Oil PSUs merger: New entity would face significant challenges, says Fitch
The proposed merger of India’s state-owned oil companies would face significant execution challenges related to managing integration of employees, addressing overcapacity in the merged entity and winning the backing for the merger from private shareholders, according to Fitch Ratings. The US-based credit rating agency, however, said the merger could reduce inefficiencies across the sector. “It would also create an entity that is better placed to compete globally for resources, and less vulnerable to shifts in oil prices,” the firm said in a statement. The merger is likely to give the new entity much stronger bargaining power with suppliers, and greater financial clout to secure oil resources. Most Asian countries have only one national oil company integrated across the value chain. In contrast, there are 18 state-controlled oil companies in India, with at least six that can be considered key players – Oil India, Indian Oil, Bharat Petroleum, Hindustan Petroleum, GAIL (India) and ONGC. Proposals to consolidate India’s oil & gas sector have been floated before but the idea was presented in a budget speech last week for the first time. The government has not provided details on which companies would be involved but the aim is to create an integrated public sector “oil major”. The merged entity would have opportunities to save on costs and improve operational efficiency. “For example, there would be less need for multiple retail outlets in a single area. Transport costs could be reduced by retailers sourcing from the nearest refinery, rather than the ones they own – as is currently the common practice. A merged entity would also be able to share expertise for exploration and acquisition of resources,” Fitch said. The integration of upstream, refining and retail companies would have the additional benefit of spreading the impact of oil prices movements across the various parts of the value chain, which would reduce volatility in cash generation. However, Fitch pointed out there will be considerable difficulties involved in merging a number of entities with differing structures, operational systems, and cultures. “Political sensitivities are likely to limit job cuts, and personnel-related issues are likely to arise from the need to manage hierarchies and potential overcapacity in the integrated entity. Moreover, all these are listed companies with public shareholding ranging from 51 per cent to 70 per cent. That could cause some problems in obtaining approval from the 75 per cent of shareholders that is typically required to approve a merger, particularly if there are concerns over valuation,” the agency said. Finally, there is a question of how the government will handle the likely decline in competition after a merger. Consumers have benefited from competition among the state-controlled retail companies, which has supported improvements in service standards. Private companies are increasing their market share from a low base, but could find it even harder to compete with a single large state-controlled company. Derek Dorsett Jersey
Iraq’s Basra oil export terminal to stop loading for 24 hours
Iraq’s main oil export terminal, off the southern city of Basra, will stop loading operations for 24 hours, starting midnight Tuesday, because of work to install a new pipeline feeding the facility, two sources at state-run South Oil Company said. The terminal’s loading capacity is estimated at around 1.8 million barrels per day (bpd). Loading offshore at three single-point moorings (SPMs) connected with the Basra terminal will not be affected, they said. OPEC’s second-largest producer after Saudi Arabia, Iraq exported a record 3.51 million barrels per day in December from the southern ports. Grant Fuhr Womens Jersey
ONGC’s Rs 780 billion investment seen as credit negative: Moody’s
Ratings agency Moody’s sees Oil and Natural Gas Corporation (ONGC) planned Rs 780 billion investment in Andhra Pradesh as credit negative in the backdrop of falling gas prices, long gestation period of such investments and expected increase in leverage. On January 27, Petroleum Minister Dharmendra Pradhan said ONGC, amongst other oil public sector utilities, will invest Rs 780 billion in Andhra Pradesh in the development of oil and gas discoveries. “Of the total investment, around Rs 100 billion ($1.5 billion) will be spent on on-shore blocks with the balance Rs 680 billion ($10 billion) spent on off-shore assets in the Krishna-Godavari (K-G) basin. The company expects to commence investment in financial year 2017-18 and finish by financial year 2020-21,” the Moody’s report noted. The decision to invest further in on-shore and off-shore assets comes at a time when gas prices in