Oil & Gas industry has seen a lot of changes in India vis-à-vis global industry. Can you tell us something about these changes?
India oil and gas sector is undergoing continuous changes since the liberalisation of the sector in 1991. The first major change is active participation of private and global players in oil and gas sector, about 80 exploration & production (E&P) companies now operating in 196 operational blocks. The effect is exploration coverage of about 88 per cent of total sedimentary area of the country from merely 50 per cent in 1995. In fact, two major discoveries in last few years were by private players, one by Cairn Energy in Rajasthan and other by Reliance in KG deepwater.
Secondly, understanding the fact that domestic production is unlikely to meet the growing demand for oil and gas of the country, Indian oil companies are extending their wings to both conventional and unconventional hydrocarbon assets and LNG projects overseas. In fact, India is targeting for 20 per cent of its oil demand through international efforts.
Thirdly and most importantly, we have seen a gradual preparedness of Indian oil and gas industry to meet the challenges of the coming days. A number of world class institutes are coming up either with government initiatives or with private supports, offering courses on geo-sciences and petroleum technology. Regional and national level seminars/conferences/events have grown up to international oil and gas symposium providing platform for exchange of knowledge and technology for oil and gas personnel, both upstream and downstream sector. At the same time, it is also true that the industry-academia collaboration for technological breakthrough in the oil and gas industry is not sufficiently grown up in India, as compared to countries like US and Canada.
Shale gas is supposed to be the game changer in the industry. What is your plan for entering shale gas exploration in India?
Shale gas/ tight oil and gas is projected as the game changer in the oil and gas business. Shale is a rock most extensively developed in all sedimentary basins of the world. Therefore, unconventional resources in shale are believed to be of great hope for oil and gas deficient countries of the world. Significant reserve of shale oil and gas resource has been identified in countries like USA, Russia, Brazil, Argentina, China and many more countries will be added to the list with completion of ongoing evaluation.
Coming to the shale gas exploration by Oil India, it is extremely heart-warming that Indian government has allowed NOCs to harness shale hydrocarbons in the nominated PELs and MLs and on our part we have taken a number of measures to assess the shale gas potential of our existing operational areas and constituted a dedicated functional team. We are also sending our people in training course and conferences to understand the trade and technology of the shale gas exploration and exploitation. We have, in October 2012, farmed-in a shale hydrocarbon asset in Colarado, USA, that has given us hands-on experience to explore and exploit shale oil and gas. We also have understanding with our partner in US shale gas projects to transfer knowledge through work association. In fact, our partner is assisting us with technological knowhow in assessing our shale plays from technological and commercial angles.
OIL is now a global E&P player. Tell us a bit about OIL’s interests outside India.
Oil India Limited today, in line with its vision to be a global player has ventured out into as many as nine countries viz Libya, Gabon, Nigeria, Yemen, Venezuela, Sudan, Egypt, Iran, Bangladesh and USA in the fields of E&P assets and business. OIL has an exploration service contract for Farsi Offshore Block, Iran, with 20 per cent participation interest (PI). Gas has been discovered in this block and commercial production studies are in progress. In Sudan, the construction of the product pipeline has been completed and the same was handed over to the Ministry of Energy and Mines (MEM), Sudan. This pipeline has already started generating revenue. In Libya, in Areas 95/96, OIL in consortium with IOCL and Sonatrach of Algeria has made a significant discovery of both oil & gas. Appraisal of the discoveries is in progress. In Shakthi block, Gabon, OIL has 45 per cent PI and a discovery was made in the third well drilled. We are now in the process of drilling more wells for appraisal of the discovery. In Venezuela, production of heavy oil has commenced since December 2012. We have 3.5 per cent interest in the Carababo Block and the production is expected to go upto 400,000 BPD from 2016. In USA, we farmed-in the liquid shale assets of Carrizo Energy with 20 per cent participating interest in October 2012 and our production from this asset is around 650 BPD. Oil India Limited, along with ONGC Videsh Limited has signed a definitive agreement with Videocon Mauritius Energy Limited to acquire 100 per cent of shares in Videocon Mozambique Rovuma 1 Limited, the company holding a 10 per cent participating interest in the Rovuma Area 1 Offshore Block in Mozambique for $2.475 bn. This investment provides an early entry for OIL into one of the world’s largest natural gas assets, a super giant gas field. It will significantly enhance OIL’s reserves base improving the longer term growth prospects of the company. In other countries, work is also in progress. In all the blocks, OIL has participating interest along with other partners. OIL is also aggressively looking for producing properties and exploration blocks overseas in consortium with other companies.
