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ADANI GROUP IN TALKS WITH INDIAN OIL FOR RS 30,000 CRORE MUNDRA REFINERY JOINT VENTURE

ogMUMBAI: The Adani Group and Indian Oil Corporation are in talks to build a Rs 30,000-crore joint venture refinery at Mundra, which would give Gautam Adani an entry into the oil sector while the state-run company would get land port facilities for the proposed export-focused unit.

 

The proposed 30-million-tonne refinery at Mundra will make Prime Minister Narendra Modi’s native state, Gujarat, a bigger energy hub. It already has refineries of Reliance Industries, Essar Oil and Indian Oil, apart from two LNG terminals and the country’s biggest city-gas distribution network.

 

Industry sources said Gautam Adani has held initial talks with top executives at IOC and offered around 3,500-4,000 acres of land for the project. In exchange, Adani is keen to get a minority stake in the project that may be equivalent to the price of the land, sources said.

 

A spokesman from IOC said: “We would not like to comment on this at this moment”, while the Adani Group did not respond to ET’s query. If the deal works out, it will provide IOC land with port facility adjacent to it on the western coast of India.

 

Most of the refineries of IOC are landlocked and it is keen to set up an export-oriented refinery on the western cost. The deal will also mark the entry of Adani Group in crude oil refining business. The two companies currently have a joint venture for city gas distribution.

 

“IOC is keen to start a project on the western coast and Adani’s Mundra land is well suited for it. The two companies have an old relationship and Mr Adani wants to build on it and become a partner in the refinery project too,” a source aware of the development said.

 

Another source said Adani would get only a minority stake as its expertise is not in the refining business. “Though IOC has been considering Mundra for the project for almost a year, it is only now that the Adanis have proposed the JV. It is still very early to say how much stake the Adani Group may have in the JV but it would be strategic partnership for both.”

 

IOC has 10 refineries with a combined capacity of 65.7 million tonne per annum year, which accounts for 31 per cent of India’s domestic refining capacity. The company aims to increase its refining capacity to 100 mtpa by 2021-22.

 

Its 15 mtpa refinery project at Paradip in Orissa, which has been set up at a cost of.`32,710 crore, is nearing completion and the company is keen to start on its next project on the western cost.

 

Two people privy to development said IOC’s advisers had short-listed three locations on the western Cost — Ratnagiri, Kandla and Mundra. Mundra has emerged as the favourite as Ratnagiri would require heavy investment on supporting infrastructure while land acquisition and port facilities were a challenge in Kandla.

 

Mundra appears to be attractive as majority of the land needed for the project is already available with the Adanis and their Mundra SEZ has recently been given clearance by environment ministry. India is a net exporter of petroleum product. Its current local demand is 160 mtpa while the country has a refining capacity of 215 mtpa and another 90 mtpa is under construction.

 

“There is massive refining capacity addition happening in Middle East, China and rest of Asia in near future. In fact 80 per cent of the global capacity addition (2014-20) is coming up in Asia. Any greenfield capacity addition programme in India needs to be carefully evaluated — else there would be glut of capacity and low margin like Europe,” said Debasish Mishra, senior director — consulting at Deloitte Touche Tohmatsu India.

(Source: The Economic Times, August 7, 2014)

 

 

GOVT LAWYERS WARY OF FOREIGNER AS 3RD ARBITER IN RIL GAS DISPUTE

 

NEW DELHI: Government lawyers for the Reliance Industries Ltd’s (RIL) arbitration proceedings have told the oil ministry that appointment of a foreigner as the presiding arbiter would be “undesirable” in the absence of any such contractual provision and difficulty in ascertaining the person’s “independence and impartiality” in the face of “global presence” of RIL’s 30% partner British energy major BP Plc.

 

RIL had on November 23, 2011 initiated the arbitration proceeding against the oil ministry’s decision to slap a penalty — which has now increased to $2.3 billion — for failing to meet gas supply target for the KG-D6 block, off the Andhra coast.

 

Top government sources said the advocates for the government, Swarup & Associates, have given a brief to the ministry, saying the Article 33.6 of the state’s contract did “not provide for appointment of a foreign national as a third arbitrator”.