India are falling due to government’s intervention. Moody’s sees this as a detrimental to ONGC’s future investments in these blocks. “Prices of domestically produced natural gas were revised down on October 1, 2016 to $2.5 per million British thermal unit (mmbtu) from $3.06/mmbtu (on gross calorific value basis). The revised prices remain effective until March 31, 2017. For natural gas produced from deep water and ultradeep water areas, prices are capped at $5.3/mmbtu, which is among the lowest in Asia. Even if ONGC’s entire incremental production from the Andhra Pradesh investment were eligible for the higher gas price, that price would still be materially lower than prices in Asia,” Moody’s said in its note. In addition to falling gas prices, Moody’s said these investments will be credit negative for ONGC and lead to an upfront increase in leverage and typically involve long gestation period. “The development of oil and gas assets has a long gestation period before contributing meaningfully to earnings and cash flows. During the initial development period, ONGC’s borrowings will remain elevated for its Baa1 rating category,” it said. Moody’s expects ONGC’s retained cash flow (RCF)/debt to decline to 40 per cent by March 2018 and 33 per cent by March 2019 if the proposed investment is equally spread over FY18 and FY19. “Although RCF/debt would remain marginally above our quantitative downward rating guidance of 30 per cent for its rating, ONGC will have no room to take on more debt. Any increase in shareholder payments or weak operating performance would exert downward pressure on its ratings,” the report further said. The company’s cash balance, however, could help support its credit assessment. “The company’s sizeable cash balances of Rs 25.80 billion or $3.8 billion as of March 31, 2016 supports its baseline credit assessment, which reflects its fundamental Baa1 credit strength,” Moody’s report added. Marcus Murphy Authentic Jersey
Spot crude buying time cut to two hours
Indian Oil Corporation (IOC) has brought down the buying time for some of its spot cargoes to two hours, sharply shrinking from 30 hours just one and a half years ago, a move that would help the country’s largest refiner bring down crude cost and boost margin. IOC picks 30% of its crude from the spot market, a share that went up from 20% in the past two years as state refiners tried to take advantage of the falling crude prices. Last year, the state refiners were also unshackled by the government to decide on their spot purchasing mechanism, which has now helped IOC drastically reduce purchase time. For the past few months, the company has undertaken a pilot in which it calls for pre-specified crude from pre-specified sellers within a price band, a company executive said. Each transaction has taken about two hours and the company has been able to purchase a few cargoes so far, the executive said. This is less than one-fourth of the usual nine hours taken currently for the tendering process in the spot market. Even nine hours is a huge improvement over nearly 30 hours that the company took earlier. “If you accept an offer in a very short duration, you get the price advantage. As you delay, the time risk gets priced in,” said the executive, adding that the effort is towards reducing purchase time so that the company is able to source cheaper crude and is on an equal footing with private refiners. IOC plans to import 50.3 million tonnes of crude oil in 2017-18, about 0.9 million tonne higher than in the current year. The increase in supply will likely be absorbed by the 15 million tonnes Paradip refinery expected to reach 100% capacity utilisation next fiscal year from about 80-85% now. With 15.6 million tonne, Iraq is the biggest supplier to IOC. Saudi Arab comes second with 5.7 million tonnes. The third spot is shared between Kuwait and Iran with 5 million tonnes each. The UAE supplies about 2.5 million tonnes. West Asia remains a big source of supplies to IOC, which controls about a third of the Indian refining capacity, and has been diversifying its supply bases to multiple regions. A global collapse in oil prices in the past two years has boosted the bargaining power of big crude importers like India with respect to the oil producers. Marcus Maye Womens Jersey
All set for exploration of shale oil and gas by ONGC in State
