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Oil & Gas Round Up - November 26 to November 30, 2012

India Infoline News Service | Mumbai |

The Securities and Exchange Board of India has reportedly filed appeals in Bombay High Court against an order passed by Central Information Commission (CIC) earlier this month in RIL Insider trading case.

Top Stories 

OVL to acquire ConocoPhillips 8.4% stake in Kashagan field: reports

ONGC Videsh Limited will invest around $5 bn to acquire ConocoPhillips’ 8.4% stake in the Kashagan field of North Caspian Sea, according to reports.

Reports stated that the deal is expected to close during the first half of next calendar year.

The acquisition is subject to relevant government, regulatory approvals, priority rights and consortium pre-emption rights, report said.

NYSE listed ConocoPhillips is the third largest energy company in the US and the fifth largest refiner in the world.

There are reports that ONGC has recently formulated its 2030 Perspective Plan that envisages increasing OVL’s production to 20 mn tonnes by 2018 and 60 mn tonnes by 2030.

Kashagan Oil Field- Negative for ONGC, Positive for ConocoPhillips: Moody's

According to a report published by Vikas Halan, Vice President - Senior Analyst, Moody’s Investors Service Singapore Pte Ltd and Thomas S. Coleman, Senior Vice President, Moody’s Investors Service, Inc, the Kashagan project has been a high-profile, but ultimately a high-cost venture for ConocoPhillips.

On Monday, Oil & Natural Gas Corporation (ONGC, Baa1 stable), through its fully owned subsidiary ONGC Videsh Limited (OVL), announced that it would acquire ConocoPhillips’ (A1 stable) 8.4% participating interest in Kashagan Field in Kazakhstan for US$5bn. The acquisition would be funded with debt and would increase ONGC’s consolidated net debt by at least US$5bn, a credit negative.


ONGC has been struggling to generate positive free cash flows given its already high capital expenditure program (approximately US$7.5bn for the year ended March 2012). Additionally, ONGC’s share of India’s high fuel subsidy was US$10bn for the fiscal year ended 31 March, and we expect it to rise to US$12bn this fiscal year. For the 12 months ended 31 March, ONGC generated free cash flow of US$145mn and had US$3.2bn of debt and nearly US$5bn of cash. We expect ONGC to increase its net borrowings by approximately US$5bn to fund this acquisition. The companies expect the acquisition, subject to relevant regulatory approvals, priority rights and consortium preemption rights, to close in the first half of 2013. Read more…

Veerappa Moily clarifies on shortfall in gas production by RIL

The Minister of Petroleum & Natural Gas Dr. M. Veerappa Moily informed the Rajya Sabha in a written reply today that the average gas production from KG-DWN-98/3 (KG-D6) block during the current year (2012-13 upto October, 2012) was about 29.81 Million Standard Cubic Meter Per Day (MMSCMD) as against 86.73 MMSCMD approved in the Field Development Plans (FDPs) of D1, D3 & MA fields in this block, which are currently on production. The decline in gas production from KG-D6 block is due to the following reasons:

Out of a total 18 gas producer wells in D1 & D3 fields, 6 wells have ceased to produce gas due to water loading/sand ingress in wellbores. 

Out of a 6 oil/gas producer wells in MA field, 2 oil/gas producers have ceased to flow oil/gas due to water ingress in wellbores. 

Non drilling of the required number of gas producer wells in D1 & D3 fields by the Contractor in line with the Addendum to Initial Development Plan (AIDP) approved by the Management Committee (MC). Read more…


IIFL Institutional Equities recommends 'Add' on ONGC

IIFL Institutional Equities, a part of the IIFL Group, one of the leading players in the Indian financial services space, recommends “Add” ONGC.

According to IIFL Institutional Equities report, ONGC has agreed to acquire ConocoPhillips’ 8.4% stake in Kashagan Field in Kazakhstan for $5bn. The acquisition will add 1mmtoe per annum to ONGC’s production for 25 years, about 1.7% of its current consolidated production. For 184mmboe of developed reserves, ONGC has paid US$27/bbl, which we believe is high. 

However, if we include undeveloped reserves, the payment works out to US$7/boe, which is reasonable. The undeveloped reserves will need further capex of cUS$90bn to become recoverable, the brokerage added.