 

The brief questioned the logic of a foreigner as the third arbiter by pointing out that the “contract was executed in India, the subject matter (KG-D6 field) is situated in India and performed in India; and the contract, including the arbitration contained therein is subject to the laws of India…” and the third arbiter is “not required to be foreign national”.

 

But, the real reason for reservations against a foreigner seems to be apprehensions over BP’s global presence and reach. “BP admittedly has worldwide (including Australia) presence. Therefore, foreign national as an arbitrator would be undesirable and the whole concept of a foreign national as an arbitrator is to ensure independence, impartiality and neutrality. Further, such foreign arbitrator’s antecedents may not be fully known and would be difficult, or impossible, to unravel as an arbitrator,” the lawyers’ brief said.

 

The brief referred to developments after the Supreme Court appointed former Australian judge Michael McHugh as the presiding arbiter. The judge declined the appointment on two occasions — May 21 and May 29. But on May 29 itself, after communicating his decision to decline for the second time, he changed his mind and accepted the job. But last month, he withdrew from the case after the government asked him not to start proceedings till it cross-checked all the submitted documents and communications, first reported by TOI on July 8.

 

According to the brief, the McHugh’s change of heart came after Thomas K Sprange of King and Spalding, the London-based law firm representing RIL, “responded to the aforesaid communication of McHugh and without any justification and without any consultation with the government, persuaded McHugh to reconsider his decision. McHugh immediately sent email on the same day stating: … in view of Sprange’s statement, I have reconsidered my position and am content to act as chairman of the tribunal in accordance with the order of the Supreme Court”.

(Source: The Times of India, August 7, 2014)

 

GAS PRICING: JUSTICE MANMOHAN RECUSES FROM HEARING PLEAS OF CENTRE, RIL

 

NEW DELHI: A Delhi High Court judge today recused from hearing two separate pleas of the Centre and Reliance Industries Ltd seeking quashing of an FIR lodged against RIL, Mukesh Ambani and former Petroleum Minister M Veerappa Moily for alleged collusion among them in increasing gas prices.

 

“I will not hear these (petitions). Let these petitions be listed before some other bench,” Justice Manmohan said as soon as senior lawyers, Harish Salve, A M Singhvi, Vikas Singh and Additional Solicitor General L Nageshwar Rao, rose to address the court.

 

Justice Manmohan then listed the matters for August 19. Meanwhile, the court said its earlier interim order will continue and asked the Centre and the RIL to co-operate in the probe by Anti-Corruption Bureau of Delhi government.

 

It said, as per the earlier order, “no coercive action will be taken against the persons mentioned in the FIR”.

 

Earlier, the court had issued notices on the plea of RIL seeking quashing of the FIR lodged against it, Mukesh Ambani and Moily by the then AAP government.

 

The Arvind Kejriwal-led Delhi government had lodged an FIR naming Moily, Mukesh Ambani and others on gas pricing issue and alleged the Congress-led UPA government “favoured” RIL with an eye on 2014 general elections and BJP maintained “silence” hoping to gain corporate funding for the polls.

 

Both the Centre and RIL have moved the high court seeking quashing of the FIR and both matters will now come up for hearing on August 19.

 

RIL, the Mukesh Ambani-led flagship company, in its plea, has alleged the FIR was “motivated and malicious” and was part of the “political gimmicking” as AAP, before and during the state election campaign, had made “false and frivolous” allegations against the firm.

(Source: The Economic Times, August 7, 2014)

 

OIL SUBSIDY PLEA ON THE BOIL

 

New Delhi: The oil ministry wants around Rs 13,140 crore as subsidy for state-owned refiners for selling diesel, domestic cooking gas and kerosene at government controlled prices during the first quarter of the current financial year.

 

State-owned oil marketing companies are keen the finance ministry clears the subsidy bill at the earliest as their first-quarter results are due any time.

 

During April-June, the three retailers lost Rs 28,690.74 crore on diesel, kerosene and cooking gas.

 

Upstream PSU companies ONGC, Oil India and GAIL have been asked to meet Rs 15,546.65 crore, or 54 per cent of the under-recovery or revenue loss.