What are your capex plans for the year and what about the subsidy that OIL is paying?
During the XII Five year Plan (2012-2017), OIL has a capex plan of over Rs.19,000 crore and Rs 12,000 crore for acquisition of assets overseas. During 2012-13, the actual plan expenditure was Rs.2,806 crore as against the outlay (RE) of Rs 3,069 crore. For FY 2013-14, OIL has the capex plan of Rs 3,581 crore.
The major chunk of the plan expenditure is kept for exploration and development activities. Regarding the subsidy, since 2011-12, we are paying subsidy equal to $56/ bbl of our production of crude oil (including condensate). In spite of lower international crude oil price, the subsidy still continued at $56/bbl on crude oil production. The subsidy payment by OIL last year was Rs.7,892 crore. The subsidy pay out during the first two quarters of this financial year was Rs 4,215.76 crore. We have suggested a transparent and prudent subsidy sharing mechanism, linked with the price of Indian basket of crude oil, with a floor net price of $65/bbl. Let us see what the government finally takes. With gas price increase, there is talk of passing on the fertiliser subsidy on to upstream companies also. With cost of production going up steadily due to higher cost of services and higher operating expenditure in aging fields, we need higher realisations to meet our capex plans.
How much is your production these days? What is the natural gas price that you are getting?
Our crude oil and gas production has been steadily increasing for the last five years at the rate of around 4-5 per cent and 7 per cent respectively, however during 2012-13 the production fell from 3.84 MMT during 2011-12 to 3.661 MMT during 2012-13. Shortfall in production was attributable mainly to delay in land acquisition and frequent bandhs & blockades in NorthEast (NE), which has disrupted field operations including drilling location preparatory work. The heavy floods in Assam also affected our operations. This year too there has been environmental problems in our areas of operation and we should be able to achieve around 3.70 MMT. Our plans are to increase our production of oil to 4MMTPA in the next two years.
Natural gas production is around 7.6 MMSCMD and we hope to increase this to 10 MMSCMD in the next two years. The natural gas is being sold at $4.2/MMBTU. However the natural gas price for APM customer (power & fertilisers and small customers) is at $2.52/MMBTU (60 per cent of $4.2/MMBTU) and balance 40 per cent is being claimed from gas pool account from GOI. Above price are linked to calorific value of 10,000 Kcal.
India oil and gas sector is undergoing continuous changes since the liberalisation of the sector in 1991. The first major change is active participation of private and global players in oil and gas sector, about 80 exploration & production (E&P) companies now operating in 196 operational blocks. The effect is exploration coverage of about 88 per cent of total sedimentary area of the country from merely 50 per cent in 1995. In fact, two major discoveries in last few years were by private players, one by Cairn Energy in Rajasthan and other by Reliance in KG deepwater.
Secondly, understanding the fact that domestic production is unlikely to meet the growing demand for oil and gas of the country, Indian oil companies are extending their wings to both conventional and unconventional hydrocarbon assets and LNG projects overseas. In fact, India is targeting for 20 per cent of its oil demand through international efforts.
Thirdly and most importantly, we have seen a gradual preparedness of Indian oil and gas industry to meet the challenges of the coming days. A number of world class institutes are coming up either with government initiatives or with private supports, offering courses on geo-sciences and petroleum technology. Regional and national level seminars/conferences/events have grown up to international oil and gas symposium providing platform for exchange of knowledge and technology for oil and gas personnel, both upstream and downstream sector. At the same time, it is also true that the industry-academia collaboration for technological breakthrough in the oil and gas industry is not sufficiently grown up in India, as compared to countries like US and Canada.
Shale gas is supposed to be the game changer in the industry. What is your plan for entering shale gas exploration in India?
Shale gas/ tight oil and gas is projected as the game changer in the oil and gas business. Shale is a rock most extensively developed in all sedimentary basins of the world. Therefore, unconventional resources in shale are believed to be of great hope for oil and gas deficient countries of the world. Significant reserve of shale oil and gas resource has been identified in countries like USA, Russia, Brazil, Argentina, China and many more countries will be added to the list with completion of ongoing evaluation.
Coming to the shale gas exploration by Oil India, it is extremely heart-warming that Indian government has allowed NOCs to harness shale hydrocarbons in the nominated PELs and MLs and on our part we have taken a number of measures to assess the shale gas potential of our existing operational areas and constituted a dedicated functional team. We are also sending our people in training course and conferences to understand the trade and technology of the shale gas exploration and exploitation. We have, in October 2012, farmed-in a shale hydrocarbon asset in Colarado, USA, that has given us hands-on experience to explore and exploit shale oil and gas. We also have understanding with our partner in US shale gas projects to transfer knowledge through work association. In fact, our partner is assisting us with technological knowhow in assessing our shale plays from technological and commercial angles.
