Market Report On Indian Oil & Gas By TheEquicom Research


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Market Report On Indian Oil & Gas By TheEquicom Research

  1. 1. REPORT ON OIL & GAS +919200009266+919200009266 Page 1
  2. 2. PREFACE: This report has been compiled for the investors & readers with an interest in the oil and gas production industry. It is an overview of the main processes and equipment. When we searched for a suitable introduction to be used for new investors. We discovered that mush of the equipments described in standards, equipment manuals and project documentation. But little material was found to quickly give the readers an overview of the entire upstream area, whilst still preserving enough detail to let the engineer have an appreciation of the main characteristics and design issues. This report is by no means a complete description on the detailed designed of any part of this process, and many details have omitted in order to summarize a vast subject. We have included some comments on the control issues, since that is part of my own research. For the same reason, the description will be somewhat biased towards the different companies. The material has been compiled from various online resources as well as company’s document and upcoming events. We are grateful to our companion in the different industries for providing their valuable inputs and comments. We have included many Charts, Bars & Photos to give investors & readers an impression that what typical facilities or equipments look +919200009266+919200009266 Page 2
  3. 3. TABLE OF CONTANTS: Overview on oil & gas Overview of the Indian economy Outlook on Indian oil and gas market Technical view on major Oil Companies in India India’s upstream sector Investment in oil and gas sector in India Gas transmission and distribution NELPS Report Gas industry in India A note on Shale gas Overview of the Indian taxation regime +919200009266+919200009266 Page 3
  4. 4. OVERVIEW ON OIL & GAS: Without oil and gas exploration and production the World would literally grind to a halt. The dependency on oil & gas products, the everyday materials and resources from oil and gas are evident in all aspects of our daily lives. How are oil and gas deposits located? How are they safely and efficiently extracted for onward processing without detrimental environmental impacts? This is a short but comprehensive course designed to give an overview and to introduce oil & gas operations to personnel who are new to the industry. It includes videos and interactive sessions to explain and discuss the impacts of the oil & gas industry and future industrial demands. The oil and gas sector in India has been instrumental in fuelling the growth of the Indian economy, hence presenting a significant opportunity for investors in the years to come. The government has also been doing its bit in recent times to deregulate the industry and encourage greater foreign participation. The New Exploration Licensing Policy (NELP), conceived to address the increasing demand supply gap of energy in India, has proved to be successful in attracting the interest of both domestic private sector players and some foreign players with eight rounds of bidding, with Reliance Industries, ONGC, BPCL, IOC, GAIL and Cairn being particularly active in this arena . Other segments such as Refining, LNG, City Gas Distribution etc. are also seeing some +919200009266+919200009266 Page 4
  5. 5. OVERVIEW OF THE INDIAN ECONOMY:INDIA GDP GROWTH RATE: The Gross Domestic Product (GDP) in India expanded 0.60 percent in the third quarter of 2012 over the previous quarter. GDP Growth Rate in India is reported by the OECD. Historically, from 1996 until 2012, India GDP Growth Rate averaged 1.6 Percent reaching an all time high of 6.1 Percent in March of 2010 and a record low of -1.5 Percent in March of 2004. In India, the growth rate in GDP measures the change in the seasonally adjusted value of the goods and services produced by the Indian economy during the quarter. India is the world’s tenth largest economy and the second most populous. The most important and the fastest growing sector of Indian economy are services. Trade, hotels, transport and communication; financing, insurance, real estate and business services and community, social and personal services account for more than 60 percent of GDP. Agriculture, forestry and fishing constitute around 12 percent of the output, but employs more than 50 percent of the labor force. Manufacturing accounts for 15 percent of GDP, construction for another 8 percent and mining, quarrying, electricity, gas and water supply for the remaining 5 percent. This page includes a chart with historical data for India GDP Growth +919200009266+919200009266 Page 5
