ONGC puts mature oil, gas fields on block; Invites bids from global firms
State-owned ONGC has invited bids from global oil and gas companies for undertaking work to boost production from its ageing fields as it looks to reverse declining output. The 15-year Production Enhancement Contract (PEC) will require firms to commit to investing in capital and operating expenditure to increase production, higher than the existing baseline output, according to the tender document. A tariff will be paid in USD per barrel of oil and USD per million British thermal units for gas for any incremental hydrocarbon produced and saved over the baseline. ONGC on October 27, issued the expression of interest (EoI) notice offering 15-year PECs to outside contractors for an unidentified number of “mature” fields. The company made no mention of oil or gas field names in the EoI notice, but sources said the fields are largely in Assam and Gujarat, the country’s oldest producing basins. “ONGC intends to undertake production enhancement from its onshore mature fields under ‘Production Enhancement Contract (PEC)’ with suitable oil and gas companies of global repute who have technical expertise, financial capability and resources to increase production by improving the recovery from such fields,” the tender said. Companies, it said, will be required to commit investment in capital and operating expenditure “to increase production from the existing production by introduction of new technologies.” They will have to do reservoir modelling, reserves assessment and execution of a development plan to enhance production. All the oil and gas produced will belong to ONGC and anyone interested has until December 1, 2020 to respond. This is the second attempt by ONGC to induct partners in its ‘mature’ or ageing fields. On December 28, 2018, it had invited PEC bids for Geleki field in Assam and Kalol in Gujarat. But only Schlumberger responded for Geleki and no bid was received for Kalol. Schlumberger sought deviations which ONGC turned down. ONGC re-launched the PEC process for Kalol and Geleki with a request for information (RFI) notice on July 22, 2020. The government has been pushing ONGC to hire international oil service companies to raise output from its mature oil fields as it saw the foreign companies as the answer to declining production from ageing fields. ONGC is looking to raise domestic output quickly to meet Prime Minister Narendra Modi’s target of cutting import dependence by 10 per cent by 2022. India currently imports about 85 per cent of its oil needs. Originally, ONGC had on December 7, 2016, signed a Summary of Understanding (SoU) to give Kalol field to Halliburton and Geleki field to Schlumberger for raising production above the current baseline output. Though the contracts were signed in presence of Oil Minister Dharmendra Pradhan, ONGC rescinded them in 2017, on fears of courting controversy for handing fields on nomination basis. Thereafter, the company in June 2017, floated an expression of interest (EoI) from service providers for undertaking production enhancement. Schlumberger Asia Services, Halliburton Offshore Services Inc and Baker Hughes Singapore PTE Ltd were shortlisted as the firms were meeting pre-qualification criteria. Bids were originally sought by May 25, 2018, but saw several extensions and final bids came in 2019. At the close of bids, only Schlumberger made a financial bid for Geleki field.
Biden win means Iranian oil supply to India may resume, but it will take time, say experts
A Joe Biden presidency could lead to resumption of Iranian oil supply to India, which would reduce prices, but any such move would take time and the US shale industry is likely to oppose steps that make oil cheaper, industry experts said. The US administration would continue to value India as a major energy market that lures oil and gas producers in the country, while Indian refiners are happy to reduce their dependence on oil from the Middle East. Low oil prices are crucial for India that imported $100 billion worth of crude oil last fiscal year. Lower prices helped the government raise resources by increasing fuel taxes in a year the pandemic hit public finance. “Prices will remain benign in general,” Hindustan Petroleum chairman MK Surana said. “Producing countries are already producing less than capacity. Supply from Libya is increasing. If Biden is soft on Iran, it will bring more supplies to the market.” Crude oil is currently trading around $40 a barrel, with prices varying barely a few dollars per barrel since June as producers have adjusted supplies while demand has returned in many economies. The shock of the pandemic had sent prices below $20 a barrel in late April from nearly $70 at the beginning of the year.