The report was published by IIFL’s Institutional Equities Research desk.

IIFL on Oil & Gas: Petro-product Consumption: Diesel growth moderating

IIFL Institutional Equities, a part of the IIFL Group, one of the leading players in the Indian financial services space, in a recent report on Oil & Gas said that India petro product demand for the first seven months of FY13 grew 6% YoY against 3.4% during the year-ago period. Although diesel consumption (+9.8% YoY) continues to drive the growth YTD, it has moderated in the past two months following the price increase in September. 

According to IIFL report, LPG consumption is expected to remain volatile in coming months until the OMCs complete the revamping of the LPG distribution system following a cap on subsidised cylinders in September. Petrol demand growth (+4.3% YoY) continues to lag that of diesel, as the price arbitrage with diesel is still high.

The report was published by IIFL’s Institutional Equities Research desk.

IIFL on BPCL: Mozambique upside, BUY

IIFL Institutional Equities, a part of the IIFL Group, one of the leading players in the Indian financial services space, in a recent report on Telecom said that, we hosted a call with Anadarko management on Monday. The management pegged the value of Mozambique asset at $27.5bn.

According to IIFL report, extrapolating the same to BPCL’s 10% stake in the block works out to Rs200/share. The current share price of BPCL places the value of entire upstream portfolio of BPCL at Rs90/share (assuming 0.8x P/B on core book, investments and treasury stock at 20% discount to market).

Domestic News

SEBI files appeals in HC against CIC order in RIL Insider trading case: reports

The Securities and Exchange Board of India has reportedly filed appeals in Bombay High Court against an order passed by Central Information Commission (CIC) earlier this month in RIL Insider trading case. 

The appeals are likely to come up for mention in the court early next week, according to reports.

Earlier on November 6, CIC had directed SEBI to reveal the identities of dozen entities involved in short selling Reliance Petroleum shares in the derivatives segment in November 2007 to a Bangalore-based lawyer who had sought these details under the Right to Information (RTI) Act.

10 Lakh LPG connections issued since cap on Subsidized Cylinder

The Minister of State for Petroleum & Natural Gas Panabaaka Lakshmi informed the Lok Sabha in a written reply today that Public Sector Oil Marketing Companies (OMCs), namely, Indian Oil Corporation Limited (IOC)] Bharat Petroleum Corporation Limited (HPCL) have reported that 10,17,290 LPG connections have been issued after issue of orders on capping of subsidized cylinders. They have also reported that during the period from 2009 to September 2012, action has been taken against 1480 established cases of diversion against the erring distributorships under the provisions of Marketing Discipline Guidelines.

Reply to another query, the Minister said that the demand of commercial LPG cylinders has increased at par with domestic LPG cylinders during the last three years. Sales trend of domestic and commercial LPG during the last three years are as under: Read more…

OVL invested about Rs 116.39bn in Sudan till Sept 2012: P.Lakshmi

The Minister of State for Petroleum & Natural Gas Smt. Panabaka Lakshmi informed the Rajya Sabha in a written reply today that the total plan expenditure in various projects of ONGC Videsh Limited(OVL) in undivided Sudan till September, 2012 is USD 2,562mn (equivalent to Rs.116.39bn).

She explained that there was a temporary stoppage of production in Republic of Sudan for 20 days in April, 2012 due to border conflict between Sudan and South Sudan and informed that production resumed from 1st May, 2012. The conflict has resulted in deferment of an estimated oil production of about 0.8. Million Metric Tonne(MMT) for OVL till September, 2012, the Minister added.

She further emphasized that Government of India has been in continuous engagement with both the Governments of Sudan and South Sudan through diplomatic channels. The various oil related bilateral issues between India and Sudan including issues for protecting OVL interest in Sudan were discussed by the Hon’ble Minister of Petroleum & Natural Gas with the Minister of Petroleum of Republic of Sudan during his recent visit to India in October, 2012. Read more…

RIL agrees for CAG audit of its expenses in KG-D6 block: reports

Reliance Industries has agreed to a scrutiny of its expenses in the KG-D6 gas block by the official auditor, according to reports.