  6. 6. According to the latest estimates available on the Index of Industrial Production (IIP), the index of mining, manufacturing and electricity, registered growth rates of 1.8 per cent, 0.2 per cent and 2.8 per cent, respectively in Q3 2012, as compared to the growth rates of (-) 4.1 per cent, 3.4 per cent and 10.5 per cent in these industries in Q3 2011. The key indicators of construction sector, namely, cement and consumption of finished steel registered growth rates of 5.1 per cent and 2.3 per cent, respectively. Outlook on Oil & Gas market: Global demand for energy continues to grow, especially in developing countries such as China and India, as the oil and gas industry continues to search for new sources of energy. Increasingly, oil and gas are found in challenging areas, such as deep water, arctic regions and politically challenged regions of the world. For the past five years, however, the headline for the industry has been the dramatic development of unconventional oil and gas in the U.S., such as shale gas and tight oil. Unlocked by technological advancements, development of these resources continues to change the global landscape of oil and gas. India has significant potential to discover new oil and gas basins since about 80% of the country’s sedimentary area is yet to be explored. Recent large-scale oil and gas discoveries in the Krishna Godavari and Rajasthan basins have amply demonstrated this potential. Public sector corporations dominate the Indian exploration and production sector. In terms of the percentage share in total production Oil and Natural Gas Corporation accounts for the highest share. Furthermore, the report gives reliable projections of India’s supply and demand of crude oil, petroleum products, natural gas and coal to +919200009266+919200009266 Page 6
  7. 7. Annexure-I Share of future energy supply in India (%)Year Coal Oil Gas Hydel Nuclear1997-98 55 35 7 2 12001-02 50 32 15 2 12006-07 50 32 15 2 12010-11 53 30 14 2 12024-25 50 25 20 2 3Share of hydel energy remains constant considering the planned capacityaddition upto 2012 and projected at the same level upto 2025. Annexure-IIPer capita Energy consumption in minion tones of oil equivalent (MTOE)Country/Region 1987 1997World 1.5 1.5India 0.2 0.3China 0.6 0.7North America 5.8 6.3Europe 3.1 3.1Former Soviet Union 4.7 3.2Rest of the World 0.6 +919200009266+919200009266 Page 7
  8. 8. TECHNICAL VIEW ON MAJOR OIL COMPANIES IN INDIA:Cairn India As per our technical view Cairn India has consolidation phase so investors may enter in it above 340 for the target 370.Indian Oil Corporation As per our technical view Indian Oil Corporation is showing a bearish trend so investors should avoid it & do not make any fresh position at this time. Investors might take long position at our 1st support level (275) for the target +919200009266+919200009266 Page 8
  9. 9. ONGC As per our technical view ONGC is showing consolidation here so investors should avoid it to make any fresh position at this time. This stock seems risky to take any long position.BPCL As per our technical view investors may take long position above 395 for the target 440. It has made a 10 year high as +919200009266+919200009266 Page 9
  10. 10. INDIA’S UPSTREAM SECTOE: ICRA Research has come out with its report on Indian oil & gas upstream sector. According to the research firm, India is expected to remain an energy deficit country with imports accounting for 76-77% of total domestic crude oil demand. Domestic oil and gas production dipped 5% year on year to 86 million metric tons of oil equivalent (MMTOE) in FY 13 on the back of 9% degrowth in gas production to 47.55 billion cubic meters (BCM) following disappointments in Reliance Industries Limited’s (RIL) flagship KG D-6 block and tepid 1% growth in crude oil production to 38 million metric tons (MMT). Oil and Natural Gas Corporation Limited (ONGC) continues to dominate India’s exploration and production (E&P) landscape, accounting for approximately 55% of total oil and oil equivalent gas (O+OEG) production while Oil India Limited (OIL) accounts for 8% and various private companies/joint ventures (JVs) together account for 37% (FY 13). Notwithstanding the expected modest increase in domestic crude oil production over the medium term, driven mainly by ramping up of scale by Cairn India Limited (CIL) at its Barmer block in Rajasthan and commercialization of small to marginal other discoveries, India is expected to remain an energy deficit country with imports accounting for 76-77% of total domestic crude oil demand. The import bill on account of crude oil swelled to US$132 billion in FY 13 from US$94 billion in FY 12 due to spiraling crude oil prices and increase in volume of imports; and was the main driver of the sharp increase in the country’s trade deficit. Following the dip in RIL ’s KG-D6 gas output, the Indian market has become gas starved resulting in increase in imports of regassified liquefied natural gas (R- LNG) despite the high costs thereof (average LNG rates of US$15-16/MMBTU vis- à-vis domestic gas prices of US$6-7/MMBTU on landed basis). The gas deficit in the Indian market is expected to further balloon over the medium to longer term part of which can be catered to by increased LNG imports while a larger portion is likely to remain unfulfilled due to high price sensitivity of certain end user +919200009266+919200009266 Page 10