Reliance’s stake sale talks with Saudi Aramco gaining momentum
Reliance Industries Ltd and Saudi Aramco are resuming talks over a 20 per cent stake sale by the Indian conglomerate in its oil-to-chemical business after a brief pause due to COVID-19 pandemic, ET Now reported on Monday, citing sources. Both the companies were committed to the deal and Aramco wants to do physical inspection of Reliance’s assets in India, the report said. Earlier in July, Reuters had reported that Reliance’s stake sale in its oil-to-chemicals business to Aramco had stalled over price. Reliance Chairman and Asia’s richest man Mukesh Ambani told shareholders in July that the deal had been delayed due to “unforeseen circumstances in the energy market and the COVID-19 situation.” The initial deadline for completion of the deal, announced in August 2019, was March 2020. Reliance in October reported a 15 per cent drop in September-quarter profit on Oct. 30, as the coronavirus crisis hammered its oil business, although the company reaped double-digit revenue growth at its Jio telecom service. Meanwhile, Reliance has approached investors to take stakes in its retail business and has already raised around $20 billion from global investors this year by selling stakes in its Jio Platforms digital business.
IOC director A K Singh to head Petronet LNG
IndianOil director (pipelines) Akshay Kumar Singh will head India’s largest gas importing company, Petronet LNG, sources close to the company’s board-appointed selection committee said. Singh will succeed Prabhat Singh, who completed his 5-year term in September but did not get extension for two years that he was eligible for. In March, the oil ministry told Parliament in a written reply it had received several allegations of alleged corruption/irregularities against Prabhat Singh. This will mark Singh’s return to the gas business as he was executive director in state-run gas utility GAIL before joining the IndianOil board in 2018 as in charge of the company’s substantial pipeline networkThis will mark Singh’s return to the gas business as he was executive director in state-run gas utility GAIL before joining the IndianOil board in 2018 as in charge of the company’s substantial pipeline network. A mechanical engineer from MIT, Muzaffarpur (Bihar) and a post-graduate in turbomachinery from South Gujarat University, Singh has about 34 years of experience in the oil and gas industry. At IndianOil, Singh red-flagged a move to hive off the company’s vast network of pipelines and storage depots, a vital infrastructure that gave India’s largest fuel refiner and retailer an edge in the market. At Petronet, his primary challenge will be tackling the pricing conundrum of long-term contracts in the backdrop of falling spot prices. Singh has experience in executing challenging, complex and large-size cross-country pipeline networks. He is also experienced in design engineering, planning, execution and operation of hydrocarbon pipeline systems and process plants. Petronet is a private company floated by state-run oil majors GAIL, IOC, ONGC and BPCL. All of the promoters hold 12.5 per cent equity stake each. Chairmen of promoter PSUs are normally the nominee director on the Petronet board, while the petroleum secretary is the ex-officio chairman.
Oil operators get DUCs in a row, adding fracking crews to boost output
US frackers are bringing back equipment even as oil prices languish around $40 a barrel in a bid to boost production and tap into a backlog of drilled wells left uncompleted (DUCs) when oil prices crashed earlier this year. The number of active hydraulic fracturing fleets has climbed by nearly 50% since mid-September to 127, according to data from consultancy Primary Vision, outpacing a roughly 17% jump in the number of active drilling rigs over that same period of time. That count stands at 296. US oil prices were trading around $38.53 a barrel on Thursday, below profitable levels in some US producing basins. Still, hydraulic fracturing equipment is headed back to the field, as oil companies are trying to deal with the swift rate at which shale well production falls. US shale production is expected to fall to 7.7 million barrels per day in November, down from 9.2 million bpd in February, before prices crashed, according to the US Energy Information Administration. Fracking was the first thing to get shut down when oil prices collapsed because it’s the most expensive part of drilling and completing a well, said Andy Hendricks, chief executive officer of driller Patterson-UTI Energy. When prices rose, operators brought back frack crews to complete wells that were drilled but not yet completed, accounting for a big bump in frack activity. The companies that specialize in well completions, like ProPetro Holding Corp and Liberty Oilfield Services , have said they are adding back workers. “Oil focused operators and basins are trying to manage decline curves,” said Matt Johnson, chief executive of Primary Vision. The US added as many as 1,200 DUCs in May, according to analysis from consultancy Enverus, but began completing wells at a faster rate than rigs could drill them starting around July. In October, operators were burning through DUCs at a rate of roughly 200 a month, Enverus said. That pace could slow, Hendricks warned. “I don’t expect big increases in frack activity from where we are. We just don’t have the inventory,” he said referencing drilled-but-uncompleted wells. Apache Corp suspended drilling and fracking in the Permian Basin shale field in April, but said on Thursday during a call with analysts that it has hired two crews to complete a backlog of about 45 wells. “We are now seeing very compelling service costs in the Permian Basin,” said CEO John Christmann. Patterson-UTI, which has a larger contract drilling portfolio than hydraulic fracturing, bottomed out at four hydraulic fracturing fleets in June, but will average six fleets this quarter. Rival ProPetro is anticipated to average 9.5 fleets in the fourth quarter, versus four fleets in the second quarter of this year, according to analysts at investment firm Evercore ISI.