RIL has reportedly said that there was no scope for CAG doing a performance audit and the scrutiny should be strictly a financial audit as has been promised by the Oil Ministry.

Earlier RIL President and COO (Business) B Ganguly wrote to the Oil Ministry saying the company was agreeable for audit of Block KG-DWN-98/3 (KG-D6) by the CAG as per Section 1.9 of the Accounting Procedure to the Production Sharing Contract.

Oil consumption: reports

The Minister of State for Petroleum & Natural Gas Panabaaka Lakshmi informed the Lok Sabha in a written reply that during 2011 the per capita consumption of oil in the country was 0.13 Toe (Tonnes oil equivalent) against the world average of 0.58 Toe (Source; BP Statistical Review of World Energy June 2012). Oil consumption in India has also raised to 148 MMT during 2011-12 from 141 MMT in 2010-11, an increase of about 5%. 

Replying to another query, the Minister said that the in order to tackle air pollution due to consumption of auto fuels, Government has already taken steps in terms of introduction and supply of BS IV fuels in 26 major cities (including National Capital Region) and BS II fuels in the rest of the country. Ministry has also decided to extend coverage of BS-IV fuels to 37 more cities by 2015. 

Govt adopts multi-pronged strategy to augment gas supplies

The minister of State (Independent Charge) for Power Shri Jyotiraditya Scindia informed the Lok Sabha that at present, around 85 MMSCMD (Million Metric Standard Cubic Meter per Day) of gas is required at 90% PLF, against which 35 MMSCMD gas is being supplied to the gas-based power stations in the country.

A number of gas based power projects are at an advanced stage of construction and a few projects were expected to be commissioned during 11th Plan itself. However, these projects have been delayed due to declining production of KG D6 gas, as gas to these projects could not be allocated so far.He further informed he House that in case of existing plants are operated now a reduced level of gas supply e.g., from 90% Plant Load Factor (PLF) requirement to 40% requirement, this would result in a likely increase in overall cost of electricity from gas base plants to the tune of around 30%. Replying to a question, minister said that Government of India has adopted a multi-pronged strategy to augment gas supplies and bridge the gap between supply and demand for the domestic market as under: Read more…

RIL clarifies reports on gas hoarding charges

RIL has denied allegations of gas hoarding charges in D6 field  and seeks verification of its claim by international experts and also sought appointment of international experts to verify its claims, according to reports.

RIL reportedly wrote to the Oil Secretary that Hoarding gas in the case of D1-D3 reservoir (in KG-D6 block) is a technical impossibility

Gas production from D1-D3 started declining from a plateau level of about 55 mn standard cubic meters per day in August 2010, report said.

International News

BPCL plans to buy January Nemba, Mrllitah crudes

Bharat Petroleum Corporation Ltd. (BPCL) India's second largest state owned refiner reportedly bought 2mn barrels of Angolan Nemba crude via a tender via a tender from Vitol group for loading in January. The company also purchased a mn barrels of Libyan Mellitah from Total SA, said the reports. The company has bought a million barrels each from Nemba, Mellitha and Nigeria Apko grades for loading in January, according to report.  

Shale gas extraction in China threatens scarce water resources

China begins to start water intensive process of fracking or hydraulic fracturing to exploit massive reserves of natural shale gas in the country. Concerns emerge as to how it will achieve the feat as the country is already faced with a severe water shortage. 

Ministry of land resources, China, says that the country has 25.08tr cubic meters of exploitable gas resources. But reports have said that most of this gas lies in areas that are already plagued by water shortage. In such as scenario it remains to be seen whether China chooses energy over water or vice-versa. Experts are of the view that water deficit is the key issue facing shale sector development. According to World Bank China's per capita water availability is quarter of the world average. 

Experts believe that extraction of shale gas from underground formations is 10 times more water intensive than water extraction of equal amounts of oil and gas from conventional wells. 

According to the current 5 year plan China aims to produce 6.5bn cubic meters of shale gas annually till the end of 2015. To reach this goal a total of 1350 wells need to be dug which would require upto 13.8mn cubic meters of water, said experts. While the entire annual industrial consumption of water in China stands at 35mn cubic meters. Read more…

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