The document summarizes key points about India's upstream oil and gas sector. It states that the recent depreciation of the Indian Rupee against the US dollar will benefit private upstream oil companies as their revenues are denominated in dollars, while gains for public sector companies will be offset by higher under-recovery sharing burdens. It also notes that regasified liquefied natural gas imports have increased to meet domestic gas shortfalls due to declining domestic production. The document concludes by discussing cabinet approval of a new gas pricing formula based on recommendations from the Rangarajan committee.

1. INDIAN OIL AND GAS SECTOR- UPSTREAM
Significant depreciation of INR to benefit private upstream oil companies; gains of PSU upstream players could be offset due to high under-recovery sharing burden
ICRA RESEARCH SERVICES
ICRA RATING FEATURE
Contacts:
K. Ravichandran
+91 44 45964 301
ravichandran@icraindia.com
Anoop Bhatia
+91 124 4545 315
anoopb@icraindia.com
Prashant Vasisht
+91 124 4545 322
prashant.vasisht@icraindia.com
September 2013

2. I C R A L i m i t e d
Page 2
0.74
1.03
0.87
1.16
0.96 0.92
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
Apr-12 May-12 Jun-12
R-LNG Imports (MMT)- FY 2013
R-LNG Imports (MMT)-FY 2014
Summary Highlights
 Significant depreciation of INR to benefit private upstream oil companies; gains of PSU upstream players could be offset due to high under-recovery
sharing burden: INR/US$ has depreciated from the level of around 54.5 in the beginning of FY 14 to about 65 now reflecting a weakening of
around 20%. The major weakening of INR has been over the last two and half months from June 2013 and the impact of the same on the financials of
upstream companies would get reflected from Q2 FY 14. The depreciated level of INR against US$ directly translates to the high Rupee denominated
profits and cash accruals of the private upstream companies like Reliance Industries Limited (RIL), Cairn India Limited (CIL) etc as their realisations are
denominated in US$ and the operating costs are a fraction of the realisation levels. We believe that CIL has upside in revenue potential of Rs. 3.0 billion
per annum for every one rupee depreciation against US$, while E&P segment of RIL could have upside potential of Rs. 1.0-1.2 billion per annum for every
one rupee depreciation.
Although the private upstream players tend to gain materially from the recent depreciation of INR, the benefits to PSU upstream companies viz. ONGC
and OIL will be largely offset due to increase in the under-recoveries burden. Despite increase in the gross realisations of PSU upstream companies, their
net realisations would remain a function of total under-recoveries of OMCs and GoI’s subsidy sharing formula. In line with depreciation in INR and non-commensurate
increase in retail prices of diesel, LPG and SKO, the under-recoveries of OMCs are set to increase materially in Q2 FY 14. Besides, GoI may
load the higher subsidy burden on upstream companies to protect its fiscal position to some extent. Nevertheless, at the current level of net US$
denominated crude oil realisation, we estimate ONGC and OIL to have revenue upside of around Rs. 15.0 billion and Rs. 1.5-1.8 billion for every one
rupee depreciation against US$.
 Higher R-LNG imports to meet shortfalls in domestic gas production: Import of regasified
natural gas in Q4 FY 13 at 3.05 million metric tonnes (MMT) in Q1 FY 14 was about 15.8% higher
on a yoy basis due to increased shortage of gas supply in the domestic market on account of
continuing decline in RIL’s KG D-6 production. With the continuing decline in natural gas
production from the KG-D6 fields and limited upside in production expected from other fields the
demand for R-LNG is expected to remain high in the near term. Over the medium to long term,
even though domestic gas supply is expected to increase on account of commercialization of new
gas discoveries and increase in KG-D6 production, the demand for RLNG will continue to derive
support from i) sectors like city gas distribution (CGD) and industrial which have demonstrated
the capacity to absorb higher priced gas ii) improvement in affordability of the fertilizer sector
due to policy changes iii) the narrowing of differential between domestic gas and RLNG prices
due to implementation of the recommendations of the Rangarajan committee on domestic gas pricing iv) sustenance of elevated