More trouble for PNGRB’s open access proposal
After facing opposition for its proposed transportation tariff for the city gas distribution (CGD) network, the Petroleum and Natural Gas Regulatory Board (PNGRB) is facing further push back from top CGD companies of the country who allege that the proposed regulation for open access in the sector sidesteps those who have already invested heavily in the sector. The PNGRB’s open house on Monday, inviting comments on the draft open access guidelines, part of the public consultation process, saw companies like Torrent Gas Pvt Ltd, Adani Gas Pvt Ltd, GAIL Gas Ltd, Gujarat Gas Ltd (GGL), Mahanagar Gas Ltd (MGL) and Indraprashtha Gas Ltd (IGL) raising concerns about the PNGRB’s move that aims to end exclusivity of supplier after five years of operations. Any infringement on the infrastructure exclusivity of an entity is not appropriate and will severally harm the interests of the CGD entities who are spending huge amounts on creating infrastructure, Torrent Gas said in its representation. “The issue of open access has stirred a hornet’s nest in the CGD sector, opening up more disputes rather than finding a solution for increasing CGD penetration in the country,” said a senior bureaucrat in the know of the matter. The existing draft regulation shall lead to making the overall CGD development project as economically unviable for the authorized entity by making it the supplier of first and last resort for PNG domestic segment only, according to the IGL. Many of the companies are of the view that despite having repeatedly raised concerns over cherry picking by new entrants, the PNGRB has been ignoring them. “The Draft Access Code will allow third party marketers and shippers to ‘Cherry Pick’ customers, and thus endeavour to be opportunistic and endeavour to serve a very select customer type or population,” according to the Adani Gas. Allowing other entities to set-up CNG stations (including dispensers) within such authorized geographical area will be a gross infringement on the interests of CGD entities and against the very understanding under which such CGD entities have bid and been authorized geographical areas, the Adani further said in its representation to the regulator. The PNGRB shall take due cognizance of pending litigations and order passed by the Courts till date, before finalizing the proposed regulations, the Gujarat Gas said in its comments. The CGD projects are very capital intensive with a long gestation period. In acknowledgement of the same, the PNGRB has also extended the market exclusivity period from initial five years to eight years during ninth and tenth bidding rounds, according to the GAIL Gas. “It is to be appreciated that the CGD industry is still in growing phase and we are yet to achieve market maturity. The CGD sector needs Board’s support and hand holding is necessary for the growth of the sector,” the company said in its feedback to the PNGRB. “The feedback processes including open houses seem to be eyewash, a mere formality,” said a senior state government official.
HPCL to pay 34% premium for Rs 2,500 crore share buyback
Hindustan Petroleum Corporation Ltd (HPCL) on Wednesday announced share buyback worth Rs 2,500 crore at 34 per cent premium, even as the second-largest oil refiner and fuel retailer more than doubled its September quarter profit to Rs 2,477 crore from Rs 1,052 crore in the previous corresponding period. Company chairman M K Surana said the shares will be bought back from the market to “unlock value” for investors and “reward those who have remained invested,” including minority shareholders. Parent ONGC, the flagship explorer, will not offer any share from its kitty for the buyback. HPCL will buy back some 10 crore shares, accounting for 6.56 per cent stake, at Rs 250 each, or a 34 per cent premium on Wednesday’s closing price of Rs 187.20 on the NSE. Surana said this was a good time for buyback as the stock price was low and funds were also available at cheaper rates. “We believe that HPCL share has a lot more intrinsic value than what it is reflecting right now. HPCL has been liberal in rewarding its shareholders and buyback is one of the ways (to do that),” he said, adding it will also give a good opportunity to those who want to exit. The current share price is nearly half of its 52-week high of Rs 327.80 and market cap of Rs 27,367.85 crore is less than Rs 36,915 crore, or Rs 473.97 per share, ONGC had paid for acquiring the government’s 51.11 per cent stake in 2018. The company more than doubled its profit for the July-September period in spite of total income decreasing to Rs 62,419 crore from Rs 66,854 crore in the previous corresponding period. Surana said the downstream (refining and fuel retailing) sector was out of the woods, going by the growth in fuel sales and capacity utilisation of refineries. The company’s sales in September reached 98 per cent of the year-ago level and refineries clocked a combined capacity utilisation of more than 100 per cent through optimisation of day-to-day crude run rate and regulating the product procurements from other sources. He said the company’s investments were on track and work on projects was progressing after the hiccups during the countrywide lockdown imposed from March 25 to contain the spread of Coronavirus pandemic.
