foreign exchange reserves. the firm has also raised its current account deficit forecast by 30bps to 0.8% of GDP and cut RBI forex intervention by $9bn to $36bn in FY’22, implying a slowdown in forex reserves pile-up.
RIL announces O2C biz demerger ahead of Aramco deal
Reliance Industries announced the contours of its demerger of its O2C (oil-to-chemicals) business into a wholly-owned subsidiary, in order to attract global investors like Saudi Aramco and sought shareholder and creditor approval. In a late night notification to the exchanges, RIL said the reorganisation will enable focused pursuit of opportunities across O2C value chain, improve efficiencies through self-sustaining capital structure and dedicated management team attract dedicated pools of investor capital. ET in its edition dated 20th February was the first to report about the details of the restructuring that many company watchers also see as a step towards long term succession planning. The exercise has gathered momentum as negotiations with Saudi Aramco is again back on track after months of pause due to the ongoing pandemic. Post April, physical meetings are due to kickstart once again. Once completed, RIL, the company founded by Dhirubhai Ambani in the late 1960s, will house only the upstream exploration and production business, including the KG-D6 block, financial services, group treasury and the legacy textile businesses, and act as a holding company of the group. The O2C business will include oil-to-chemicals business consisting of its refining and petrochemicals assets, fuel retail (51% in a JV with BP), global subsidiaries in UK, US among others including its JV with Sibur, bulk and wholesale marketing businesses among others and will get hived off into a step-down subsidiary via a slump sale, to be initially wholly owned by RIL. The group owns one of the world’s largest and most integrated O2C complexes in Gujarat. The vertical historically has been the cash cow for the entire group, contributing 62% of the revenue and 58% of the total operating profit in FY20. The exercise is expected to get all regulatory, legal, shareholder and creditor approvals by Q2FY22. RIL is giving a $25 billion, 10 year loan to this newly created arm for buying the assets of the 02C businesses. Even though the O2C assets will move into a new arm, its debt will continue to sit inside RIL. In August 2019, RIL had agreed to upstream Rs 1.08 lakh crore of Reliance Jio’s debt to make its telecom venture debt free, ahead of inducting strategic and financial investors like Facebook, Google, KKR, TPG, PIF among many others. As on December 2020, RIL’s gross debt stood at Rs 2.57 lakh crore ($35.2 billion) at the end of the December 2020 compared with Rs 3.36 lakh crore ($44 billion) in FY20. Analysts peg 50% of that on account of the O2C business. To give comfort to its lenders, the cash balance of the group will remain within parent RIL. The company is sitting on cash and cash equivalent of Rs 2.20 lakh crore ($30.2 billion) at the end of December 2020 quarter against Rs 1.75 lakh crore ($23.2 billion) at the end of March 2020. Moreover, RIL is also working on a structure wherein the interest cost that the O2C arm will bear for buying the assets will be equal to the interest cost that parent RIL bears for its outstanding loans. Last September, in a regulatory filing, RIL had said, the rationale of the scheme would be to unlock value in the vertical since the nature of risk and returns in the O2C business are distinct from the other businesses of RIL and this business attracts a distinct set of investors and strategic investors. RIL had reorganized the refining and petrochemicals segment as oil-to-chemicals (O2C) from 3QFY21 onwards, disclosing O2C financials as a separate division. However, it also stopped reporting GRM and segmental EBITDA. In August of 2019, Mukesh Ambani first announced his plans to sell a 20% stake in the oil-to-chemical business to Saudi Aramco for $15 billion at an implied $75 billion valuation. Since then, Goldman Sachs and Citi have been working with Reliance and Aramco. Sources said, those discussions have again intensified after months of lull due to the pandemic. “Ambani wants to wrap up all approvals and lender consent within the next 2 months. Accordingly, the whole exercise has gathered full momentum. Diligence exercise had stopped in between on account of travel bans but is again picking up. But this is a multi-decade old relationship and the two sides are in sync,” said an official in the know. In the first nine months of FY21, the O2C business had revenue of Rs 2.18 lakh crore with an operating profit (EBITDA) of Rs 26,763 crore ($3.8 billion). The total asset base of the O2C business is Rs 3.60 lakh crore at the end of December 2020, which accounted for 28% of its total asset base of RIL.