3. I C R A L i m i t e d
Page 3
60%
41%
31%
37% 40%
-5%
5%
15%
25%
35%
45%
55%
65%
-
100
200
300
400
500
600
700
Q1 FY 14 Q4 FY 13 Q1 FY 13 FY 13 FY 12
Rs. Billion
Under-recovery burden of upstream companies
% of total undre-recovery borne
Summary Highlights
crude oil prices maintaining the economics of R-LNG against competing fuels v) increase in global RLNG supplies and vi) setting up of several new R-LNG
terminals thereby increasing the capacity to import gas.
 Some upside to crude oil production expected; nevertheless dependence on crude oil imports to remain high: Over the near term material upside to
crude oil production is expected to come from CIL’s Rajasthan block which is expected to ramp up production from 180 kbpd currently to 200-215 kbpd
by the end of the fiscal. Additionally some upside is expected to come from ONGC as the company brings some marginal fields to production. However no
material upside in crude oil production is expected from OIL. Notwithstanding the increase in production by CIL and ONGC, dependence on import of
crude oil is expected to remain high given the growth in domestic consumption of petroleum products.
 Significant depreciation of INR to offset the impact of diesel price deregulation leading to
high level of under-recoveries for FY 14: At the beginning of FY 14, GURs were expected to
reduce to almost half the levels of FY 13 (Rs 1610 billion) considering global crude price of
about US$ 100/bbl and INR/US$ exchange rate of 54.5 prevalent at that time. However the
Indian Rupee has depreciated sharply by around 20% against the US dollar since the
beginning of the FY14. ICRA Research expects the under-recoveries to be around Rs 1500
billion for FY 14 at the average INR/USD of 62.2 for FY 14 (about 65 for the rest of the FY 14)
and average crude oil price of US$ 108/bbl factoring in Rs. 0.5 per litre increase in diesel
prices on a monthly basis. GURs are estimated to increase to the extent of about Rs. 84 billion
for every one Rupee (INR) depreciation against US$. Besides, for every 1 USD/bbl increase in
crude price, GURs increase by around Rs. 43 billion for the PSU OMCs. ICRA Research expects
that under-recovery burden for ONGC and OIL would remain high in FY 14 due to significant
depreciation in INR against US$ and thus, net crude oil realisations of ONGC and OIL will remain low despite high gross realisations. In this regards, it is
to be noticed that the under-recovery of GAIL is expected to remain constant at Rs. 7 billion as evident from the trend of last five quarters.
In terms of sharing pattern, in Q1 FY 14, upstream companies have borne 60% of GURs against 37% in FY 13. The GoI has shared 31% of GURs in Q1 FY
14 as against 62% in FY 13 while it had not shared any under-recovery in Q1 FY 13. Within upstream companies, GAIL’s share remains Rs. 7 billion per
quarter (around 4.5% of upstream share) in Q1 FY 14; while ONGC and OIL together shared around 95.5% in Q1 FY 14 similar to the trends in FY 13.
 Cabinet Committee of Economic Affairs (CCEA) approves Rangarajan Committee recommended formula for pricing of gas: On June 27, 2013 CCEA
approved the gas pricing formula, based on the recommendations made by the Rangarajan Committee, which will be applicable from April 1, 2014 for a

4. I C R A L i m i t e d
Page 4
Summary Highlights
period of 5 years. As per the Dr. Rangarajan Committee formula the computed prices would fall somewhere in between the prevailing domestic prices and imported LNG prices. With this price announcement, ICRA expects the sentiments in the domestic upstream to improve and the upstream companies to show more interest to develop discovered fields. While the exploration and development activities should pick up and the future NELP rounds should see relatively better response, ICRA Research is of the opinion that material upside to domestic gas production will be visible only after 5-6 years in view of the regulatory approval delays, which are endemic in this sector, and long lead time for development of the projects.

