India cabinet to review BPCL sale proposal next week
India’s cabinet is expected to evaluate a proposal to sell the government’s stake in state-run Bharat Petroleum Corp (BPCL.NS) next week, a government source said. The Indian government plans to sell its entire 53.29% stake along with management control in BPCL for about $10 billion.
HPCL net profit down 22% to Rs 762 crore
Hindustan Petroleum (HPCL), the country’s third largest fuel retailer, today posted a 22 per cent decline in consolidated net profit to Rs 762 crore for the second quarter ended September 2019 (Q2), as compared to the corresponding quarter a year ago. The company had posted a net profit of Rs 979 crore in the corresponding quarter a year ago. The company’s revenue from gross sale of products during Q2 of the financial year 2019-20 (FY20) declined 9 per cent to Rs 66,253 crore. The company’s gross refinery margins (GRMs) during the first six months of the current financial year declined to $1.87 per barrel, as compared to $5.93 per barrel posted in the corresponding period a year ago. Crude throughput during Q2 declined to 4.56 million tonne (MT), as compared to 4.76 MT posted in the corresponding period a year ago. Domestic sales, as well as exports during the quarter, increased to 8.95 MT and 0.45 MT, respectively, as compared to the corresponding quarter a year ago.
After 30 years in Singapore, oil trading losses force Mitsubishi to shut Petro-Diamond
About three years ago, Japanese oil trading firm Petro-Diamond Singapore (PDS) relocated to a bigger office in the 41-storey Millenia Tower as parent Mitsubishi Corp started combining its Tokyo trade operation with that in the city state. As its traders entertained clients in the company’s pantry facing Singapore’s Marina Bay, the once-conservative PDS became the global book leader for the company’s crude oil and fuel trading businesses last year, tripling its profits and assets from two years ago, according to Reuters interviews with company officials, trade sources and reviews of its financial records. Like other trading companies, PDS had eyed a slice of the fast-growing Chinese crude import market, hiring for the first time a Chinese trader in November 2018 to handle crude sales to independent refiners, known as teapots, the sources said. But in September, Mitsubishi said a PDS trader had lost $320 million in unauthorized transactions in crude oil derivatives and that the matter had been reported to the police. The trader, Wang Xingchen, also known as Jack Wang, denied any wrongdoing in a statement issued through a lawyer. On Wednesday, Mitsubishi, Japan’s biggest trading house by sales, said it planned to shut the 30-year-old PDS following the losses. “It took 30 years to achieve this and it’s all been ruined,” a company official said. The sources spoke on condition of anonymity as the case was still under investigation. Over the past year, PDS had become more active on the Singapore trading platform used by S&P Global Platts to assess Middle East crude oil prices and was participating in more tenders, said a Singapore trader who tracks such trades closely. The strategy worked. In the last financial year that ended in March 2019, the company’s earnings before interest and tax (EBIT) tripled to $32.1 million, versus $9.9 million in the year that ended in March 2017, the company’s financial reports obtained from Singapore business registry ACRA showed. Its assets tripled in the same period to $1.58 billion and net cash flow from operating activities became positive at $16.4 million versus losses in the previous two years, the report said. The company was registered in Singapore on May 6, 1989. The case has raised questions about why PDS had allowed a new trader to take big positions, industry sources said. “It was just really bad timing. PDS had lobbied the Mitsubishi management very hard to move its trading center from Tokyo to Singapore. And only one year later this happened,” said a source close to the matter. Mitsubishi has since tightened its risk controls, requiring almost every trade to be reported to Tokyo, which has slowed PDS’s activities, a second source familiar with the matter said. Despite PDS’ shutdown, traders expect Mitsubishi to return to the Singapore oil markets once the case has blown over, mirroring what happened to Japan’s second-biggest trading house, Mitsui & Co , more than a decade ago. Mitsui had shut Mitsui Oil Asia after the Singapore office notched $81 million of losses in naphtha trading by Nov. 17, 2006. In 2009, Mitsui oil trader Noriyuki Yamazaki was sentenced to five years in prison in Singapore for concealing the trades.
India seeks foreign investments in oil and gas sector: Minister
India, the world’s third-largest oil importer, wants more foreign investments in its oil and gas sector, oil minister Dharmendra Pradhan said on Wednesday, as the country takes steps to woo companies, including a recent cut in corporate taxes. India will secure capital, world-class technology and implement any policy reforms needed to become an international energy leader, Pradhan said at an energy conference in New Delhi. “India wants to be the new destination for global energy players,” he said. Oil producers worldwide are eager to gain a foothold in India, where fuel demand is expected to keep rising as the country’s economy grows. India has already outlined plans to sell some state-owned companies to local or foreign investors by March 2020, including oil refiner Bharat Petroleum Corp Ltd.