  11. 11. INVESTMENT IN INDIL OIL & GAS SECTOR: The Ministry of Chemicals and Fertilizers, Government of India has approved a scheme of investments worth US$ 25.25 billion in three areas under its flagship petroleum, chemicals and petrochemicals investment regions (PCPIR) policy. The investment consist of US$ 7.32 billion for physical infrastructure development, and the rest is project-specific investments committed by various public and private companies in three PCPIRs — Visakhapatnam and East Godavari districts in Andhra Pradesh, Bharuch in Gujarat and East Midnapore in West Bengal. US- based industrial gases company Praxair has decided to invest about US$ 370.7 million into its India operations, said Gajanan Nabar, Managing Director, Praxair India. Chennai Petroleum Corporation Limited (CPCL) plans to invest around US$ 3.39 billion for the next five years for capacity expansion including a brown field refinery project at Manali near Chennai with an expenditure of US$ 1.69 billion. Essar Oil proposes to enlarge its refinery capability by 2 million tones a year at Vadinar in Gujarat with an investment of US$ 278.46 million. The company will increase its volume to 20 million tones by +919200009266+919200009266 Page 11
  12. 12. GAS TRANSPORTATION AND DISTRIBUTION IN INDIA: The transmission and distribution sector of the natural gas stays comparatively Immature, but this is expected to alter in the medium term.1. GAS TRANSPORTATION: For a lengthy period in India, there was only one major long distance gas transportation pipeline, joining ONGC delivery point near Hazira in Gujarat to demand centres in the north-west corridor of the country including Jagdishpur in Uttar Pradesh and Vijaipur in Madhya Pradesh. This pipeline, 3187 kms long and with a capacity of around 34 mmscmd was run by the former public sector monopoly GAIL India Ltd and persists to serve a number of large power and fertilizer plants, Furthermore, major pipeline expansions have also been commenced by the private sector, particular Reliance Gas Transportation India Ltd (RGTIL), which has constructed the 1,386 km long East-West pipeline connecting RILs fields in Kakinada to centres of demand and ending at Bharuch in Gujarat. RGTIL also proposes to connect the KG Basin fields to Haldia in West Bengal and Chennai and Bangalore. The map in Appendix II illustrates the major existing pipelines and the ones planned as part of the National Gas Grid.2. TRANS-NATIONAL PIPELINES: The Government has been examining the possibility of bringing in gas from countries such as Iran, Turkmenistan, Bangladesh and Myanmar through pipelines. Various initiatives are under scrutiny, which include: THE IRAN-PAKISTAN-INDIA (IPI) GAS PIPELINE PROJECT: The IPI Gas Pipeline Project has been conceived as a tripartite arrangement between Iran, Pakistan and India, with the volumes being divided between the two importing countries of India and Pakistan. The pipeline is estimated to cost around USD 7.5 billion and is projected to be 2300 kms in length. Although some progress was made, several notable issues remain. Issues around pricing, delivery point transit fees to be paid to Pakistan, certification of reserves of the fields meant to supply gas are yet to be +919200009266+919200009266 Page 12
  13. 13. TURKMENISTAN-AFGHANISTAN-PAKISTAN-INDIA (TAPI) PIPELINE PROJECT: This Asian Development Bank (ADB) sponsored project is likely to connect sources of supply, in Turkmenistan to sources of demand in Pakistan and India. The pipeline being considered will have a length of approximately 1680 kms (including 145 km in Turkmenistan, 735 km in Afghanistan and 800 km in Pakistan up to the India border) and a capacity of 90-100 mmscmd. Once again, while some progress has been made in discussions, issues regarding gas pricing, transit price and security of the pipeline in Pakistan, transmission tariffs etc. are to be adjudicated. MYANMAR-INDIA PIPELINE: A 1,575 km5 long pipeline connecting the Shwe field in the A-1 block in Myanmar, in which both ONGC Videsh and GAIL own a stake, was proposed to bring gas to India, while passing through Bangladesh. However, not much progress has been made on this issue lately.3. CITY GAS DISTRIBUTION: The boost in gas supplies and gas transmission infrastructure is also liable to provide a stimulus to City Gas Distribution (CGD) players. So far, only a small number of major players are present in the market: these are Indraprastha Gas, Mahan agar Gas, Gujarat Gas and GSPC Gas which distributes Piped Natural Gas and Compressed Natural