Oil minister gives ‘two main reasons’ behind rising fuel prices
Union petroleum and natural gas and steel minister Dharmendra Pradhan on Sunday said that reduced fuel production and oil-rich nations seeking more profits are the primary reasons behind spiralling petrol and diesel prices in the country. “There are two main reasons behind the fuel price rise. The international market has reduced fuel production and manufacturing countries are producing less fuel to gain more profit. This is making the consumer countries suffer,” Pradhan told ANI during his visit to inspect the venue where Prime Minister Narendra Modi is scheduled to address a rally in Assam’s Dhemaji on Monday. He further stated, “We have continuously been urging the Organisation of the Petroleum Exporting Countries (OPEC) and OPEC plus countries that it should not happen. We hope there will be a change.” The prices of petrol and diesel are increasing continuously for more than 10 days and in some states, the price of petrol has even crossed the Rs 100-mark. Justifying the taxes levied on petrol and diesel, he said that the Centre and the states are doing various developmental works in the wake of the Covid-19 pandemic, for which they collect taxes, adding that these development projects generate jobs. “Another reason is Covid. We have to do various development work. For this, Centre and state governments collect the tax. Spending on development work will generate more jobs. The government has increased its investment and 34 per cent more capital spending will be done in this budget. State governments will also increase spending. This is why we need this tax but there is also the need for balance. I believe the finance minister and state governments can find a way,” stated the minister. Amid an outcry over record petrol and diesel prices, Union finance minister Nirmala Sitharaman on Saturday said the Centre and state governments will together have to work out a mechanism to bring retail rates to reasonable levels. Prime Minister Narendra Modi on Monday is scheduled to inaugurate the INDMAX Unit at Indian Oil’s Bongaigaon Refinery, Oil India Limited’s Secondary Tank Farm at Madhuban, Dibrugarh and a Gas Compressor Station at Hebeda Village, Makum, Tinsukia. “Tomorrow the Prime Minister will dedicate projects worth Rs 3,400 crore. We have given 60 lakh gas connections in northeastern states under the Ujjwala scheme, out of which 45 lakh connections are given in Assam itself. We have to transport LPG from outside the northeast and now after the expansion of Bongaigaon refinery, we will be able to cater to the demand of LPG from Bongaigaon refinery itself,” Pradhan said. He further stated, “In the last 6 years, the petroleum ministry has invested around Rs 95,000 crore on various projects which are about to complete. We will make Assam and the Northeast self-reliant in energy. We are also increasing the capacity of the Numaligarh Refinery Limited, Oil and Natural Gas Corporation is increasing its oil production in Assam, we have made BCPL operational. These measures will provide employment to the youth of the state.” Pradhan also said that apart from the Central government projects, Prime Minister Narendra Modi will also inaugurate the Dhemaji Engineering College and lay the foundation stone for Sualkuchi Engineering College.
Britain’s Cairn files case in U.S. to push India to pay $1.2 bln award
Cairn Energy has filed a case in a U.S. district court to enforce a $1.2 billion arbitration award it won in a tax dispute against India, a court document showed, ratcheting up pressure on the government to pay its dues. In December, an arbitration body awarded the British firm damages of more than $1.2 billion plus interest and costs. The tribunal ruled India breached an investment treaty with Britain and said New Delhi was liable to pay. Cairn asked the U.S. court to recognise and confirm the award, including payments due since 2014 and interest compounded semi-annually, according to the Feb. 12 filing seen by Reuters. The case marked a first step in Cairn’s efforts towards recovering its dues, potentially by seizing Indian assets, if the government did not pay, a source with knowledge of the arbitration case told Reuters. “If Cairn wins the case, it will be a step towards attaching and seizing Indian assets overseas, especially in the U.S.,” the source said. Reuters reported last month that Cairn was identifying India’s overseas assets, including bank accounts and even Air India planes or Indian ships, that could be seized in the absence of a settlement. Cairn declined to comment but pointed to a Feb. 9 Twitter post where it said Chief Executive Simon Thomson was looking forward to meeting India’s Finance Minister in Delhi next week. “We would request, along with others, that the Indian government move swiftly to adhere to the award that has been given,” Thomson said in the video posted on Twitter by Cairn. “It is important for our shareholders who are global financial institutions and who want to see a positive investment climate in India. I am sure that in working together with the government we can swiftly draw this to conclusion and reassure those investors,” he said. India’s finance and external affairs ministries did not immediately respond to requests for comment. Cairn aims to enforce the award under international arbitration rules, commonly called the New York Convention, and recover losses caused by India’s “unfair and inequitable treatment of their investments”, the court filing showed. The company has registered its claim against India in the Netherlands and France, telling regulators in the two countries that they may receive court orders to seize of some Indian assets, and the firm was preparing to do the same in Canada and United States, Reuters reported last month. India lost another major international arbitration case last year against Vodafone over a $2 billion retrospective tax dispute. The government has challenged the arbitration verdict in the Vodafone case. It has yet to say how it will proceed in Cairn’s case where it has to make a significant payment.