 

ONGC has been asked to chip in with Rs 13,200.10 crore, official sources said. This is 4.5 per cent higher than the Rs 12,622 crore it had paid in the first quarter of the previous fiscal.

 

OIL has been asked to provide Rs 1,846.55 crore, while the share of gas utility GAIL has been fixed at Rs 500 crore. The government is yet to announce its cash subsidy for the first quarter. Sources said of the upstream subsidy, IOC will get Rs 8,107.21 crore, BPCL Rs 3,830.56 crore and HPCL Rs 3,608.88 crore.

 

Of the Rs 28,690.74 crore revenue loss in April-June, fuel retailers lost Rs 12,129 crore on domestic LPG, Rs 9,037 crore on diesel and Rs 7,524 crore on kerosene sold through the public distribution system.

 

According to some reports, given the efforts to move towards market-linked diesel prices and an expected decline in crude prices, under-recoveries on petroleum products are expected to drop to half of those in 2013-14 through this financial year.

 

Thus, the decline in under-recoveries will have a significant positive impact on both upstream and downstream PSU oil companies.

 

The under-recoveries for the financial year 2014-15 are projected to be Rs 91,665 crore, while the figure was Rs 1,39,869 crore in 2013-14.

 

Meanwhile, oil minister Dharmendra Pradhan said UAE’s national oil company Adnoc and Kuwait Petroleum Corp (KPC) have evinced interest in hiring a part of India’s under-construction strategic storage in Visakhapatnam, Mangalore and Padur (Karnataka).

 

“The national oil companies of the UAE and Kuwait, namely Abu Dhabi National Oil Company (Adnoc) and KPC, have expressed interest (to store about 2 million tonnes of crude in the caverns),” he said in a written reply to the Rajya Sabha here.

 

India, which is 79 per cent dependent on imports to meet its crude oil needs, is building underground storages at Visakhapatnam in Andhra Pradesh and Mangalore and Padur in Karnataka to store about 5.33 million tonnes of crude oil to guard against crude price shocks and supply disruptions.

 

The storages at Visakhapatnam, Mangalore and Padur will be enough to meet the nation’s oil requirement of about 10 days. Official sources said the 1.33mt storage at Visakhapatnam would be ready by October while the 1.5mt Mangalore facility and 2.5mt unit at Padur are expected by mid-2015.

(Source: Telegraph August 7, 2014)

 

 

ONGC LOSES 1,000 BARRELS OF OIL PRODUCTION A DAY DUE TO GAS LEAK

 

New Delhi: State-owned Oil and Natural Gas Corp. Ltd (ONGC) has lost 1,000 barrels of oil production and 0.11 million standard cubic metres (mscmd) of gas output per day due to a gas leak at its prime Mumbai High fields.

 

“Efforts are being made to contain the gas leakage (which was reported on 19 July),” oil minister Dharmendra Pradhan said in a written reply to a question in the Rajya Sabha.

 

Gas leakage was reported from the annulus of well NS-BX in Mumbai High.

 

“Water is being sprayed continuously at the leakage point. Gas leakage has subdued considerably and further efforts to completely stop the gas leakage are underway,” Pradhan said.

 

No loss of life or property was reported because of the leakage.

 

“However, due to closure of well, loss of oil and gas production has been estimated to the tune of 1,000 barrels oil per day and 0.11 mscmd respectively,” Pradhan said.

 

ONGC has constituted a committee to ascertain the causes of the gas leakage. “Remedial measures as recommended by the committee constituted by ONGC shall be implemented across all ONGC offshore installations,” the minister said.

 

On the day of the gas leak occurred, ONGC evacuated all non-essential personnel of the drilling rig to a nearby platform.

 

ONGC’s western offshore fields are producing at near normal rate of 310,000 barrels per day and all personnel and facilities are unharmed.

 

Drilling rig Sagar Uday was operating at NS platform in Mumbai High North oil and gas field on well number NS-BX for side-tracking. The depth reached is around 1,183 metres. On 19 July morning, gas flow was observed from the outermost casing annulus.