Gas to cities in Delhi, Mumbai and Gujarat respectively. Recent years have noticed some activity, with a number of players registering their presence. In particular, GAIL has formed Joint Ventures with other PSU firms to distribute gas in a number of cities. With the importance being laid on clean environment and lower pollution levels in cities, CGD is likely to get a push in the future. Thus, apart from GAIL, handful players have drawn up grand plans to roll out city gas infrastructure across a number of cities in the country. States which are likely to see further activity include Uttar Pradesh, Maharashtra, Andhra Pradesh, Rajasthan, Karnataka, Kerala, Madhya Pradesh and West Bengal. The establishment of the Petroleum and Natural Gas Regulatory Board (PNGRB) following the passage of the PNGRB Act is likely to help in the further development of the sector. The Board shall regulate existing players, and promote the development of CGD networks in new cities. In fact, the Chairman of the PNGRB was quoted stating that natural gas would be available in 84 cities by 2011 and 250 cities by 2018.The PNGRB has begun the process of inviting applications for CGD licenses in the country. Lately, requests were received for six cities put up for bidding. The main driver for the development of gas transmission and CGD will be the availability of essential volumes of gas. With the development of RILs KG Basin and other fields, the opening could be available; what now matters is whether the CGD license-holders can obtain gas supplies and develop gas distribution +919200009266+919200009266 Page 13
  14. 14. LIQUEFIED NATURAL GAS (LNG): At present India has two operational LNG terminals, both situated in Gujarat, one by Petronet LNG Ltd. (PLL) at Dahej and the other at Hazira instituted as a joint venture between Shell and Total. While the size of the Dahej plant is being extended from 5 to 7.5 and later to 10 mtpa de-bottlenecking operations have resulted in the merchant Hazira terminal being able to process around 3.6-4 mtpa of LNG. A couple of other terminals are also being planned, at Kochi in Kerala (also by PLL) and Mundra in Gujarat. Meanwhile, some progress is also being made to bring the partially constructed terminal at Dabhol into operation in which GAIL and National Thermal Power Corporation (NTPC) has a majority stake. Besides the gas meant for the Ratnagiri (the erstwhile Dabhol) plant, it appears that other parties may be allowed to use this terminal to re-gasify LNG obtained from various sources in return for a fee. India is in discussions with various companies in the Middle East, particularly Qatar, and Australia to source LNG for the terminals currently under operations or planned for the future.PETROLEUM PRODUCT PIPELINES: India has a network of petroleum product pipelines connecting sources of supply Refineries to sources of demand. IOC has the largest network, with pipelines such as the Haldia-Barauni, Barauni-Kanpur product lines and the Mundra-Panipat crude oil pipeline. GAIL has established two LPG pipelines, from Jamnagar to Loni and Vishakhapatnam to Secunderabad respectively. Appendix III provides a map of the existing and proposed Product Pipelines.FUEL RETAILING: The private sector was not authorized to operate in the retailing of fuel up to 2002.Consequently, the Government determined to open the sector to private participation, subject to certain restrictions. In particular, private companies were required to carry out investment of at least USD 400 million in refineries, pipelines or other energy related assets in the country over a period of time. The Government, with its aim of protecting the Indian consumer from of crude oil prices in the international markets, has been subsidizing end-user prices, as mentioned before. Very often, this has translated into a large subsidy being given to the internal consumer, with the burden of this subsidy being shared between the oil marketing firms, the Government (which has been issuing oil bonds to the PSU marketers to give back them for their under-recoveries) and the upstream PSU firms of ONGC and OIL. For example, in May 2008, the oil marketing companies were forced to take daily losses of around USD 120 million on the retail sales of diesel, petrol, LPG and kerosene. Currently, the total petroleum subsidy bill is close to USD 20 billion comprising USD 11.8 billion for diesel, USD 1.3 billion for petrol, USD 3.2 billion for LPG and USD 5 billion for +919200009266+919200009266 Page 14