Record high pump prices hit India’s gasoline, gasoil sales in Feb
Indian state refiners’ gasoline sales in the first two weeks of February fell below pre-pandemic levels, the first decline in about six months, preliminary industry data showed, as record high retail prices hit consumption. Diesel sales, which are related closely to economic growth and account for about 40 per cent of overall refined fuel sales in India, fell by 8.6 per cent in the first half of February, the largest decline since August last year, the data showed. Gasoline and gasoil prices in India have risen to a record high, mirroring global markets. Taxes account for about 61 per cent of retail gasoline prices and about 56 per cent of diesel prices. State fuel retailers sold 1.03 million tonnes of gasoline and 2.84 million tonnes of diesel from Feb. 1-15, the data provided by an industry source showed. “Definitely sales of petrol and diesel have declined in the last few days. People are feeling the pinch of high oil prices,” said Ajay Bansal, president of the All India Petroleum Dealers Association. State companies – Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum – own about 90 per cent of India’s retail fuel outlets. “First area where the customers vent their anger or show their grievance is the petrol pump to our staff and we have been seeing it,” Bansal said. Rising diesel and petrol prices could push up inflation, making it harder for the Reserve Bank of India (RBI) to continue its accommodative monetary policy. “Pump prices of petrol and diesel have reached historical highs. An unwinding of taxes on petroleum products by both the centre and the states could ease the cost push pressures,” the RBI said in its policy document earlier this month. State retailers sold 1.2 million tonnes of liquefied petroleum gas in the first half of this month, 5.4 per cent higher than last year, while jet fuel sales declined by 41.3 per cent as curbs on air travel remained in place, the data showed.
Bahwan CyberTek and Lightbend expand partnership for MENA region
Digital transformation solutions provider Bahwan CybrTek (BCT) announced the expansion of its global partnership with Lightbend, a cloud native architecture firm. The pact focuses on use of Lightbend’s Akka Platform which simplifies the delivery of distributed systems with reactive microservices frameworks and runtimes for building cloud native applications. Under the pact, BCT will become a system integrator partner of Lightbend in the Middle East and North Africa (MENA) region, where BCT has enterprise customers across Oil and Gas, Telecom, Power, Banking, Retail and Logistics sectors. “Our partnership with Lightbend comes at a time when many digital transformation initiatives across the region have been driven to high levels of maturity. Akka Platform is a great addition and complements our range of specialized IP and services offerings,” said S Vishwanathan, Executive Vice President, BCT. BCT will provide digital transformation initiatives based on Akka Platform in key use cases across Predictive Analytics, Digital Experience and Digital Supply Chain Management. Lightbend’s customers include Credit Karma, Hootsuite, iHeartRadio, LinkedIn, Norwegian Cruise Lines, Starbucks, UniCredit Group, Verizon, Walmart, Weight Watchers and William Hill.