 

The operation has been stopped for safety reasons and 48 people were evacuated to nearby installations.

 

ONGC has mobilized an international expert from Boots & Coots to help stop the leak.

(Source: Mint August 7, 2014)

 

OIL PSUs SEEK SUBSIDY OF RS 134.10 BILLION Q1 FY15

 

The demand has been raised on an urgent basis towards under recovery of oil marketing prices. The oil companies have sought a subsidy of around Rs 131.40 billion for the first quarter of the current financial year 2014-15.

 

The demand has been raised on an urgent basis towards under recovery of oil marketing prices. According to official sources, the first quarter results for the oil marketing companies are due any time and thus these payments are under serious consideration of the Finance Ministry.

 

The total under recovery for the first quarter is around Rs 286.90 billion, out of which the upstream contribution from oil exploration companies are at Rs 155.46 billion.

 

Public sector oil marketing companies (PSU OMCs) last week had decided to increase retail diesel price by Rs 0.50 a litre and cut retail petrol prices by Rs 1.09 a litre. The under-recoveries for the financial year 2014-15 are projected to be Rs 916.65 billion while the figure was Rs 1398.69 billion in 2013-14.

 

According to market reports, given the efforts to move towards market-linked diesel prices and an expected decline in crude oil prices, under-recoveries on petroleum products are expected to drop to half those in 2013-14 through this financial year. Thus the decline in under recoveries will have a significant positive impact on both upstream and downstream public-sector oil companies.

 

In a report released by CRISIL, if the benefit from a potential rise in gas price to $8.4 a million British thermal units (mbtu) is taken into account, upstream companies’ profit after tax will further increase by Rs 70-75 billion in 2014-15, resulting in an overall increase of Rs 21,500-23,000 n.

 

In the past few years, high under-recoveries on sale of petroleum products have hit the financials of oil companies (both upstream and downstream). This is because petroleum products like diesel, liquefied petroleum gas and kerosene are sold in India by downstream public-sector oil marketing companies (OMCs) at regulated prices, well below the cost while the petrol prices were de-regulated in June 2010. The resultant loss is usually shared by three parties — the government, upstream oil companies (Oil and Natural Gas Corporation, Oil India Ltd and GAIL) and oil marketing companies (Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation) — in a proportion determined by the government every year.

 

Through the years, the sharp increase in overall under recoveries and, consequently, the government’s contribution to under recoveries has led to a surge in the interest cost of OMCs, the report says. The interest cost has risen due to a significant rise in working capital requirements, owing to delay in payments from the government. The sharing of under recoveries between the government and public-sector upstream and downstream companies is on an ad hoc basis, depending on the financial positions of these companies, as well as government finances.

 

In the past few years, with under-recoveries soaring from Rs 771 billion in 2007-08 to Rs 1400 billion in 2013-14, the contribution of upstream companies towards under recovery-sharing (in absolute terms) increased from Rs 257 billion in 2007-08 to Rs 670 billion in 2013-14. As a result, these companies have not benefited from the combined effect of high crude oil prices and a weak rupee, stated the report.

(Source: Indian Oil & Gas August 7, 2014)

 

RIL REFINING MARGINS TO IMPROVE ON GLOBAL REGULATORY CHANGES

 

Mumbai: For the last few quarters, analysts have been expecting refining margins of complex refiners like Reliance Industries Ltd (RIL) to dip, as the benchmark Singapore GRMs (gross refining margins) have been declining. RIL has managed to surprise on that front, even though the benchmark Singapore GRMs have steadily declined.

 

In the June quarter of this year, Singapore GRMs declined $0.4 a bbl sequentially to $5.8 a bbl. RIL’s GRMs, too, declined from $9.3 a bbl in the March quarter to $8.7 a bbl in the June quarter but were higher than the previous year’s $8.4 a bbl. While there is little consensus among analysts on the road ahead for complex refiners in Asia, a handful believe RIL’s GRMs are expected to tick up from 2014-2015 on key regulatory changes across Russia and China.