  15. 15. Since the Government does not compensate the private marketing firms for their losses, their businesses can become unviable at the time of high global crude oil prices. Owing to indirect control of the Government over end user fuel prices, the fuel retail market in India prolongs to be subjected by PSU firms with Indian Oil boasting of an approximately 50 percent market share, while the other public sector fuel marketing firms HPCL and BPCL have an approximately 25 percent market share each. While the private sector firms of RIL, Essar and Shell have entered the market, they could not maintain their operations. In fact, RILs nearly 1,450 fuel pumps have been lying idle for many months. Another feature of the Indian market is that the Government heavily taxes fuels, particularly petrol; it has been estimated that almost 50 percent of the current prices of petrol comprises of various taxes levied by the Central or State Governments. The Indian fuel market does have some potential, more so if market forces are allowed free control. The number of vehicles on Indian roads is expected to increase substantially, in line with projections of economic growth. Meanwhile, falling crude prices have re-awakened the interest of private sector players. Latest news items indicate that RIL is looking for a strategic partner for its fuel retailing business. Another opportunity lies in exploiting the potential of non-fuel retail at the existing fuel outlets, particularly given the prime location of fuel outlets at metros Convenience shopping and the establishment of ATMs provides an opportunity. Fuel retailing shops with such additional facilities are also expected to spend in modernization and branding initiatives, with Club HP of HPCL being one such initiative. THE NEW EXPLORATION LICENSING POLICY (NELP) REPORT: Latest rounds of NELP have attracted the interests of Indian private sector and overseas companies, with the private sector giant, RIL, winning the maximum number of blocks after the state-owned ONGC. A number of overseas players such as Cairn, BHP Billiton etc have also participated in the bidding rounds, forming consortiums with domestic and other foreign players. On the other hand, some of the super-majors, such as ExxonMobil, Shell etc continued to watch from the sidelines, rather than make their presence felt in the bidding +919200009266+919200009266 Page 15
  16. 16. The NELP was devised by the Government during 1997-98 to provide a level playing field to both the Public and the Private sector, through assigning acreages on the basis of open competitive bidding as against to the nomination basis as in past. Companies are anticipated to bid on the following variables:  The Work Programme committed to be commenced.  Percentage of value of annual production sought to be billed towards cost recovery.  Profit petroleum share offered to the Government at various levels of Investment Multiples. The importance of the above three variables has changed from one round to the other over the seven rounds of NELP. Eight rounds of NELP have been carried out so far. The outcome of the rounds can be gauged in the enhanced exploration activities in the country. The share of unexplored acreages has seen a substantial drop, from 40 to 15 percent, according to the upstream regulator, the Directorate General of Hydrocarbons (DGH). Similarly, there are at present 14 producing basins, as opposed to just three in 1990. Several new operators too have entered the fray as against to just the Government owned ONGC and OIL as previously. Currently, the Ministry of Petroleum and Gas (Moping) has been providing more blocks of smaller sizes based on feedback received from earlier rounds. NELP VIII will see 70 blocks on offer in the first phase, comprising 24 deepwater blocks, 28 shallow water blocks and 18 on-land blocks. These 70 blocks cover a sedimentary area of about 164,000 square kms, which are roughly 5. percent of Indian sedimentary basin area The major discoveries in the last decade have been that of Reliance in the KG Basin and Mahanadi fields, ONGC and Gujarat State Petronet Corporations (GSPC) claimed finds also in the KG Basin and the discovery of oil in Barmer, Rajasthan, by Cairn in 2002-03. RIL is expected to be able to produce over 80 mmscmd of gas by 2010-11, thus doubling domestic availability and improving the large-scale shortages currently common in the country (the company has currently started production of gas and the first 40 mmscmd of gas volumes have been allotted by the Government to fertilizer, City Gas Distribution 4 (CGD), petrochemical and power units). Cairn, in turn, is anticipated to produce close to 175,000 barrels of oil by 2010-11 from its Mangala, Bhagyam and Aishwarya fields, helping to deal with energy security issues to some extent. Pricing Regime in India the Government of India fixed the end-consumer prices of fuel sold at retail pumps under the Administered Pricing Mechanism (APM), and upstream companies such as ONGC and OIL were asked to partially bear the burden of under-recoveries of the Oil Marketing +919200009266+919200009266 Page 16