Fall in natural gas prices have impacted operational performance, says Oil India
Earnings weakness persists for Oil India in the third quarter as the company reports an EBITDA loss of Rs 60 million led by oil and gas losses and higher operational expenses. Harish Madhav, Director-finance of Oil India said, “The crude prices in Q3 improved from Q2 but still they were just around $44 per barrel realization, but the other thing which affected very negatively was the fall in the natural gas prices. As against last year’s Q3, the price has fallen by almost 45 percent so fall in natural price has affected the profitability very negatively.” On other expenses, he said, “We have in fact made provisions for a write off of two wells which have been finally turned out to be non-commercial, so total write off for these two wells is close to about Rs 5.50 billion that has increased the other expenses. Almost every year if we see past history on an average Rs 6-7 billion well write off or provisions are taking place on a year-on-year basis.” On crude prices, Madhav said, “As far as crude prices are concerned we are much better placed, as of today we are realizing close to around $56-57 per barrel so far from January 1 onwards the average prices is about $ 55-56 but if we consider crude to remain around $60 for the remaining period till March then our realization will improve maybe around $57-58 per barrel in the fourth quarter. Overall year basis we will still be around $43-44 per barrel realization for the whole year which will be significantly lower than last year.” He added, “Gas prices are revised once in six months so the gas price of 1.79 which is applicable today will continue till March and the new gas price will be known only on April 1”
Govt Should Have Given Relief Of Rs 12-14 On Petrol, Diesel, Says Former Petroleum Secretary
As the fuel prices continued its upward spiral, SC Mishra, former Secretary, Ministry of Petroleum and Natural Gas said the economic situation has improved since 2020 and the central government should have given a relief of Rs 12 per litre on petrol and Rs 14 per litre on diesel to the common man. Mishra underlined the fact that the government had raised the taxes on petrol by Rs 12 per litre and on diesel Rs 14 per litre, twice in March and May 2020, to garner extra revenue. Adding to this, Finance Minister Nirmala Sitharaman levied an additional agriculture Infrastructure and Development Cess (AIDC) of Rs 2.5 per litre on petrol and Rs 4 per litre on diesel in the Union Budget presented on February 1. Talking to ANI, Mishra said the government finds fuel an easy commodity to tax. “Both state governments and central government are quite happy to tax fuel and raise revenues for their various activities. I was, of course, expecting that the increase in tax, which was imposed by the central government in months of March and May, when the crude prices had come down, would be removed once things are normalised. Now that the crude prices have gone up to the earlier position of USD 60 per barrel, the government would have given a relief of Rs 12 per litre on petrol and Rs 14 per litre on diesel,” he said. The former Secretary said since the state taxes are also levied there should have been some decrease in the state taxes also. “So, the net benefit to the consumer would have been in the range of about Rs 15. But unfortunately, the Government of India, maybe due to their own considerations of raising other revenue sources, they have continued to have high taxes on petrol and diesel,” he stated. Elaborating about the taxes levied on petrol and diesel, Mishra said the actual refinery rate price for petrol or diesel is between Rs 30 to Rs 31 per litre. “The tax by Government of India on petrol is about Rs 33 per litre and diesel by about Rs 32 per litre. On top of it, there is Rs 2.5 per litre dealer commission for diesel and Rs 3.5 per litre on petrol. Adding all these prices state governments also imposed their Value Added Tax (VAT), which is in percentage terms and varies from Rs 15 to Rs 25 per litre,” said the former secretary. So, being a commodity, which is available internationally at about Rs 30 to Rs 32 per litre, Mishra said Indians are paying for it between Rs 80 to Rs 90 per litre. He added that the effective rate of tax comes to about 150 per cent to 200 per cent on both petrol and diesel. “This is one commodity, which all finance ministers love to tax. This is a tax, which is very easy to collect. There is no charge of collection, there is hardly any leakage, and consumption is not decreasing because this is an essential item for a developing economy. You need to consume more and more energy resources,” Mishra said. Talking about LPG and kerosene, Mishra said earlier there was no tax on these commodities. “I think the position may be the same or they may tax, but not much. The reason that the prices are going up for LPG is that LPG production in India is not adequate and we are importing fairly large quantities. I think the government can take a look at it and organise a price control on LPG,” he said. Mishra said central and state governments will not bring LPG under GST contrary to “whatever they might be saying in public”. “The economic situation and budget situation of states and Centre, is such that they are unlikely to bring LPG under GST in the near future,” he said. Notably, the Centre in May 2020 has raised excise duties by Rs 10 per litre on petrol and Rs 13 per litre on diesel. Mishra said the duty increase has not led to a fuel price change for retail consumers. Earlier on March 14, 2020, excise duty on petrol and diesel was hiked by Rs 3 per litre. An additional Re 1 per litre was also levied on both petrol and diesel under the road and infrastructure cess. The government roughly gets Rs 130-140 billion annually on every rupee hike in excise duty.