Japanese consortiums bid for GAIL’s $7 billion tender
Two Japanese consortiums have bid for state-owned gas utility GAIL India Ltd’s USD 7 billion tender for hiring nine newly built ships for ferrying LNG from the US. Mitsui OSK Lines Ltd (MOL)-Nippon Yusen Kabushiki Kaisha Ltd (NYK Line) and Mitsui & Co Ltd is one consortium to have applied for the tender at close of the deadline on March 31, official sources said, adding that the other one is Mitsubishi Corporation-Kawasaki Kisen Kaisha Ltd (K Line) and GasLog L.. GAIL is seeking 9 LNG ships of a cargo capacity of 150,000-180,000 cubic meters to help transport liquefied natural gas (LNG) it has tied up from Sabine Pass and Cove Point LNG projects in US, with supplies slated to start from December 2017. The tender, which was re-floated in September last year, was originally to close on December 17 but postponed first to February 29 and then to March 31. Sources said only two consortiums put in bid at the close of the extended deadline. GAIL sought quotes in three lots of three ships each. One ship in each lot is to be built at an Indian shipyard. After postponing the deadline thrice, GAIL had in February last year scrapped the tender to hire nine LNG carriers to ferry gas from the US, with a caveat that three of them be Made in India. At that time no foreign shipyard was willing to share LNG shipbuilding technology.
US shale oil firms begin to feel credit squeeze
Nearly two years into an epic oil rout, the US shale drillers that have upended global energy markets are finally feeling a credit squeeze as banks make their biggest cuts yet to their loan. Every six months, oil and gas producers and their banks negotiate how much credit they should be given based on the value of their reserves in the ground. In previous reviews, banks were willing to offer borrowers some leeway, encouraged by producers’ hedges against falling prices and their ability to keep cutting costs in step with crude’s slide that began in mid-2014. This time, with many companies’ hedges largely gone and crude prices used in the reviews as much as 20 per cent lower than six months earlier, banks are getting tough. Just a few weeks into the current round of talks, more than a dozen companies have had their loans cut by a total of $3.5 billion, equivalent to a fifth of available credit, according to data compiled by Reuters. Bankruptcy sword At that rate, $10 billion more of bank credit will disappear as a remaining $50 billion or so of credit lines come under scrutiny in talks that stretch into May. Companies and bankers contacted by Reuters declined to comment beyond their public statements due to the sensitive nature of the talks. The squeeze puts further pressure on the shale industry to sell assets, cut jobs and drilling and shrink capital spending. It also raises the risk that more companies will tip into bankruptcy. Banks are also under more pressure now from regulators to limit their energy-related risks as the downturn drags on. The next credit review in the autumn could take an additional toll if oil prices, now below $40 a barrel, do not rebound. “Any company that does not have a widely profitable base at this current price is going to find it very, very hard,” said Christian Ledoux, senior portfolio manager at South Texas Money Management. About 36 per cent of some 150 energy companies with speculative grade debt will probably default on their obligations by the end of next year if oil holds around $35 a barrel, said Tarek Hamid, senior US credit analyst at JPMorgan Chase & Co. More than 50 North American oil and gas producers have entered bankruptcy since early 2015, according to a Reuters review of regulatory filings and other data. Oil and gas producers rely on revolving credit to finance day-to-day operations and cuts force them to looks for cash elsewhere. Clayton Williams Energy Inc, for example, which had its credit line slashed to $100 million from $450 million, borrowed the difference from Ares Management LP, an alternative asset investor that charged triple the rate of the banks. Fearing that falling crude prices and reserve values could push many companies into default, companies and bankers have been also renegotiating financial performance tests and claims on assets while resetting the borrowing limits. More flexibility Some companies, including Eclipse Resources Corp and California Resources Corp, have disclosed that banks have agreed to loosen, or even suspend, minimum financial requirements to give them more flexibility. Sometimes banks rewrite clauses that might have allowed lower classes of lenders to throw borrowers into default and suddenly trigger repayment requirements and cause bankruptcies, according to lawyers and analysts tracking the talks. “Typically bank lenders don’t want second- and third-lien lenders to have that first bite at the apple,” said Lindsay Sparks, a partner at law firm Paul Hastings LLP. To the alarm of banks, some highly indebted companies, such as Linn Energy LLC, drew heavily on their credit lines ahead of their loan talks, lawyers and analysts said. A spokesman for Linn declined to comment. “This defensive measure has emerged as a somewhat surprising-and troubling-trend with broad ramifications for lenders,” said FBR & Co analyst Chad Mabry. Easier financial tests In response some banks have insisted on “anti-hoarding” provisions that would give them more say over what companies do with cash and other assets that could go toward repaying the loans. In February, Phil Rykhoek, chief executive of Denbury Resources Inc, told investors after loan talks with a syndicate of banks, that lenders agreed to easier financial tests in exchange for accepting such a provision. The “anti-hoarding” provision limits how much cash Denbury can hold before drawing more on its credit line. It was not directed at Denbury, Rykhoek said, as much as it was a new defensive by banks in response to seeing other companies draw on their lines to take lender cash with them as they approached bankruptcy. “It was very important to them,” Rykhoek said.