  17. 17. Snapshot of Previous Rounds of NELP Oil Field Services With the augmented exploration activity in India post NELP, the future is expected to demonstrate improve demand for oil and gas related services in India, particularly on deepwater blocks and frontier basins. Besides, shipping and supply related activities such as the use of tug-boats, Off-Shore Supply Vessels (OSVs), catering etc. are also likely to see an increased demand. GAS INDUSTRY IN INDIA: Availability of natural gas, including imported LNG, is expected to intensify in the country by over 52 per cent to 271.92 million cubic meters a day by 2013-14. The Union Minister of Petroleum & Natural Gas has stated that at present, total availability of natural gas in India, including liquidities natural gas (LNG) I around 167.80 mmcmd, which is likely to be around 202.97 mmcmd, 256.6 mmcmd and 271.92 mmcmd during 2011-12, 2012-13 and 2013-14 respectively. To take the advantage of prospect presented by the alarming gas surge in India, the Gas Authority of India Ltd (GAIL) is spending substantially in its pipeline network. Over the next three years, it will invest US$ 660.7 million-US$ 770.8 million, enlarging its transmission capacity from the current 150 MSCMD to 300 MSCMD. Moreover, GAIL which has signed a Memorandum of Understanding (MoU) with the Karnataka government, which will spend US$ 423.6 million this year to lay an 800-km pipeline to transport gas from the LNG terminal in Dabhol to Bidadi near Bangalore. GAIL expects the project to be completed by March 2012. Currently, Punj Lloyd Group has secured a US$ 87.57 million deal from GAIL India for laying a natural gas pipeline from Dabhol to Bangalore. Further, GAI has commenced construction of its Karanpur–Moradabad–Kolhapur– Rudrapur/Pan Nagar natural gas pipeline at Kashipur, +919200009266+919200009266 Page 17
  18. 18. The assessed expenditure on the project is US$ 40.22 million. The State-owned Oil and Natural Gas Corp (ONGC) has said that its natural gas production will go up by over 58 per cent to 100 million cubic meters a day by 2015-16 after it puts its eastern offshore fields into production, said R S Sharma, Chairman and Managing Director, ONGC. Natural gas production will climb to 72 million standard cubic meters per day (MMSCMD) in 2012-13 from 63 MMSCMD in 2009-10.The US Overseas Private Investment Corporation (OPIC) will provide US$100 million in financing for the US$ 300 million South Asia Energy Fund, part of the Global Environment Fund (GEF). The South Asia Energy Fund will spend in solar, wind, hydropower, advanced biofuels and natural gas projects, with focus on Indian investment. COAL BED METHANE (CBM): The Government evolved a Policy for Coal Bed Methane in 1997 so as to utilize the country’s enormous coal reserves and the methane gas trapped in coal seams, The MoPNG was to be the administrative ministry with the Directorate General of Hydrocarbon (DGH) as the implementing agency and accordingly, a MoU was signed between the MoPNG and Ministry of Coal in September 1997. The first meeting on CBM was held in 2001, on the lines of NELP, with competitive bidding deciding the award of acreages. So far 3 rounds of bidding have been concluded and 26 blocks have been awarded. The fourth round of CBM has been declared along with the latest round of NELP. The CBM reserves of 6 trillion cubic feet (tcf) have been established. Major players in this sector are Arrow Energy, Gas Authority of Indi Ltd. (GAIL), ONGC, Great Eastern Energy Corporation, BP Exploration, Reliance Energy Ltd, Reliance Natural Resources Ltd, Geo Petrol and +919200009266+919200009266 Page 18
  19. 19. A NOTE ON SHALE GAS: Indias gas demand grew 14 per cent in past five years, and its import capacity of liquefied natural gas (LNG) will rise to 20 million tone by 2012-13, he Pointe out. Shale formations are one of the latest places that explorers are turning to for oil and gas to meet the demands of energy-hungry users. Exploration an extraction fro shale rock, however, is extremely capital intensive. Stressing that the government was committed to finding solutions for the issues facing the gasindustry, Prime Minister Manmohan Singh today said remunerative energy prices was needed to ensure expanded energy supply. The government has initiated gas pricing policy reforms to incentivize production of natural gas. We are conscious that remunerative energy prices are needed to ensure expanded energy resupply,” he said at the 7th Asia Gas Partnership Summit in New Delhi. “…. our government is committed to taking all possible steps to find viable solutions to meet the concerns of the gas industry. We are committed to ensuring the predictability and transparency of our policy and regulatory environment,” he said Singh’s statements come at a time when Reliance Industries Ltd’s eastern offshore KG-D6 gas fields have seen output drop more than 40 per cent to under 35 million standard cubic meters per day,. RIL, the nations largest private oil and gas producer, is seeking a more transparent and credible market price for natural gas. It has also invested in shale gas assets in North America. RIL’s partner in the KG basin operations BP Plc too has called for remunerative prices for further investment to take place. “The economic exploitation of these resources should lead, therefore, to win-win solutions for both the investors as well as the people of India at large,” Singh said. “At the same time oil and gas are national resources and, therefore, should be within the framework of government and regulatory oversight.” +919200009266+919200009266 Page 19