Reliance again puts off gas bid to Nov 15 on bidders request
Reliance Industries has for the second time in a month put off bidding to sell natural gas it plans to produce from newer fields in the flagging eastern offshore KG-D6 block, sources said. The sources said potential bidders sought more time to evaluate the terms of the offer and so the bidding deadline was pushed back to November 15. Originally bidding for 5 million standard cubic metres per day of natural gas planned to be produced from R-Cluster fields in the KG-D6 block from mid-2020 was to happen on October 11 but was put off to November 6 as bidders cited festival season in October. Now, they have sought more time and the bid has been put off to November 15, they said. Reliance and its partner BP plc of UK are in the market to sell the gas they plan to produce from three set of newer discoveries in the KG-D6 block. The partners are not just seeking volume bids but also price quotes and those offering the best price would walk away with the gas. Bidders have been 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. Reliance set a floor or minimum quote of 9 per cent of dated Brent price — which means bidders would have to quote 9 or a higher percentage for seeking gas supplies. At $60 per barrel price, the gas price comes to $5.4 per million British thermal unit (mmBtu). The rate sought compares to the government-mandated $3.23 price that its currently producing Dhirubhai-1 and 3 fields in KG-D6 block get. The government gas pricing policy, however, provides for a higher cap price for future gas produced from difficult fields like those in deep-sea. This cap currently is fixed at $8.43 per mmBtu. Reliance-BP is developing three sets of discoveries in KG-D6 block — R-Cluster, Satellites and MJ — by 2022 that can produce a peak of 30 mmscmd of gas. The quantity offered for bidding in the NIO is 5 mmscmd from R-Series fields which will start production in mid-2020. The sources said peak output from R-Series is 12 mmscmd, while Satellites will produce another 7 mmscmd beginning mid-2021. MJ field, which will start production in the second half of 2022, also has a planned peak output of 12 mmscmd. The NIO said the gas price would be lower of the quoted rate or the government-mandated ceiling for the difficult fields. The formula Reliance is using to price gas for R-Series fields is different from its last price discovery it made for the coal seam gas (CBM) from its Sohagpur coal-bed methane blocks in Madhya Pradesh. For Sohagpur CBM, it had in 2012 sought bids at a benchmarked rate at 12.67 per cent of JCC, or Japan Customs-Cleared Crude, plus $0.26 per mmBtu. The formula was the same at which Petronet LNG, a joint venture of public sector oil companies, whose chairman is the oil secretary, used to buy long-term liquefied natural gas (LNG) from Qatar. At $60 per barrel oil price, CBM from its Madhya Pradesh block was to cost $7.8. That formula was, however, rejected by the oil ministry even though 59 valid bids seeking about 70 mmscmd of gas were received in the open tender. In 2017, it changed the formula by seeking bids in the form of a deductible from 12.67 per cent of prevailing Brent crude oil price plus $0.52 per mmBtu plus $0.26 per mmBtu, according to the bid document of CBM pricing. Reliance ended up buying the CBM gas from its block after it bid deducting $1.836 per mmBtu, lower than $3.156 bid by rival Piramal Glass and $3.495 bid by state-owned GAIL.
Rosneft received claims over oil contamination through third quarter
Russian oil giant Rosneft said on Wednesday it had continued to receive claims from customers through the third quarter over a major contamination of oil via the Druzhba pipeline earlier this year. Customers complained about repeated cases of increased organic chloride levels in oil, although the oil delivered by Rosneft to the Transneft pipeline monopoly was in line with regulations, Rosneft said in its quarterly report. Rosneft said it had also received claims from customers who had not received oil as contracted because of the pipeline contamination. Last month, Russia and Hungary signed a first settlement over compensation for tainted oil shipped to Europe via a major oil pipeline earlier this year, with oil pipeline monopoly Transneft promising to clinch deals with other countries soon. Talks with Rosneft, Russia’s top oil producer that also has refineries in Germany, were the most difficult. Rosneft and Transneft have publicly attacked each other since the tainted oil crisis. Rosneft also said on Wednesday that its third quarter net profit was 225 billion roubles ($3.54 billion), up from 142 billion roubles for the same period a year ago. Revenues for the period were 2.24 trillion roubles, slightly down from 2.29 trillion roubles in the third quarter last year, while earnings before interest, tax, depreciation and amortization (EBITDA) stood at 554 billion roubles, down 14% from the same period a year ago.