Russia’s Rosneft field to commence production this year
Rosneft’s Suzunskoye field, part of the Vankor cluster in Russia where Indian state firms are in talks to buy stake, will start producing this year. Oil India (OIL), Indian Oil ( IOC) and Bharat Petroresources signed a preliminary agreement with Rosneft last month for a potential partnership to develop the Suzunskoye, Tagulskoye and Lodochnoye fields located close to already-producing Vankor oil and gas field in the Siberian region. Energy-hungry India has been in talks with sanctions-hit Russia to stitch multiple deals that can help secure oil and gas supplies for the country at a time oil prices have collapsed, making assets cheaper and readily available. The Indian state firms, nudged by the government, have been seeking producing assets that come with lower risk for the buyer. Suzunskoye, with an initial recoverable reserve of 286 million metric tonne (mmt), will initiate production in 2016 while Tagulskoye will take a few more years, a company spokesperson said. The operational drilling has just started at the Tagulskoye field that has an initial recoverable reserve of 56 mmt, the spokesperson said. The company expects to build 39 well pads and 506 wells as part of the overall drilling project. Initial recoverable reserve at Lodochnoye field is 73 mmt. This field is several years away from production. By comparison, the producing field of Vankor, where Indian firms are in talks to buy nearly half equity stake, has initial recoverable reserve of 476 mmt. In 2015, Vankor produced 22 mmt of oil and 9.75 billion cubic meters of gas. Rosneft aims to leverage the existing infrastructure at Vankor to process and transport oil and gas from the three new neighbouring fields.A 99-km pipeline has already been laid to carry oil from Suzunskoye to Vankor. Rosneft also plans to build a 65-km pipeline to evacuate gas from Tagulskoye field to Vankor. Oil and Natural Gas Corp ( ONGC) has purchased 15% in Vankor and is in talks with Rosneft to raise it to 26%. The consortium of Oil India, Indian Oil and Bharat Petroresources have also entered into an initial agreement to buy 23.9%.
Fitch affirms ‘BBB-‘ rating on Indian Oil
Fitch has affirmed on Indian Oil Corporation Ltd (IOC) ‘BBB-‘ rating, indicating that expectations of default risk are currently low. “Fitch equalises IOC’s rating with that of its largest shareholder, the state of India (BBB-/Stable) due to their strong operational and strategic linkages,” the credit rating agency said in a statement. Government of India holds 58.6 per cent stake in IOC. The rating signifies that the capacity for payment of financial commitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity. Fitch believes the linkages remain strong despite the deregulation of diesel prices in 2014. IOC however continues to retail kerosene at government-prescribed prices that are lower than market prices. “Fitch may reassess the linkage of IOC with the state, as per Fitch’s Parent and Subsidiary Linkage methodology, if the state oil marketing companies’ policy role weakens due to further deregulation of petroleum products,” it said. While assessing the linkages, Fitch will also consider the government’s commitment to maintaining market-based prices for already deregulated products when oil prices increase. The lower oil prices and deregulation of diesel have significantly improved IOC’s finances. Fitch assessed the company’s standalone credit profile at ‘BB+’ which indicates an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time.
