2012

THE OIL & GAS YEAR-INDIA

EXCERPTS
Summary and excerpts from the Oil & Gas Year 2012- India Publication

THE OIL AND GAS YEAR 2012- INDIA

CONTENTS
Attention seeker: Interview with AK Arora ................................................................................................ 2 Faster or slower: Diplomacy & Politics ........................................................................................................ 3 Hydrocarbons Ho!: Interview with Mr. SK Srivastava ............................................................................ 4 All Systems AOGO: Interview with Mr. Ashu Sagar ................................................................................. 4 Funds from Afar: Interview with Anupam Srivastava ............................................................................ 5 Ploys & Policies ...................................................................................................................................................... 6 Bullish in Bharat: Interview with RK Singh ................................................................................................ 7 Saga of Indian Hydrocarbons: NM Borah .................................................................................................... 8 Oil Poor and Energy Rich: Interview with Avinash Chandra ............................................................... 8 The Gentle Untagle ............................................................................................................................................... 9 Total India: Interview with Vijay Kumar .................................................................................................. 10 Shell India: Interview with Vikram Mehta ............................................................................................... 10 Indian Oil ............................................................................................................................................................... 11

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ATTENTION SEEKER: INTERVIEW WITH AK ARORA

Assessments of individual investors and those of major oil companies show that prospects on the ROI is weaker in India than in some other countries In order to better facilitate foreign investments, India needs to have a good data repository. This repository should contain information regarding where exploration has or has not been carried out. The directorate General of Hydrocarbons is the Government authority that is charged with building and storing this information. In NELP (New Exploration Licensing Policy) we have made great progress and contracts of 235 blocks with investments totaling $16 billion has been signed so far. Need for expanding Indias gas infrastructure and bring piped gas in a big way. Some bright prospects to do so would include: o India- Pakistan- Iran pipeline o Shale Gas o Coal bed methane projections

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FASTER OR SLOWER: DIPLOMACY & POLITICS

Indian hydrocarbon resources are unexplored and approximately 250 wells were drilled in 2011, a paltry number for a country the size of India. These explorations that has occurred is mainly due to the NELP- NELP opened half of the sedimentary area in the country to production, and 102 of the 143 oil and gas discoveries in India were in NELP blocks. Close to 80 oil and gas companies are working in India today but few discoveries have reached their production stage. Companies in upstream sector are pushing the Government to adopt an Open acreage Licensing Policy. Such a policy would enable firms to examine blocks in greater detail and collect in depth data about an area before bidding. The information collected can be shared with national databases, allowing the state, as well as the private firms to benefit from the information. Most of the Indias resources are offshore deep-water assets, which require international technology and expertise to extract. To attract any large scale investors from abroad, the Government must improve the overall investment climate in the country. Out of 183 countries surveyed in a 2011 World Bank report, India ranks 132 on ease of doing business, 182 on enforcing contracts, 181 on dealing with construction permits and 166 on ease of starting business. To restart its economic engine and achieve greater energy security, the country needs to: o Attract significantly more foreign direct investment o Reform its system of fuel production and distribution o Establish an energy trading network that is more regionally integrated

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HYDROCARBONS HO!: INTERVIEW WITH MR. SK SRIVASTAVA

With very large areas that still need to be explored; an open acreage policy will be a very good step from an Indian perspective. When people around the globe see that a major such as BP is here, it gives them confidence. With BPs entry a lot of good technology has come into India and is a very good sign for the country. We are currently in process of setting up a National Data Repository. We shall have another round of NELP and then move towards Open Acreage Policy Since Bombay High, we have not had any discoveries that could boost the countrys oil production. On the west coast we are interested in the sub-basalt play. In similar geological regions in other locations such as Madagascar and Mauritius, there have been discoveries. If the sub basalt area proves to be successful in India, it would help us improve our hydrocarbon self-sufficiency. I am very upbeat about the gas prospective of the region. But in case of Oil we will remain dependent on imports.