India spending $100 billion in creating oil and gas infrastructure: Dharmendra Pradhan
India’s oil minister Dharmendra Pradhan today said the country is going to spend a massive $100 billion in creating oil and gas infrastructure, including a $60 billion spend in the natural gas sector, over five years through 2024. “India is investing close to $60 billion in developing gas infrastructure including pipelines, LNG terminals and CGD network. The country is spending a massive $100 billion by 2024 in the overall oil and gas sector,” Pradhan said speaking at an industry event here. The minister said an average Indian gets only a third of the per capita consumption of energy that the UN believes is necessary for human well-being and the country is finding ways to achieve the twin objective of more energy and less carbon by tapping into a healthy mix of all commercially viable sources. “We took lead in the global energy transition by promoting International Solar Alliance and today more than 80 countries have joined this alliance. India has a huge appetite for energy and will be a driver of global energy demand in coming decades,” he said. Pradhan also added the oil and gas industry will continue to play a crucial role in meeting India’s energy requirement despite system-wide energy transition measures. The country’s oil and gas companies have a proven track record of competence and can leverage their technology and business expertise to transiting from oil and gas to energy players, he said. He also highlighted that the government’s strategy for sustainable energy growth is multi-pronged and the share of renewable energy in the country’s overall electricity mix has gone up to 22 per cent from 10 per cent in 2014-2015. The country has an ambitious plan to increase renewable energy capacity to over 175 GW by 2022 and up to 450 GW subsequently. Talking about the government’s focus on alternative energy, Pradhan said under the Sustainable Alternative Towards Affordable Transportation (SATAT) scheme private entrepreneurs are going to set-up 5,000 Compressed Bio Gas (CBG) stations across the country with Oil Marketing Companies (OMCs) providing complete off-take guarantee with price stability. He added that ethanol blending in petrol has gone up to 6 per cent from 0.67 per cent in 2013 and the government plans to increase the blending of ethanol to 10 per cent by 2022.
Cairn Oil & Gas secures 10-year contract extension for Ravva field in Andhra Pradesh
Cairn Oil & Gas, the hydrocarbon exploration arm of Vedanta Ltd, on Wednesday said it has secured a 10-year extension of the production sharing contract for Ravva block in Andhra Pradesh. The extension was approved by the Directorate General of Hydrocarbons. The extension comes as Cairn completes 25 years of operations in Ravva. With this, the PSC is now valid effective 28 October 2019. “Ravva, the oldest producing asset in India for Cairn, becomes the first large field to get PSC extension under the policy for the grant of extension to the production sharing contracts signed by Government awarding small, medium sized, and discovered fields to private joint ventures (JVs),” the company said in a statement. The extension would enable the JV partners to recover about 13 million barrels of oil equivalent. In addition, the JV partners would invest Rs 550 crore to drill seven wells under the Revised Field Development Plan targeting additional reserves of 11.7 million barrels of oil equivalent. “These campaigns put the JV on course for yet another milestone in hydrocarbon recovery from this world-class offshore asset,” it added. Anil Agarwal, chairman, Vedanta Resources, said, “…We look forward to working with all our partners towards achieving our vision of contributing 50 percent of the country’s domestic production and supporting the government in its energy security goals.” Ajay Kumar Dixit, chief executive officer, Cairn Oil & Gas, Vedanta said that fast-tracking decision making would help quicker and timely recovery of these additional reserves. Cairn took production up at Ravva field from 3,000 to 50,000 barrels of oil per day and has sustained this production for nine years.
Slowdown Blues: Petrol, diesel demand in September lowest in 2 years; crude import falls
India witnessed the lowest demand for petroleum products in the month of September this year on the back of a drastic fall in consumption of petrol and diesel. The consumption levels for both petrol and diesel in September were at its lowest in the last two years, showed data released by Ministry of Petroleum and Natural Gas. Consumption of petroleum products fell to 16.01 million metric tonnes in September, its lowest since July 2017. Petrol consumption saw its lowest decline in two years and fell 8 per cent from August to 2.3 million metric tonnes. The most commonly used fuel, diesel, also saw a drop in demand of 3.2 per cent year-on-year to 5.8 million metric tonnes. Other petroleum products that are consumed include naphtha, motor spirit, aviation turbine fuel, superior kerosene oil (SKO), light diesel oil (LDO), lubricants and greases, bitumen, petroleum coke, furnace oil and low sulphur heavy stock (LSHS) fuel. The fall in consumption of petroleum products has also led to the decrease in crude oil imports by 15 per cent in September. Consumption of fuel is likely to remain low in the coming months as well. Production of total petroleum products in the same month fell to 19.8 million metric tonnes, the lowest in two years. Production of petrol fell to 2.9 million metric tonnes, the lowest since April 2017 and a decline of 4 per cent from September 2018. Diesel production in September fell 14 per cent from August and witnessed a fall of 9 per cent from the same period of the previous year. The fall in fuel production has come amid a fall in consumption. Crude oil imports declined to 16.8 million metric tonnes in September from 19.8 million metric tonnes in August. Crude oil imports touched the lowest in two years too and saw a decline of 8 per cent. It dropped by 6.2 per cent in September and 1.3 per cent during the period from April to September 2019 over the same period of the previous year. The decline in consumption comes amid one of the worst slowdown periods for the auto sector. In September, passenger car sales saw a decline of 33.4 per cent and two-wheelers saw a dip in sales by 22.09 per cent from the same period in the previous year. Commercial vehicles registered a decline of 22.95 per cent, while light commercial vehicle sales dropped by 14.69 per cent in April to September over the same period last year. Medium and heavy commercial vehicles declined by 35.79 per cent. Another factor contributing to the drop in consumption is the reduction of prices of compressed natural gas (CNG). CNG prices reduced to Rs 38 per litre from Rs 51 per litre last year. Demand for CNG has also increased by 50 per cent in four years. As petrol and diesel prices increase, sales of CNG cars have also perked up. A cut in petrol and diesel prices is likely to boost consumption. It is estimated that CNG would make for 50 per cent of all vehicle sales by 2030. Additionally, government subsidies on petroleum products have decreased over the years. It has reduced to Rs 267 billion from Rs 1300 billion in 2012.