 

The first regulatory change expected to impact refiners has played out in Russia, which in June proposed to increase the export duty on fuel oil export from 66 per cent to 76 per cent of the crude oil level in 2015, to 82 per cent in 2016 and to 100 per cent from 2017. While the proposal is yet to be approved, analysts believe if it goes through, it would lead to closures of simple refining capacity in Russia as margins would collapse. Russia is discouraging the export of fuel oil as domestic demand for gasoline has been steadily rising. Russia matters in the context of global refining because it accounts for six per cent of the global refining capacity, most of which is simple.

 

Closures of simple refineries in Russia after the imposition of high export duties would positively impact complex refiners, as Russia would have to upgrade refineries or use lighter crude oil to process gasoline, which would lead to higher spreads between lighter and heavier crude oils. In the last few years, the spreads between light and heavy crude oils have been narrowing, which has also impacted RIL’s GRMs, which have declined from peak levels. According to Axis Capital’s analysis, weakening fuel oil fundamentals would reduce the demand for heavier crude oil, further widening the light-heavy differential, beneficial for complex refiners like RIL.

 

Refiners and experts believe the regulatory changes are under way and potential gains take time to play out. Refining margins are very volatile and are expected to remain so. Vandana Hari, Asia editorial director of Platts, a leading provider of information on the energy sector, says: “Regardless of the uncertainty round the export duty reform, observers and analysts believe Russia’s large-scale refinery modernisation plan would continue. That means simple refineries have to invest in fuel oil upgrading units, or shut, though now the deadline has shifted down the road by a couple of years. The shift, under way in Russia, would increase the country’s supply of ultra low sulphur diesel (ULSD) and other clean products to the European markets.”

 

The collapse in the fuel oil demand would be accelerated from 2015, as new emission norms set by the International Maritime Organisation (IMO) would make shipping fleets abandon fuel oil. While this would impact state-owned oil marketing companies (OMCs), as 11 per cent of their product slate is fuel oil, private complex refiners like Essar Oil and RIL would gain. By 2015, the sulphur emission of tankers would go below one per cent and an IMO study said the sector would have to largely abandon the use of fuel oil and move to expensive and cleaner fuels like gas, oil or diesel. In keeping with this trend, last month, Hari said ExxonMobil had announced a $1-billion investment in its Antwerp, Belgium refinery to install a coker to convert heavy oils into marine gasoil and diesel, a rare adoption of a longer-term perspective than short-term economics.

 

For many reasons, refineries are expected to process expensive light crude oil to produce gas, oil and diesel, which would increase the differential between light and heavy crude oils. RIL has been shoring up its margins by processing the cheaper heavy crude. Over two years, it has moved towards processing heavier crude oil grades. According to Axis Capital, RIL’s average American Petroleum Institute gravity through 2007-2011 was 29 (light crude), which has reduced to 26 (heavy crude) in first nine months of 2013. Analysts say RIL’s crude oil sourcing has helped the margins and the company may have saved $2 a bbl in its crude sourcing costs.

 

But GRMs in the current year are expected to be volatile, with Singapore GRMs correcting sharply even in the current month. Like RIL, China’s GRM moved up to $7.07 a bbl in 1Q2014 and $6.28 a bbl in 2Q2014 from an annual average of $4.49 a bbl in 2013 and $5.36 a bbl in 4Q2013. A UBS report dated 4 August said the Singapore complex refining margin dropped further last week, down 21 per cent to $2.8 a bbl, the lowest weekly average margin level since late August 2013. The complex refining margin has quickly contracted, by 50 per cent over two weeks, mainly due to weakening gasoline crack spreads, as supplies came back to market after several key suppliers (CPC and FPCC in Taiwan, SK Innovation in Korea) resumed operation in July, while the summer season demand is peaking out. The outlook may be robust over 2015 but the this year might see some volatility, claim analysts and refiners.

(Source: Business Standard August 7, 2014)

 

CAIRN INDIA’S $1.25-BILLION LOAN TO SESA STERLITE ARM: FUND HOUSES MAY LOOK THE OTHER WAY

 

MUMBAI: Mutual fund houses, with investments of over R300 crore in oil & gas producer Cairn India, may shy away from taking the fight to the company with regard to its $1.25-billion loan to a subsidiary of Sesa Sterlite — which is widely seen as going against good corporate governance practices.