The final public hearing for exploring shale oil and gas by Oil and Natural Gas Corporation Limited (ONGC) and Oil India Limited was conducted without any hitch in Alamuru mandal headquarters of East Godavari district on Saturday. Banking on its rich experience and data, the ONGC had informed the Government of India that it identified 50 blocks in the country — 28 in Cambay basin, 10 in KG Basin, 9 in Cauvery Basin, and 3 in Assam and Arakan Basin. The ONGC had estimated availability of 187.5 trillion cubic feet of shale gas in these basins. Consequently, it had been tasked with exploring shale oil and gas on an experimental basis by 2019 in the existing blocks. In 2014, it had drilled the first shale gas exploratory well in Cambay. Though there were some positive leads, it could not achieve any major breakthrough. In Andhra Pradesh, the ONGC would go in for a two-phase exploration in three districts – Krishna, West Godavari, and East Godavari. In the first phase, it would drill five wells — two each in Krishna and West Godavari, and one in East Godavari. In Krishna district, two locations had been identified – Komallapudi village of Kruthivennu mandal and Modugumudi village of Mandalvalli mandal. The estimated cost in the district was put at Rs. 800 million. In West Godavari district the ONGC would take up drilling in Kolanapalli village of Kalla mandal and Andaluru village of Veeravasaram mandal at an estimated cost of Rs. 930 million. In East Godavari, it would take up drilling at Kalvacharla village in Alamuru mandal at an estimated cost of Rs. 2.17 billion. HRF objection Meanwhile, rights activists are apprehensive about the entire exercise. General secretary of Visakhapatnam-based Human Rights Forum (HRF) V.S. Krishna says that exploitation of shale gas in the region will lead to depletion of potable groundwater, salination of water table, earthquakes, and air pollution. ‘No water contamination’ However, P. Chandrasekharn, Group General Manager, shale gas and oil, KG Basin, says that exploration is only on an experimental basis. He further says that drilling is done by adopting the Hydrofracking method with the approval of the Government of India. There will be no water contamination as drilling is done with appropriate casing of four layers, he says. The drilling will be completed in three months. Klay Thompson Authentic Jersey
Merged PSU energy giant to have global edge: B Ashok, IOC Chairman
The merger of state-run energy companies will provide India the muscle to acquire assets abroad and negotiate better, but the business model of the new entity thus created will be key to its success, chairman of the country’s largest oil marketing firm said. Finance minister Arun Jaitley in the Union Budget last week announced a proposal to merge stateowned oil companies to create an integrated oil behemoth, which could potentially top $100 billion in market value and enter the league of global oil heavyweights. “Energy is critical and strategic for the growth that India aspires for,” Indian Oil Corp chairman B Ashok told ET. “Consolidation would help us strengthen, leverage and enhance our position more strongly in the international market. This will not happen overnight and we will have to work on different models, but it is the way forward.” Indian Oil is the top-ranking Indian company on the ‘Fortune 500’ list for 2016 at 161, with the other two state-run oil marketing companies also making it to the list. The merged entity would be catapulted to the league of global majors such as BP, which has a market value of $115 billion. “The top ranking energy companies on ‘Fortune 500’ are integrated players. While we are on the list, individually we are much smaller in scale. The merger would help scale and consolidate our position in the world,” Ashok said. “An integrated company can absorb volatility much better.” On concerns that the merged entity may have to cut down on staff to reduce duplication and redundancies, Ashok said the government will have to work on a model that works best to leverage the strengths of these companies. “The thought process for being consolidated across the value chain has been in place for a long time. IOC has believed in this model and has been working towards it. Simultaneously, we have been removing duplications in our operations and staff,” he said. In 2005, an official panel had advised against the merger of the state run oil companies, saying that a dominant entity may not be good for competition in an energy-starved country. “Industry has grown a lot and those concerns are not relevant anymore. This is the right time for such a move,” IOC chairman said. The top eight public sector oil companies together would have a market value of $108 billion, which would surpass the $50 billion of India’s Reliance Industries and that of the $70 billion Russian major Rosneft, which is increasing its presence in India by buying stake in Essar’s refinery. Troy Apke Jersey
Pakistan to start civil work on TAPI by end of this year