  20. 20. While governmental support can greatly help in developing useful partnerships in the gas and oil sector, Singh said he expected the industry to come forward with innovative ways and means to create a better and sustainable energy future for the Asian region. During last five years, Indias gas consumption has grown 14 per cent, he said. "Expanding the use of natural gas in India is one of the most important and immediate ways of responding to the challenges of energy security and the management of climate change." The New Exploration Licensing Policy (NELP), launched in 1997-98, has attracted over USD 14 billion investment and discovery of 87 oil and gas blocks. Of these three blocks are in production. "The opening up of the oil and gas sector to private industry participation has resulted in higher domestic gas availability and has also led to growing participation by multinational corporations," Singh said. To cater to the large demand for gas, India has accelerated investment in creation of LNG re-gasification facilities. With new re-gasification LNG terminals coming up at Kochi and Dabhol, the countrys current import capacity of 14 million tones a year is set to increase to 20 million tones a year by 2012-13, he added. “We have also launched an ambitious pipeline development programme. I understand that the GAIL alone will expand its pipeline length from the existing 9,000 Km to around 14,500 km by 2014. Private operators are also expected to add another 5,000 km in the same period. “The target is to have a country-wide gas grid of about 30,000 km by the end of the 12th Five-Year Plan in 2017,” he added.SHALE GAS EXPLORATION 2013: India will unveil a shale gas exploration policy in a month as it looks to exploit unconventional hydrocarbon resource to meet its growing energy needs. We have received comments on the draft shale gas exploration policy we had floated. We are now in the process of putting out a note for the consideration of the Cabinet and hopefully in a month’s time we will be able to announce the shale gas policy," Oil Minister M Veerappa Moily told reporters here. The government is planning to launch its first auction of shale gas block by 2013- end on terms that are likely to be remarkably different from those offered in bid rounds for oil and gas blocks. Shale gas or natural gas trapped in sedimentary rocks (shale formations) below the earths surface is the new focus area in the US, Canada and China as an alternative to conventional oil and gas for meeting growing energy +919200009266+919200009266 Page 20
  21. 21. As per the available data, six basins -- Cambay (in Gujarat), Assam-Arakan (in the North-East), Gondawana (in central India), KG onshore (in Andhra Pradesh), Cauvery onshore and Indo Gangatic basins hold shale gas potential. The Directorate General of Hydrocarbons (DGH), the Oil Ministrys technical arm, has proposed to offer areas for exploration shale gas on royalty and production- linked payments to the government. Also, the Oil Ministry is working on a new policy for exploiting gas lying below coal seams, called Coal-Bed Methane, he said. Moily said he has formed an expert committee under Vijay Kelkar to suggest roadmap for cutting Indias dependence on imports to meet its oil needs. India currently imports as much as 79 percent of its oil needs and the Ministry wants this to be cut to 50 percent by 2020 through intensive exploration and exploitation of untapped reserves. We see import dependence coming down by 50 percent by 2020 and by 75 percent in 2025. By 2030, we should be self-reliant," he said. The draft shale gas policy does not permit cost recovery and hence profit sharing - the two features that came under criticism by the CAG in its audit report on Reliance Industries KG-D6 block. Bidders would be asked to quote a percentage of output they are willing to share with the government at different production slabs. "This will minimize government intervention and remove complications in accounting, and incentive for gold plating, which may occur while allowing profit sharing, based on cost recovery," +919200009266+919200009266 Page 21