BPCL privatisation could result in reassessment of govt-oil cos linkages: Ind-Ra
The potential sale of entire government stake in Bharat Petroleum Corp Ltd (BPCL) could result in a reassessment of linkages between the government and oil marketing companies, Fitch group firm India Ratings and Research said on Tuesday. Traditionally, oil marketing companies (OMCs) have been used by the government to push its inclusive agenda, the latest being the dole out of free cooking gas (LPG) cylinders to poor women households. BPCL’s stake sale is part of the government’s disinvestment target of Rs 1.05 lakh crore, which also includes divestment of other state-owned companies such as Shipping Corp of India (SCI), THDC India Ltd and North Eastern Electric Power Corp Ltd, and a 30 per cent stake sale in Container Corp of India. “India Ratings and Research (Ind-Ra) believes a potential sale of the entire government of India stake of 53.3 per cent in BPCL could result in a reassessment of linkages between the government and OMCs,” it said in a statement. The government stake in BPCL could either be sold to another OMC or a government entity. Alternately, it could go to a domestic private sector firm or an international oil and gas company. “The key benefits of stake sale to an OMC would be the ease of structure with precedent being the Hindustan Petroleum Corp Ltd (HPCL)-Oil and Natural Gas Corp Ltd (ONGC) deal last year; easier streamlining given OMCs act as a policy implementation arm of the government providing subsidised LPG and kerosene; lesser complexity compared to privatisation given only around five months left for FY20 and lower resistance from BPCL employees,” it said. However, the Competition Commission of India (CCI) may have reservations on this deal, given the market, in this case, would become more concentrated. While the private sector is allowed participation in fuel marketing, their share remains low. The valuation from this deal is also likely to be lower due to the absence of control premium, Ind-Ra said adding OMCs’ liquidity could be impacted because of the deal leading to lower dividend payouts, which could affect in managing the fiscal position. “Ind-Ra believes that privatisation, on the other hand, is likely to induce increased competition for the existing refiners and thereby bring higher efficiencies in the system. The private sector would gain easy access to the large retail marketing network of BPCL, taking the share of the private sector to around 33 per cent from 11 per cent currently. “Additionally, the fuel stations could be used for supplying other fuels such as compressed natural gas. Such a deal would also be beneficial for the government from a valuation point of view, given there would be a control premium,” the statement said. While demand for petroleum products has been declining globally on account of increasing environmental concerns and thrust on electric vehicles, India continues to be a growth market, and thus a key market for international players. “However, BPCL’s stake sale to a private entity has additional complexity, unlike other sectors where the subsidy is received only from the government. In the case of petroleum subsidy, the quantity of subsidy per unit is not fixed and the burden of the subsidy burden-sharing is still ad-hoc in nature. “If privatisation was to happen, Ind-Ra believes that the concern with respect to the subsidy sharing needs to be addressed as the private players would be less interested to bear any pricing intervention in recovering subsidy dues from the government in case BPCL continues to be a policy implementation arm. Further, increasing political and employee resentment for privatisation along with challenges in continuing policy implementation could be possible deterrents for privatisation,” it added. In its rating action commentaries on the OMCs, Ind-Ra highlighted that the linkages could be re-assessed in the event of further fuel reforms in LPG and kerosene. The agency had also highlighted that it would reassess the linkages in case of a decline in government’s stake in an OMC and would also assess the continuance of state control in an OMC’s decision making and whether the OMC continues to act as an extended arm for implementation of government policies. Ind-Ra said it would also assess the ability of the OMCs to maintain pricing freedom in decontrolled products in case of high crude prices. In October 2018, when petrol and diesel were decontrolled and crude prices had increased significantly, the government had instructed OMCs to absorb Re 1 per litre.