A delegation comprising officials of the Dubai-based TAPI Ltd is set to reach Islamabad this month to sign various agreements and contracts for the Turkmenistan-Afghanistan-Pakis¬tan-India Pipeline, Federal Minister for Petroleum and Natural Resources Shahid Khaqan Abbasi said on Saturday. Talking to Dawn, he said the TAPI consortium, led by Turkmengaz (the national gas company of Turkmenistan), is serious about the project deadline which is set for 2019. The ongoing construction work on the portion falling in Turkmenistan shows their commitment, he added. Mr Abbasi, however, was not optimistic about the execution of the Iran-Pakistan Gas Pipeline Project in near future, especially in view of fresh sanctions imposed by the United States. “This project is already on hold for the last couple of years after the US imposed sanctions on Iran. What will be the impact of fresh sanctions on this project, we will come to know soon after studying the list of companies blacklisted by the US under latest sanctions,” he explained. He said Pakistan has signed the agreement on IP pipeline with the National Iranian Oil Company – a state run subsidiary of the Iranian government. Hopefully the name of this company will not be in the list of companies blacklisted by the US, Mr Abbasi said. “If the name shows up in the black list, this project will be in further trouble,” the minister added. Pakistan is expected to initiate civil works on the 780km long portion of TAPI which falls in its territory by the end of this year, a senior official of the Inter State Gas Systems (ISGS) said on Saturday. The 1,800km long pipeline, which begins from the Galkynysh gas field in Turkmenistan, passes through Herat and Kandahar in Afghanistan, moves through Pakistan via Quetta and Multan and concludes at Fazilka in India. Various activities, including signing of respective contracts and preparatory works including route survey are likely to begin by end of this month, the official said. “We are well prepared to assist the TAPI consortium and respective firms for the accomplishment of various tasks. We are hopeful that the civil work on the pipeline’s portion, which falls in our territory, will be launched by end of this year or by January, next year,” said ISGS Managing Director Mobin Saulat. Talking to Dawn, the chief of ISGS – a subsidiary of the Ministry of Petroleum and Natural Resources – said a German firm (ILF) has already been engaged as the project management consultant by the TAPI consortium. The team is likely to start various works related to route survey, designing, planning and feasibility studies within this month. Turkmenistan, being a lead partner or leader of the TAPI consortium, has already started construction work on the portion falling in its territory last year. The consortium has also established a company based in Dubai to supervise and execute the project that is planned to be completed by December, 2019.
Augmentation of LNG project in Kerala remains a pipe dream
The schemes envisaged to boost the use of natural gas in Kerala are moving at a snail’s pace, despite the state being home to South India’s only LNG terminal. Data available with the Petroleum and Natural Gas Regulatory Board show the number of natural gas connections rose to 78 by November-end from 16 in the beginning of the financial year, although still remains the lowest in South India. Currently, Karnataka and Andhra Pradesh are in the forefront of adopting natural gas in South India. After rolling out the city gas project last year, not a single CNG outlet was opened in the state to dispense fuel to vehicles. The time is ripe for Kerala to take advantage of the LNG terminal, in view of the reduction in Customs duty in the Budget (from 5 per cent to 2.5 per cent). “Currently, FACT and Kochi-Refinery are the largest consumers of natural gas in the state. LNG consumption at households and vehicles is yet to pick up momentum. All the new residential apartments in the state have the provision for natural gas connection. It is high time the government intervened to enhance the state’s LNG infrastructure,” said Kerala Chamber of Commerce and Industry chairman Raja Sethunath. Currently, LNG accounts for 50 per cent of the gas demand in the country. “The issues pertaining to pipe laying by the PWD at Kalamassery have been resolved, and construction of CNG outlets at Kalamassery, Eloor, Kundannoor and Aluva is progressing. We expect to start work at two more stations soon,” said Ajay Pillai, deputy general manager of Indian Oil-Adani Gas, the implementing agency for the city gas project. Post-Budget, the government estimates LNG would become price-competitive. According to experts, states like Kerala should effectively utilise the opportunity. “The reduction of Customs duty is a positive move. Since the KG-D6 deal has turned out to be a damp squib, the country will increasingly be dependent on import to meet its LNG demand,” said energy analyst Sudha Mahalingam. Wayne Gretzky Womens Jersey