Cairn India crude oil & gas production falls 8% in Q4
Cairn India reported an 8 per cent fall in oil and gas production for the fourth quarter of fiscal 2015-16 at 17.93 million barrels of oil equivalent as compared to 19.4 barrels of oil equivalent in the same quarter last year. The company’s production for the full 2015-16 fiscal also fell 4 per cent to 74.56 million barrels of oil equivalent as compared to 77.26 million barrels of oil equivalent in the previous fiscal. “Gross production from Rajasthan declined by 4 per cent compared to the fourth quarter of fiscal 2014-15, mainly due to the natural decline and under-performance of the Bhagyam reservoir,” the company said in an official statement. Bhagyam is one of Cairn’s largest discoveries in Rajasthan. The Mangala reservoir is its largest discovery in the State. The company’s average gross production on a daily basis was 9 per cent during the fourth quarter at 197,039 barrels of oil equivalent per day. Average daily gross production from Rajasthan was 4 per cent lower at 167,650 barrels of oil equivalent per day. The company said in a statement that lower volumes from Bhagyam were partly offset by ‘infill wells’ in Aishwariya, better reservoir management initiatives across the field and a ramp up of production. “Gross production from the Development Area DA1 and DA2 averaged at 150,918 barrels of oil equivalent per day and 16,732 barrels of oil equivalent per day respectively,” Cairn said. DA1 comprises Mangala, Bhagyam and Aishwariya oilfields in Rajasthan while other discoveries are in DA2. For the full 2015-16 fiscal, average daily gross production was 203,703 barrels of oil equivalent per day, 4 per cent lower than the previous fiscal due to lower production from Rajasthan and offshore assets. “Rajasthan production declined 3 per cent due to reservoir underperformance at Bhagyam. However, an excellent performance by Mangala EOR and contribution from Aishwariya infill program partly made-up for the decline,” Cairn said. <
RIL-BP may withdraw arbitration proceedings against Centre: Report
The arbitration case involving Reliance Industries (RIL)-BP Plc against the government may see an end, as the companies are said to be considering dropping the case. Both the companies are in talks with the government to drop the arbitration, the report added, citing an official from the oil ministry. In fact, they had met oil minister Dharmendra Pradhan in the first week of April, the newspaper reported. The move will help the companies sell the gas produced from their allotted fields on the free pricing model that was announced in the new gas-pricing policy announced by the Centre on March 11. “The fact that the consortium is keen to discuss the issue with us indicates its willingness to drop the arbitration relating to government’s power to fix gas price,” a government official told the newspaper. Meanwhile, the companies have also signalled their intention to invest $10 billion to recover 2.5 trillion cubic feet of gas from deep sea fields. They wish to sell this at the free market pricing mechanism. The official quoted above told the newspaper that it may take about a year for companies to finalise the field development plan, sign equipment and services contracts and commence work. “The recent reforms announced by the Government of India will provide the much-needed impetus to the Indian oil and gas industry. Together with our partners, we are working with the government to progress activities in our blocks,” BP said in a statement. According to the announcement, to avail the new liberal pricing, companies who have filed the arbitration or litigation must conclude or withdraw the same. The gas-pricing dispute – A case file. In 2014, RIL initiated an arbitration to implement the pricing determined by the United Progressive Alliance (UPA) government, which had set a price double than $4.2 mmBtu. However, the policy could not be implemented on the back of the model code of conduct being in place ahead of the Lok Sabha elections. The Bharatiya Janata Party-led government modified the formula and set the price at $3.06 mmBtu for April-September 2016.