 

“We have not yet studied the matter in detail or debated the issue because the percentage of our holding in the company is small,” said the fund manager of a fund house that has investments in the company.

 

Said the fund manager of another fund house: “The company can justify its actions, but why is it lending at all? The money could have been given back to shareholders.” He added that it was up to LIC to take up the matter.

 

LIC, the second largest shareholder in Cairn India, has reportedly sought more information on the issue. An LIC official that FE spoke to, however, denied knowledge of the matter and declined to speak about the issue. Among DIIs, LIC owned a 9.09% stake in Cairn India, amounting to over R6,000 crore, for the three months to June. Among MFs, ICICI Prudential MF and UTI Asset Management held 0.16% and 0.15%, respectively.

 

MF investment in Cairn India fell to R316 crore in the three months to June from R475 crore in the previous quarter. ICICI Prudential MF and UTI MF’s investment together constituted around R209 crore. Birla Sun Life MF is the only other fund house to have a meaningful investment in the company (R29 crore).

 

Corporates lawyers believe that minority shareholders are on a weak legal footing on the issue. “In my view, the shareholders’ expectation appears more aggressive than the regulator that has offered a transition period up to September 30. Shareholders’ perception of the company’s priorities is not necessarily binding on the board. Interestingly, the board is free to take conscious and compliant judgement calls, but within fiduciary norms. The shareholders, however, do not hold any fiduciary responsibility,” said the corporate lawyer of a top-tier law firm, on condition of anonymity.

Lawyers believe institutional shareholders could approach Sebi regarding the issue, but a penal action is unlikely. “It would be within Sebi’s powers to seek more information. However, a penal action against the company can be taken only if the regulator finds breach of a regulation or statutory duty,” said the lawyer quoted above.

 

At the same time, experts believe that minority shareholders are gaining clout and companies will no longer be able to sidestep them easily. “Earlier, investors with stakes as low as 1% or 1.5% were apprehensive about being heard by the company. But that mindset is changing,” said Amit Tandon, MD, IiAS, a proxy advisory firm. “Going forward, with the new Companies Act as well as Sebi’s amended Clause 49 coming into play, the minorities will be the new majority when it comes to determining the outcome of company resolutions.”

 

Cairn is giving a loan of $1.25 billion to a group company, a foreign subsidiary of Sesa Sterlite, at Libor plus 300 bps for a two-year period. The company disbursed $800 million before informing the shareholders. The inter-corporate loan to a promoter group company is a related-party transaction that comes under the ambit of the new corporate governance norms in Clause 49 of the listing agreement, effective October 1, 2014. The new norms mandate shareholder approval to be sought through a special resolution.

 

“That the company chooses to disclose the related-party transaction at an earnings call shows disregard for fair disclosure on the company, and merits a full-fledged investigation by Sebi. The company has not made a formal disclosure of this related-party transaction to stock exchanges,” said a recent report by proxy advisory firm InGovern.

(Source: The Financial Express, August 7, 2014)

 

COMPETITION APPELLATE TRIBUNAL ISSUES NOTICE TO COMMISSION OF INDIA ON ADANI GAS CASE

 

NEW DELHI: The Competition Appellate Tribunal has issued notice to fair trade watchdog CCI in the Adani Gas case where the fair trade watchdog had imposed over Rs 25 crore penalty on the company.

 

The tribunal issued notice to the Competition Commission of India (CCI) today after hearing an appeal filed by Adani Gas challenging the order.

 

In July, CCI had slapped a fine of Rs 25.67 crore on Adani Gas for violating competition norms by abusing its dominant market position.

 

Adani Gas is a subsidiary of Adani Enterprises, which is part of diversified Adani Group.

 

The Commission’s ruling had come on a case related to supply and distribution of natural gas by Adani Gas Ltd in Faridabad.

 

Apart from directing Adani Gas to cease and desist from unfair practices, the CCI has asked the company to modify the Gas Sales Agreements (GSAs).