Malaysia’s energy giant Petronas targets net zero emissions by 2050
Malaysian state-owned energy giant Petroliam Nasional Berhad, or Petronas, said on Thursday it aims to become a net zero emitter of greenhouse gases by 2050 and also plans to increase its investments in renewable energy. Burning of oil and gas accounts for the vast majority of the world’s carbon emissions, and many investors have pushed global oil majors to do more to combat climate change. Petronas, the world’s fourth-largest exporter of liquefied natural gas, said it will intensify its efforts toward reducing the so-called Scope 1 and Scope 2 greenhouse gas emissions, referring to direct emissions from operations and the electricity used by the company. The company, a significant source of revenue for the federal government, also said it will pursue new avenues of revenue generation via investments in nature-based solutions and set up greater accessibility to clean energy solutions. Petronas, the sole custodian of Malaysia’s oil and gas reserves, is also engaged in exploration and production activities overseas. It also produces petrochemicals. The Malaysian firm’s 2050 target is in line with peers BP and Shell – though the companies have marked varying goals to strengthen their green ambitions. Some have even committed to reducing Scope 3 emissions from the final consumption of their products. Petronas has made a push towards renewable energy in recent years and also acquired a Singapore-based solar energy company in 2019. Earlier this year, Petronas said it was looking to expand its renewable energy portfolio after posting its first quarterly loss in nearly five years following a coronavirus-related demand slump and lower oil prices.
GAIL India invites bids for charter of LNG tanker: Sources
GAIL (India) is inviting bids from interested companies to charter the liquefied natural gas (LNG) tanker Meridian Spirit for a period of one year, two industry sources said on Wednesday. The 163,000-cubic metre tanker will be available from March 2021 to March 2022, and companies are requested to submit bids by Nov. 6 with bids remaining valid until Nov. 9, the sources said. They spoke on condition of anonymity because they are not authorised to speak with the media. The Indian importer has been using the ship to transport gas from the United States where it has 20-year deals to buy 5.8 million tonnes a year of LNG, split between Dominion Energy’s Cove Point plant and Cheniere Energy’s Sabine Pass site in Louisiana. A GAIL official could not immediately be reached for comment on the matter.
OPINION: Coronavirus surge throws oil recovery into reverse
Oil futures prices have started to signal OPEC+ may have to do more to offset a second wave of coronavirus and a renewed economic slowdown. Between mid-September and mid-October, Brent’s six-month calendar spread had been tightening, a signal traders expected production to run below consumption and inventories to fall. Over the last ten days, however, the spread has gone into reverse, implying traders are less confident about an inventory draw down over the next six months. This has coincided with a second wave of coronavirus across most of North America and Europe and further business closures and travel restrictions in several major economies. Libya’s oil production, which had been badly disrupted by the country’s civil war, has also started to increase, which is adding extra barrels to the market and pressuring the spread. So far, the spread reversal is only a relatively weak signal that the market rebalancing process is being blown off course. But the spread has been an accurate indicator of changes in the production-consumption balance since the start of the year, clearly identifying turning points, especially when smoothed to reduce day-to-day volatility. Most traders already anticipate OPEC+ will postpone the output increase scheduled for January in response to a slower-than-expected resumption in international aviation and oil consumption. OPEC+ officials have done little to dispel the increasingly widespread assumption they will postpone the increase by at least three months until the start of April. But the spread’s renewed weakness indicates that might not be enough, and it has coincided with an uptick in official chatter that OPEC+ might actually reduce output further. Deeper cuts would strain the group’s political unity; some members have been pushing to be allowed to raise their production. Rolling over existing production levels for three months remains a simpler course. Nonetheless, if the COVID-19 pandemic continues to accelerate, the implied hit to consumption will keep the option of deeper cuts on the table.