OIL is now a global E&P player. Tell us a bit about OIL’s interests outside India.
Oil India Limited today, in line with its vision to be a global player has ventured out into as many as nine countries viz Libya, Gabon, Nigeria, Yemen, Venezuela, Sudan, Egypt, Iran, Bangladesh and USA in the fields of E&P assets and business. OIL has an exploration service contract for Farsi Offshore Block, Iran, with 20 per cent participation interest (PI). Gas has been discovered in this block and commercial production studies are in progress. In Sudan, the construction of the product pipeline has been completed and the same was handed over to the Ministry of Energy and Mines (MEM), Sudan. This pipeline has already started generating revenue. In Libya, in Areas 95/96, OIL in consortium with IOCL and Sonatrach of Algeria has made a significant discovery of both oil & gas. Appraisal of the discoveries is in progress. In Shakthi block, Gabon, OIL has 45 per cent PI and a discovery was made in the third well drilled. We are now in the process of drilling more wells for appraisal of the discovery. In Venezuela, production of heavy oil has commenced since December 2012. We have 3.5 per cent interest in the Carababo Block and the production is expected to go upto 400,000 BPD from 2016. In USA, we farmed-in the liquid shale assets of Carrizo Energy with 20 per cent participating interest in October 2012 and our production from this asset is around 650 BPD. Oil India Limited, along with ONGC Videsh Limited has signed a definitive agreement with Videocon Mauritius Energy Limited to acquire 100 per cent of shares in Videocon Mozambique Rovuma 1 Limited, the company holding a 10 per cent participating interest in the Rovuma Area 1 Offshore Block in Mozambique for $2.475 bn. This investment provides an early entry for OIL into one of the world’s largest natural gas assets, a super giant gas field. It will significantly enhance OIL’s reserves base improving the longer term growth prospects of the company. In other countries, work is also in progress. In all the blocks, OIL has participating interest along with other partners. OIL is also aggressively looking for producing properties and exploration blocks overseas in consortium with other companies.
What are your capex plans for the year and what about the subsidy that OIL is paying?
During the XII Five year Plan (2012-2017), OIL has a capex plan of over Rs.19,000 crore and Rs 12,000 crore for acquisition of assets overseas. During 2012-13, the actual plan expenditure was Rs.2,806 crore as against the outlay (RE) of Rs 3,069 crore. For FY 2013-14, OIL has the capex plan of Rs 3,581 crore.
The major chunk of the plan expenditure is kept for exploration and development activities. Regarding the subsidy, since 2011-12, we are paying subsidy equal to $56/ bbl of our production of crude oil (including condensate). In spite of lower international crude oil price, the subsidy still continued at $56/bbl on crude oil production. The subsidy payment by OIL last year was Rs.7,892 crore. The subsidy pay out during the first two quarters of this financial year was Rs 4,215.76 crore. We have suggested a transparent and prudent subsidy sharing mechanism, linked with the price of Indian basket of crude oil, with a floor net price of $65/bbl. Let us see what the government finally takes. With gas price increase, there is talk of passing on the fertiliser subsidy on to upstream companies also. With cost of production going up steadily due to higher cost of services and higher operating expenditure in aging fields, we need higher realisations to meet our capex plans.
How much is your production these days? What is the natural gas price that you are getting?
Our crude oil and gas production has been steadily increasing for the last five years at the rate of around 4-5 per cent and 7 per cent respectively, however during 2012-13 the production fell from 3.84 MMT during 2011-12 to 3.661 MMT during 2012-13. Shortfall in production was attributable mainly to delay in land acquisition and frequent bandhs & blockades in NorthEast (NE), which has disrupted field operations including drilling location preparatory work. The heavy floods in Assam also affected our operations. This year too there has been environmental problems in our areas of operation and we should be able to achieve around 3.70 MMT. Our plans are to increase our production of oil to 4MMTPA in the next two years.
Natural gas production is around 7.6 MMSCMD and we hope to increase this to 10 MMSCMD in the next two years. The natural gas is being sold at $4.2/MMBTU. However the natural gas price for APM customer (power & fertilisers and small customers) is at $2.52/MMBTU (60 per cent of $4.2/MMBTU) and balance 40 per cent is being claimed from gas pool account from GOI. Above price are linked to calorific value of 10,000 Kcal.