 

The Commission had also found that Adani Gas to be in “dominant position in the relevant market of supply and distribution of natural gas to industrial consumers in the district Faridabad, Haryana”.

 

The watchdog had held that Adani Gas violated competition norms by imposing “unfair conditions upon the buyers under Gas GSA”.

(Source: The Economic Times, August 7, 2014)

 

DOWNGRADE PETRONET TO NEUTRAL: MOTILAL OSWAL

 

Petronet LNG (PLNG) reported Q1FY15 Ebitda of R360 crore (estimated R420 crore, -10% y-o-y, -8% q-o-q) and PAT of R160 crore (estimated R 170 crore, -30% y-o-y, -8% q-o-q).

 

The variation at the PAT level was less due to lower rate of depreciation as per the Companies Act 2013 and higher other income at R35.3 crore (+132% y-o-y, +15% q-o-q).

 

Despite higher overall volumes at 138tbtu (est at 132tbtu, -2% y-o-y, +12% q-o-q), the decline in Ebitda was led by a fall in marketing margin (est at $0.14/mmbtu vs $0.55/mmbtu in Q4FY14) on short-term volumes.

 

We cut FY16E/FY17E EPS by 12%/6%, led by 4-6% volume cut and nil marketing margins in FY16E/FY17E, partly negated by lower depreciation. While we are positive on the long-term prospects for PLNG, we are concerned with the continued delays in Kochi ramp-up and believe that current valuation (FY16E P/E of 16.1x) adequately factors in the medium-term growth prospects. Downgrade to ‘neutral’.

 

Q1FY15 Dahej re-gas volume stood at 138tbtu (2.7mmt, -2% y-o-y, +12% q-o-q), which includes long-term 96tbtu (flat y-o-y, -2% q-o-q), third-party 24.8tbtu (+76% y-o-y, +107% q-o-q) and short-term 17tbtu (-44% y-o-y, +35% q-o-q). Kochi throughput at 0.66tbtu (vs 1tbtu in Q4FY14) implies 1% utilisation and ramp-up is contingent on pipeline connectivity.

 

PLNG received the Andhra Pradesh government’s nod to set up the Gangavaram terminal and expects to complete it in 36 months, post-EPC contract award. LNG affordability has increased for liquid fuel users with low spot prices ($10-11/mmbtu), but a sharp volume increase is not expected in the near term. These prices still remain unviable for power producers.

(Source: The Financial Express, August 7, 2014)

 

BARMER CONTRACT IS CLEAR ON EXTENSION: CAIRN

 

New Delhi: Cairn India and its joint venture partner in the Barmer oil block in Rajasthan, ONGC, say there is no ambiguity in the contract as far as getting a 10-year extension is concerned.

 

Though the production sharing contract (PSC) of the block clearly mandates unconditional extension for five years, and 10 years in case of expected production of natural gas, it also says the extension will be on terms mutually agreed between the two parties.

 

“The interpretation of ‘on mutually agreed terms’ is what is creating confusion,” a senior Petroleum Ministry official said.

 

However, Cairn is clear that the mutually agreed terms cater to how the joint venture partners will classify reserves and means to increase production.

 

“It does not mean changing the terms of the PSC, if the extension is for up to 10 years. The contractor is also eligible for subsequent indefinite extension on mutually agreed terms,” a Cairn official said.

 

The Rajasthan block is an acreage awarded prior to licensing rounds. The contract was signed in 1995, and Cairn acquired 100 per cent of the block from Shell in 2002. After the first oil discovery was made in 2004, ONGC came in as a partner. Today, Cairn holds 70 per cent and ONGC 30 per cent.

 

Oil production started in April 2009 and gas was commercialised in March 2013. In April 2013, Cairn made an application for PSC extension to the Ministry of Petroleum and Natural Gas. The existing contract expires on May 14, 2020.

 

Dismissing all speculations that ONGC will agree to an extension only if its stake in the block is increased, Sudhir Mathur, CFO and Interim CEO, Cairn India, said the joint venture partners are working on multiple field development projects and process optimisation initiatives to accelerate production. Cairn’s confidence of higher gas availability stems from the significant prospects found in the Raageshwari Deep Gas field, located down south of the block.