ALL SYSTEMS AOGO: IN TERVIEW WITH MR. ASHU SAGAR

Challenges facing the development of the Indian Upstream Sector: o Lack of decision making, which is the result of scams that have come to light over the past 2 years and thus slowed Government working o People are not making decisions based on what will benefit them but rather what will not hurt them Benefits of Open Acreage Policy: o From a companys perspective you can evaluate and specialize in certain geology at your own pace. You look at the block in detail before you bid for it o When NELP rounds come, there is a very short period of time during which a large number of blocks are put on offer. Everybody knows that while today there is an opportunity, the next one may come a full 2 years down the line. For this reason, there is aggressive bidding. This will be avoided with open acreage, and the bidding process will leave more value in the contract.
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o Allows you to look at more data before you make heavy commitments in terms of wells and long term take. For an exploration company it reduces the risks and improves the possibility of finding hydrocarbons. It is has not been able to gather much interest of Oil majors because they are not big risk takers. They are not players for small discoveries. They are only interested in the elephants. For them, managing a big reservoir has the same cost as managing a small one. Their overheads are so high that they wont make money on this that smaller company can thrive on. We should encourage more medium sized companies to enter our market.

FUNDS FROM AFAR: INTERVIEW WITH ANUPAM SRIVASTAVA

India 5th largest oil refining country on earth accounting for 4% of the worlds refining capacity India already serves the function of a refining hub in Southeast Asia due to its location, cost competitiveness and skilled human resource base. Indias demand for liquid petroleum products is projected to grow by 4.7% over the next 5 years, while demand for gas is expected to grow by 14% over the same period. Currently natural gas accounts for 11% of Indias primary energy basket. India is also increasing its LNG regasification capacity from 13 million tonnes per annum to more than 30 million tonnes per annum by 2015. To carry gas across the length and breadth of India, 8000 kms of pipelines are being laid, while another 5000 kms are in bidding process.

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PLOYS & POLICIES

India needs international oil corporations with strong expertise to enhance the countrys hydrocarbons resources, especially in its deepwater blocks. By 2031, the government predicts that dependence on energy imports will make up more than 53% of Indias total energy consumption, as the countrys needs are expected to sky rocket in the coming decades. By 2035, India is expected to be the worlds fastest growing energy market and will make up 18% of the increase in global energy demand, making it the 2nd largest contributor to this rise in the world In February 2011, RIL and BP announced a 50- 50 joint venture for the sourcing and marketing of gas production sharing contracts that RIL operates in India. Covering 270,000 square Kms, the 23 blocks represent the largest private sector exploration acreage in India. The blocks supply more than 30% of Indias total consumption and 40% of the countrys output. The deal is a game changer for the country, paving the way for more participation of international firms in Indias upstream sector- a much needed involvement for the technological expertise they can bring in enhancing domestic resources. Unconventional resources such as shale gas and coal bed methane (CBM) are emerging as a strong option for increasing gas supply and the first round of CBM bidding was held
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in 2002. Currently 33 blocks are under exploration and one block is in production. Out of 2.6 tcm (92 tcf) of potential sources, India has established 254.9 bcm (9 tcf) of reserves within approximately five development plans. As a result CBM could comprise 5- 10% of natural gas production. Shale gas bidding is expected to begin soon. India is increasing its re-gasified LNG from current 13 million tons/ annum to more than 30 million tons/ annum by 2015. Approximately 8000 kms of gas pipelines are also being constructed in order to carry gas across India, while another 5000 kms of gas pipelines are in bidding process. The gap between supply and demand is rapidly growing in India. Although positive steps are being taken both by private sectors and the government, a lot more needs to be done in order to increase domestic supply and attract international players as a stable gas market with an assured demand.

BULLISH IN BHARAT: INTERVIEW WITH RK SINGH

When Bharat decided to get into the upstream sector, we wanted to maximize focus on the business. Having a separate company helps us in achieving this objective. It is a wholly owned subsidiary of BPCL but having a separate entity is an efficient way of operating. We currently own 27 blocks, 9 in India and the balance overseas. Hope is that government will compensate the losses suffered by our downstream activities due to regulated prices. There will come a time when the Government will have to dismantle the price controls. They cannot go on subsidizing the petroleum products. A long term solution needs to found for consumers from the weaker sections of the society.

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SAGA OF INDIAN HYDROCARBONS: NM BORAH

India has 3 decades of experience in shallow offshore exploration, production, and development of crude oil and gas. In the coming 5 years, upstream companies will face many difficult challenges. With exponential growth in exploration and production activities in recent times, there is a growing gap between demand and supply of skilled workforce, and this is a major challenge for the entire industry. A skilled competent workforce is not easily available in the market. Geo political relations and government regulations are both hurdles that have to be handled with care and understanding.