  22. 22. OVERVIEW OF THE INDIAN TAXATION REGIME:I. DIRECT TAX: India has a federal level tax structure governed by the provisions of the Income Tax Act, 1961. It has an extensive set-up of agreements with over 90 countries across the world to prevent double taxation of income. As a result of economic reforms, the taxation system has undergone tremendous changes in the past ten years. The tax rates have been rationalized and compared favorably with many other countries. Further, over the period of time, the tax laws have also been simplified to ensure better compliances. Rates applicable for the financial year 2009-2010 are as follows: RESOURCES INDIAN FOREIGN tax rate 32.445%* 42.024%* Minimum Alternate tax (MAT) 20.00775%* 19.4361%* Dividend Distribution tax(DDT) 16.22% N.A. Fringe Benefit tax (FBT) 34.195% 32.025% 5 Rates applicable for the financial year 20012-2013 are as follows: MAT is applicable to a company, if tax payable by the company on its total income is less than 10 percent of its book profits. A company may be required to pay tax even during tax holiday period. Carry forward and set off of MAT is available for seven subsequent years. DDT is payable in addition to regular corporate income tax. FBT is payable by an employer on the benefits provided or deemed to have been provided to the employees. Tax is payable on value of fringe benefit as prescribed i.e. 5 percent, 20 percent or 100 percent of the costs incurred on such +919200009266+919200009266 Page 22
  23. 23. II. INDIRECT TAX: SERVICE TAX: Service tax is applicable on identified services provided or received in India. Service tax is applicable at 12.36 percent. Engineering, management, scientific and technical consultancy, broadcasting, construction, IPR, insurance, manpower, communication, online access, training, cargo handling, business auxiliary services are some of the key categories. Export of services is exempt from service tax. Import of service is also liable to service tax. CUSTOM DUTY: Custom is payable on import of goods/ equipments into India. It is levied as per rates specified in the Customs Tariff Act. Peak rate of Customs Duty is 12 percent; Custom Duty exemption is available for equipment and specialized goods, parts and raw materials. CONCLUSION: This report is based on our best research and various information of different informative sites. Oil companies have encountered various forms of community crises in their work environment and these crises have significant impact on oil and gas companies operating in the Niger Delta. As per our technical view BPCL & IOC are good for long position against Cairn & ONGC technical view. Adequate community relations will significantly reduce the level of community crises and enhance workers’ performance. Government policies can be significant in industry-community crises. Efforts should be made by oil companies to establish a good relationship with oil bearing communities by embarking on community development programs. Community youth should exercise restraint in vandalizing oil installations and facilities as this will only lead to lower revenue for oil companies and the government. Oil companies should also open up channels of communication between them and their host +919200009266+919200009266 Page 23
  24. 24. ABOUT THEEQUICOM THEEQUICOM is Indias leading Research Tips Providing Company. THEEQUICOM offers all over India’s customers a unique combination of local insights and global perspectives, delivering independent information, opinions and solutions that help them make better informed business and investment decisions, improve the efficiency of markets and market participants, and help shape infrastructure policy and projects. Its integrated range of capabilities includes research and portfolio management; research on Indias Equity & Commodity market; equity & commodity research; fund services & risk management advisory services. ABOUT THEEQUICOM RESEARCH THEEQUICOM Research is Indias largest independent, integrated research house. We leverage our unique, integrated research platform and capabilities spanning the entire economy-industry-company spectrum to deliver superior perspectives and insights to over 350 domestic clients, through a range of subscription products and customized solutions. DISCLAIMER THEEQUICOM Research, a Division of THEEQUICOM Pvt Limited has taken due care and caution in preparing this Report. Information has been obtained by THEEQUICOM from sources which it considers reliable. However, THEEQUICOM does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. THEEQUICOM is not liable for investment decisions which may be based on the views expressed in this Report. THEEQUICOM especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of this Report. THEEQUICOM Research operates independently of, and does not have access to information obtained by THEEQUICOM Research Division, which may, in its regular operations, obtain information of a confidential nature which is not available to THEEQUICOM Research. No part of this Report may be published/reproduced in any form without THEEQUICOM prior written +919200009266+919200009266 Page 24