 

Though the company has so far not disclosed what could be the potential, it is working on a new gas processing plant at the existing Raageshwari Gas Terminal, which will have the capacity to process up to 8.5 mscmd (million standard cubic metre a day) of gas. The Rajasthan block output is 183,164 barrels of oil equivalent a day (oil plus some gas). Last fiscal, Cairn contributed Rs. 32,000 crore to the Government and its nominee (ONGC).

(Source: Business Line August 7, 2014)

 

UAE, KUWAIT OFFER TO HIRE PART OF INDIA’S STRATEGIC OIL STORAGE

 

NEW DELHI: UAE’s national oil company Adnoc and Kuwait Petroleum Corp (KPC) have evinced interest in hiring a part of India’s under-construction strategic storage, Oil Minister Dharmendra Pradhan said today.

 

India, which is 79 per cent dependent on imports to meet its crude oil needs, is building underground storages at Visakhapatnam in Andhra Pradesh and Mangalore and Padur in Karnataka to store about 5.33 million tonnes of crude oil to guard against crude price shocks and supply disruptions.

 

“The national oil companies of UAE and Kuwait, namely, Abu Dhabi National Oil Company (ADNOC) and KPC have expressed their interest (to store about 2 million tons of crude oil in the caverns),” he said in a written reply to a question in Rajya Sabha here.

 

The storages at Visakhapatnam, Mangalore and Padur will be enough to meet nation’s oil requirement of about 10 days.

 

Official sources said the 1.33 million tonnes storage at Visakhapatnam would be ready by September/October while the 1.5 million tonnes Mangalore facility and 2.5 million tonnes unit at Padur would be completed by mid-2015.

 

Visakhapatnam facility would have the capacity to store 1.33 million tonnes of crude oil in underground rock caverns. Huge underground cavities, almost ten storey tall and approximately 3.3 km long are being built.

 

With the commissioning of Visakhapatnam storage, India will join nations like the US, Japan and China that have strategic reserves. These nations use the stockpiles not only as insurance against supply disruptions but also to buy and store oil when prices are low and release them to refiners when there is a spike in global rates.

 

Originally, India Strategic Petroleum Reserves Ltd (ISPRL), the state-owned firm building the strategic stockpile, was to build the Visakhapatnam facility by October 2011 while the Mangalore storages were to be mechanically completed by November 2012. The storage at Padur was scheduled for completion in December, 2012.

 

However, construction got delayed. The Cabinet had in January 2006 approved the building of the strategic crude oil storages at a cost of Rs 2,397 crore but due to cost and time overrun the capital required is now estimated at Rs 3,958 crore.

 

The Visakhapatnam facility will cost Rs 1,038 crore, Mangalore Rs 1,227 crore and Padur Rs 1,693 crore.

(Source: The Financial Express, August 7, 2014)

 

BRENT CRUDE OIL PRICE DECREASED TO US$ 102.80 PER BBL ON 5TH AUGUST, 2014

 

The international Brent crude oil price as computed/published today by Petroleum Planning and Analysis Cell (PPAC) under the Ministry of Petroleum and Natural Gas went down to US$ 102.80 per barrel (bbl) on 5th August, 2014. This was lower than the price of US$ 103.52 per bbl on previous publishing day of 4th August, 2014. In rupee terms, the price of Brent crude decreased to Rs 6257.44 per bbl on 5th August, 2014 as compared to Rs 6316.79 per bbl on 4th August, 2014. Rupee closed stronger at Rs 60.87 per US$ on 5th August, 2014 as against Rs 61.02 per US$ on 4th August, 2014.

The crude oil price of average of Oman & Dubai was US$ 103.69 per barrel (bbl) on 5th August, 2014. This was higher than the price of US$ 103.68 per bbl on previous publishing day of 4th August, 2014. In rupees terms, Oman & Dubai crude average price decreased to Rs.6311.61 per bbl on 5th August, 2014 as compared to Rs. 6326.55 per bbl on 4th August, 2014.

(Source: Indian Oil & Gas August 7, 2014)

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