Halving of LNG duty to save Rs 9 billion for consuming industries
The government’s move to halve import tax on liquefied natural gas (LNG) in a bid to promote use of the cleaner fuel, will result in Rs 9 billion savings to gas-consuming industries. A host of industries from petrochemical plants to fertilizer units will benefit from the Budget announcement of cutting import duty on LNG to 2.5 per cent from 5 per cent currently, Oil Ministry sources said. This, they said, augurs wells to achieving the objective of increasing the share of natural gas in India’s energy mix to 15 per cent by 2020 from 6.5 per cent at present. Government is focused on increasing the usage of natural gas in overall primary energy mix for promoting a gas-based economy in the country. In view of limited availability of domestic gas, there is continuous increase in import of super-chilled natural gas (LNG) in the country. Import of LNG is allowed under Open General Licence (OGL) scheme and prices are based on international market demand-supply scenario, they said, adding import duty of USD 0.35 per million British thermal unit on a spot LNG price of USD 7 per mmBtu will now halve. Presently, imported LNG meets about 50 per cent of gas demand of various sectors in the country. The import of LNG is expected to rise in the future for catering to the rising demand of energy for industries, they said. Sources said abased on LNG consumption in FY 2015-16, the estimated savings to gas consuming industries will be to the tune of Rs 9 billion on account of reduction in customs duty. The move, they said, will help in making LNG price competitive to alternate fuels and industries will be encouraged to switch over to LNG from liquid fuels. IG: managing director E S Ranganathan said lowering of customs duty will reduce the fuel’s price by 15-17 cents per million British thermal units for industrial and commercial customers. Spot LNG price in Singapore has risen about 50 percent over the past year, making the fuel unaffordable for many consumers. Sources said the reduction would benefit petrochemical, steel and fertilizer plants. Power producers were exempted from the import tax since 2012. The step is credit positive for regasification terminal operators including Petronet and GAIL, K. Ravichandran, group head of corporate ratings at New Delhi-based ICRA, said in a statement. According to BP India, natural gas at 25 per cent of energy mix in 2030 is 970 million standard cubic meters per day of gas consumption, a seven-fold growth over 2015-16 levels. “To meet this level of demand there has to be a judicious combination of mainly domestic natural gas and imported LNG,” it said on its website. India’s gas supply deficit is expected to widen from 78 mmscmd this fiscal year to 117 mscmd in 2021-22, according to a government estimate. Tyreek Hill Womens Jersey
South Sudan: Juba Now Extends Oil Extraction Contracts
South Sudan has extended the crude oil exploration and production licences given to Asian multinationals by five years to increase output. The Petroleum Ministry has extended the licences of Malaysia’s Petroliam Nasional Berhad (Petronas), China National Petroleum Corporation (CNPC) and India’s Oil and Natural Gas Corporation (ONGC) to 2022 to increase crude oil production to over 300,000 barrels per day. Juba has also extended the agreement with Sudan for transporting oil in two pipelines to Port Sudan. “We will move quickly to repair all the damaged facilities and put them back in production. With this package now signed, we will now be moving forward with oil production, especially in places that were shut down,” said Petroleum and Mining Minister Ezekiel Lol Gatkuoth. Juba has agreed to compensate subsidiaries of CNPC and ONGC for shutting down production in 2012 following a dispute over transit fees with Khartoum. The firms will also be compensated for disruption of output due to the civil war. However, the exact amounts have not been disclosed. Juba depends on oil revenues to finance 98 per cent of its budget, but output has declined to about 130,000 barrel per day from about 350,000 barrels per day in 2012 as a result of the civil war. “We will do our best to increase production and also support resumption of oil from the Unity fields. We will work with Ministry of Petroleum to do our best in terms of economic development,” said CNPC’s president Jia Yong. He said the co-operation between South Sudan and Sudan has to be strengthened to enable the two countries to benefit from crude oil production in the Unity State oil fields. South Sudan has been relying on oil production in Paloch oil field in Upper Nile State after fields in Unity State were shut down in 2014 due to the war. Chris Bigras Womens Jersey