India’s thirst for oil is overtaking China’s
India’s rise dovetails with a reopening by Iran, once the second-biggest producer in Opec until sanctions choked output and investments. India is increasingly becoming the centre for oil demand growth as its economy expands by luring the kind of manufacturing that China is trying to shun. And just like China a decade ago, India is trying to hedge its future energy needs by investing in new production at home and abroad. India may have one advantage that China didn’t. While China’s binge came during a commodity super-cycle that saw WTI crude reach a high of $147.27 a barrel in 2008 – due in no small part to its demand – India’s spurt comes during the biggest energy price crash in a generation. While oil has tumbled more than 50 per cent from mid-2014 levels, India spent $60 billion less on crude imports in 2015 than the previous year even while buying four per cent more. “In addition to the boost from low oil prices, structural and policy-driven changes are under way which could result in India’s oil demand taking off in a similar way to China’s during the late 1990s, when Chinese oil demand was at levels roughly equivalent to current Indian oil demand,” said Amrita Sen, chief oil analyst for Energy Aspects in London. In 1999, China’s economy was less than a 10th of its current size of more than $10 trillion, and bicycles vied for space with taxis and buses on crowded streets in major cities like Shanghai. In the ensuing 17 years, the economy grew from the seventh largest in the world to the second largest. Vehicle sales surged and oil demand has nearly tripled since then, positioning the country to overtake the US as the world’s largest crude importer this year. China’s thirst for energy sent its companies on an unprecedented buying binge on every continent (except Antarctica), scooping up $169 billion worth of energy assets overseas in the past 10 years, according to data compiled by Bloomberg. India’s rise dovetails with a reopening by Iran, once the second-biggest producer in Opec until sanctions choked output and investments. Oil minister Dharmendra Pradhan will lead a delegation this month to Iran. India is working with the Persian Gulf state to develop a port in Chabahar, near Iran’s border with Pakistan and about 800 kilometres from India’s west coast. The two countries are also discussing economic zones and joint projects on fertiliser plants and petrochemical projects. India appears to be in the same position China was at the start of its growth binge. Asia’s third-biggest economy consumed four million barrels of oil last year, according to the International Energy Agency (IEA), and is expected to surpass Japan as the world’s third-largest oil user this year. It will be the fastest-growing crude consumer in the world through 2040, according to the IEA, adding 6 million barrels a day of demand, compared to 4.8 million for China. Just like China’s ascent, the growth is being driven by manufacturing. Prime Minister Narendra Modi’s Make in India campaign aims to create 100 million new factory jobs by 2022 and increase manufacturing’s share of the economy to 25 per cent from about 18 per cent when he took office in 2014. Manufacturing drives oil use both by increasing the amount of goods that need to be moved around on ships and trucks, and by raising living standards of workers. Rising wages allowed Indians to purchase a record 24 million new vehicles in 2015. “In a growing economy, where there is so much of emphasis on manufacturing, naturally the demand for energy will grow,” B Ashok, chairman of Indian Oil Corporation, said in an interview. “The emphasis on manufacturing and infrastructure building contributes a lot to increasing the employment potential, besides bringing in a lot of investments. There is bound to be a lot of more movements on the roads, in terms of goods and services and passengers.” India already relies on imports for 80 per cent of its oil and products needs, so it is also following China’s game plan of investing in energy-producing assets. Indian companies pledged $3 billion in asset purchases outside the country in the fourth quarter of 2015, the highest level since 2012, according to data compiled by Bloomberg. Firms have proposed paying $5 billion toward Siberian oil and gas fields, which would make their equity share about 250,000 barrels a day, compared with total domestic output of 760,000. The timing for such investments is fortunate because low energy prices have made many global majors wary of pouring money into oil and gas fields, said Vikas Halan, Moody’s Investors Service lead analyst for oil and gas companies in South and Southeast Asia. In the past, Indian companies would be elbowed out of the way of such acquisitions by deeper-pocketed competitors, including Chinese oil companies. “What is happening now is that a lot of companies, who were in competition earlier, are not able to compete,” Halan said. “It is effectively a free run for companies who have been sitting on cash, like the Indian ones.” India is also developing its own energy resources. State-owned explorer Oil & Natural Gas Corporation recently approved $5 billion more to develop a field off the east coast, even as oil firms worldwide delay more than $380 billion of projects. This could add about 10 per cent to India’s oil production and 18 per cent to its natural gas output, data compiled by Bloomberg show. “Economic expansion is priority for the Modi government, and energy is a key part of that story,” said Virendra Chauhan, a Singapore-based oil analyst for Energy Aspects. “Indian energy companies will be strategic in their buying. With prices where they are, it makes sense.”