OIL POOR AND ENERGY RICH: INTERVIEW WITH AVINASH CHANDRA

India has the 6th largest reserves of coal in the world, all of which are perfect for methane production. While we already have 18 blocks awarded for CBM production, we still do not produce any tight gas or shale gas. In India, up to 93% of oil production comes from young rocks, the tertiary rocks. On average, 68% of the worlds oil comes from Mesozoic rocks and 30% from Proterozoic rocks. Thus, India is grossly underexplored. We only look at young and shallow rocks, if we go deeper then we shall find more oil. India has better potential for shale gas production than Libya, Sudan or North America. India has yet to explore its Mesozoic and Proterozoic horizons, which is where the shale gas potential is. The gas in those areas is part of the future India. Indias sediments are more gas prone than oil prone. For this reason India should make a slow switch to gas based economy. CNG is used widely in large cities and its use should be further developed in villages. LPG cylinders are common but piped natural gas distribution would be more efficient. It is a fact that India will never be fuel self-sufficient. By 2030, India will need 14 million barrels of oil per day at a cost of $300 billion/ year.
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THE GENTLE UNTAGLE

India has benefitted greatly from the liberalization of trade in some petroleum products, but has continued to uphold longstanding price controls on diesel, LPG and kerosene, ostensibly to protect consumers from price fluctuations. These controls compel the OMCs to sell at a centralized price and are rarely adjusted for increases in crude costs and are a major financial burden to the state. By forcing the OMCs to sell below market value, these subsidies have created under recovery, a gradually increasing disparity between cost and revenues recouped at the point of sale, which was reported at INR 1.32 trillion ($27.5 billion) in 2011. Furthermore, foreign companies receive no compensation for accepting under recoveries, domestic OMCs, which are recompensed in part with government bonds, dominate the market. Indias new oil economy is at a cross roads- on verge of regional dominance but hampered by a dependence on imports, the damaging effects of subsidies and a weakening rupee. These interconnected problems risk challenging the economic relevance of the huge and pioneering refinery projects that have changed the face of the industry within the region. By reducing controls and liberalizing prices, the government could invest more in exploration and in domestic exploration to help reduce the dependence on imports. Indian consumers would benefit from the competition brought in, and foreign investment would help reinvigorate stalled projects.
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TOTAL INDIA: INTERVIEW WITH VIJAY KUMAR

India has imposed price controls on state owned oil companies marketing LPG for domestic use, but the price of LPG sold to commercial and industrial users is market driven. Totals focus in India is on industrial and commercial customers who are using LPG. With regards to setting up downstream infrastructure for the marketing of transportation fuels, it is not the right time for Total to enter into this business in India. The best that we can do is develop our existing business and train the next generation of manager to be ready when the market eventually opens up. Currently there is a deficit of pipeline infrastructure but eventually when pipes are set up, gas will replace LPG where is easier to handle.

SHELL INDIA: INTERVIEW WITH VIKRAM MEHTA

There are 2 operating LNG terminals in India. One is a majority Shell joint venture and the other is a government controlled entity. Domestic gas cannot meet the demands of Indian consumers and pipeline gas from Iran and Afghanistan may take many years to come to India. LNG will therefore increase in importance and more expensive than domestic gas but cheaper than oil. Hence the economic logic to buy LNG over oil will be compelling. The current capacity of our terminal is 3.5 million tons/ annum and we are in process of expanding. India has approximately 190 million tons/ annum of refining capacity and a large part of its output is exported. To that extent, India is already a major player in refining. Environmental standards and operating costs will determine refinery economics in the country. The issue will be the sustainability of refineries competitiveness.

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INDIAN OIL
Moving forward IOCL shall be venturing into upstream and downstream petrochemicals projects as well as diversification towards gas marketing and renewable energies. Indian Oil currently holds 11 oil and gas blocks and 2 coal bed methane blocks in India, as well as 10 blocks in Libya, Iran, Gabon, Nigeria, Timor Leste and Yemen. IOCL has recently setup subsidiaries in the UAE, Sri Lanka, and Mauritius and is now seeking opportunities in Africa and South East Asia. IOCL has also signed agreements in Gas marketing for urban gas distribution. It is selling 2.3 million tons of CNG as a result of these agreements. A 5 million TPA LNG terminal on the east coast of India for the import, storage and regasification of LNG is also on the companys trajectory. For transporting oil and gas, IOCL is building new pipeline infrastructure such as the Paradip- Haldia- Durgapur LPG pipeline and the Paradip- Raipur- Ranchi pipeline. IOCL has also begun investing in renewable energy options such as wind, solar and nuclear power. It has, for example, developed a 21 MW wind power project in Gujarat and has entered into an agreement with Nuclear Power Corporation of India as a foray into a new business opportunity. IOCL is on roads to becoming a fully integrated energy company.

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