IOC in thick of action as India’s fuel demand explodes
With India’s fuel demand set to take off, state-owned refiner Indian Oil Corporation finds itself in the thick of action. After commissioning its largest refinery at Paradip, IOC has drawn up a Rs 150 billion investment plan to expand capacity of its Gujarat, Barauni, Mathura and Panipat refineries in order to cater to fast-growing fuel demand in the country, according to a senior executive of the company.IOC board has already approved the investment plan. “We have lined up Rs 150 billion-investment plan for capacity expansion at Gujarat, Barauni, Mathura and Panipat refineries,” said Sanjiv Singh, director-refineries, IOC told UNI. The company has already done capacity expansion at these refineries through debottlenecking route. Meanwhile, as the country gears up to switch over euro IV and VI auto fuel norms from 2017 and 2020 respectively, the state-owned refiner is undertaking technological upgrades at its refineries, which may cost it over Rs 18,000 crore.IOC, along with Bharat Petroleum and Hindustan Petroleum, the two other public sector refiners, is already working to set up India’s largest refinery in Maharashtra with an investment of Rs 1,500 billion. The proposed refinery will have 60 million ton per annum capacity. To put it in the perspective, India’s total refining capacity is 215 million ton. India’s petroleum demand is projected to more than double to 470-500 million ton per annum by 2040, which would necessitate additional investment of 62 billion dollar, as per official estimates. Luckily for IOC, it has been freed of petroleum subsidy burden just in time to be able to focus on capacity expansion and technological upgrades.”Our cash flows have improved and working capital requirement has come down,” Singh said.
Iran exporting 350,000 bpd oil to India, hopes for more: Shana news
Iran is exporting around 350,000 barrels of crude oil a day to India and hopes to increase this number, Oil Minister Bijan Zanganeh was quoted as saying on Saturday after meeting Indian counterpart Dharmendra Pradhan. The Shana news agency, linked to Iran’s oil ministry, quoted Zanganeh as saying Indian oil purchases from Iran were at 350,000 barrels a day, and that “we hope this number will increase now that sanctions have been lifted”. The two ministers signed a cooperation agreement covering oil exports, the petrochemical sector and the development of a gas field, though there were no reports of any final deals being signed. Pradhan said India was ready to invest $20 billion in the port of Chabahar port in southeastern Iran, according to Shana, adding that “Iran and India’s energy ties are no longer limited to crude oil imports”. Industry sources last week said Indian refiners are looking to ramp up purchases of Iranian crude after sanctions on Tehran were lifted in January, bringing India’s imports to at least 400,000 bpd in the coming year. The Shana news agency, linked to Iran’s oil ministry, quoted Zanganeh as saying Indian oil purchases from Iran were at 350,000 barrels a day, and that “we hope this number will increase now that sanctions have been lifted”. Zanganeh added that Indian companies were looking to invest in oil, gas and petrochemical projects in Iran, but that reaching deals was “a difficult task and needs time”.
Govt committed to supplying Euro VI fuel: Nitin Gadkari
Government is committed to supplying Euro VI compliant fuel which will be at par with international standards, Union Minister Nitin Gadkari said. “Euro VI fuel will be supplied by the Petroleum Ministry complying to international norms,” Road Transport, Highways and Shipping Minister Nitin Gadkari told PTI. Dismissing any apprehensions of diluting the fuel standards as false, the minister said government is making sure that “whatever standards have been fixed in the world for Euro VI, will be supplied here.” Automobile industry body Siam had recently criticised the BS VI fuel standards announced in the draft notification by Ministry of Road Transport and Highways, saying it was diluted. Siam alleged that BS VI fuel norms in the draft is “inferior” to Euro VI norms. Terming the allegations “false” the minister said petroleum refineries were making a huge investment to supply Euro VI compliant fuel, which will minimise pollution that has become a big problem. The government had earlier estimated that refineries in the country will invest about Rs 30,000 crore to upgrade to the Euro VI fuel standards. Siam has demanded “exactly the same BS VI fuel as per Euro 6 fuel standards prevalent in Europe if it has to meet the BS VI norms for vehicles”, saying “this requirement for the country should be non-negotiable”. Earlier, refusing to budge under pressure from auto industry on stricter fuel emission norms, Gadkari has said carmakers must follow the same standards in India that they do elsewhere. “I do not agree with Siam. When the same car manufacturer can build cars following the same norms across the globe, then why can’t they build it here? The government is not reconsidering its decision,” Gadkari has told SIAM on their request to reconsider the decision to leapfrog to BS VI norms. In a bid to curb vehicular pollution, the government in January decided to implement stricter emission norms of Bharat Stage (BS) VI from April 1, 2020 by skipping BS-V altogether. At present, BS IV norms are followed in parts of India and by April 1, 2017, the whole of the country is scheduled to be covered under it. The decision to leapfrog to BS-VI was taken at an inter- ministerial meeting chaired by Road Transport and Highways Minister Nitin Gadkari, which was attended by Oil Minister Dharmendra Pradhan, Heavy Industries Minister Anant Geete and Environment Minister Prakash Javadekar.