5. I C R A L i m i t e d
Page 5
Subscribe to the Full Report for details on the following…
1. Industry Update
1.1 Foreign Exchange Movement - Trends & Impact
1.2 Under-recovery- Trends & Impact
1.3 Domestic Oil & Gas Production- trends and share of Main Players
1.4 Crude Oil Imports- Volumes & Price Trend and Import Burden
1.5 R-LNG Import Trend
1.6 Regulatory Developments – Impact of the Gas Price Hike on the Upstream Sector
2. Q1 FY 14 - Operational and Financial Analysis of following companies:
2.1 Oil and Natural Gas Corporation Limited (ONGC)
2.2 Oil India Limited (OIL)
2.3 Cairn India Limited (CIL)
2.4 Reliance Industries Limited (RIL)
2.5 Hindustan Oil Exploration Company Limited (HOEC)
3. Annexure: Brief note on under-recovery sharing mechanism and past trends

6. I C R A L i m i t e d
Page 6
Please contact ICRA to get a copy of the full report
CORPORATE OFFICE
Building No. 8, 2nd Floor,
Tower A, DLF Cyber City, Phase II,
Gurgaon 122002
Ph: +91-124-4545300, 4545800
Fax; +91-124-4545350
REGISTERED OFFICE
1105, Kailash Building, 11th Floor,
26, Kasturba Gandhi Marg,
New Delhi – 110 001
Tel: +91-11-23357940-50
Fax: +91-11-23357014
CHENNAI
Mr. Jayanta Chatterjee
Mobile: 9845022459
Mr. Leander Rayen
Mobile: 9952615551
5th Floor, Karumuttu Centre,
498 Anna Salai, Nandanam,
Chennai-600035.
Tel: +91-44-45964300
Fax: +91-44-24343663
E-mail: jayantac@icraindia.com
leander.rayen@icraindia.com
HYDERABAD
Mr. M.S.K. Aditya
Mobile: 9963253777
301, CONCOURSE, 3rd Floor,
No. 7-1-58, Ameerpet,
Hyderabad 500 016.
Tel: +91-40-23735061, 23737251
Fax: +91-40- 2373 5152
E-mail: adityamsk@icraindia.com
MUMBAI
Mr. L. Shivakumar
Mobile: 9821086490
3rd Floor, Electric Mansion,
Appasaheb Marathe Marg, Prabhadevi,
Mumbai - 400 025
Ph : +91-22-30470000,
24331046/53/62/74/86/87
Fax : +91-22-2433 1390
E-mail: shivakumar@icraindia.com
KOLKATA
Ms. Vinita Baid
Mobile: 9007884229
A-10 & 11, 3rd Floor, FMC Fortuna,
234/ 3A, A.J.C. Bose Road,
Kolkata - 700020
Tel: +91-33-22876617/ 8839,
22800008, 22831411
Fax: +91-33-2287 0728
E-mail: vinita.baid@icraindia.com
PUNE
Mr. L. Shivakumar
Mobile: 9821086490
5A, 5th Floor, Symphony,
S. No. 210, CTS 3202,
Range Hills Road, Shivajinagar,
Pune-411 020
Tel : +91- 20- 25561194,
25560195/196,
Fax : +91- 20- 2553 9231
E-mail: shivakumar@icraindia.com
GURGAON
Mr. Vivek Mathur
Mobile: 9871221122
Building No. 8, 2nd Floor,
Tower A, DLF Cyber City, Phase II,
Gurgaon 122002
Ph: +91-124-4545300, 4545800
Fax; +91-124-4545350
E-mail: vivek@icraindia.com
AHMEDABAD
Mr. Animesh Bhabhalia
Mobile: 9824029432
907 & 908 Sakar -II, Ellisbridge,
Ahmedabad- 380006
Tel: +91-79-26585049/2008/5494,
Fax:+91-79- 2648 4924
E-mail: animesh@icraindia.com
BANGALORE
Mr. Jayanta Chatterjee
Mobile: 9845022459
'The Millenia', Tower B,
Unit No. 1004, 10th Floor,
Level 2, 12-14, 1 & 2, Murphy Road,
Bangalore - 560 008
Tel: +91-80-43326400,
Fax: +91-80-43326409
E-mail: jayantac@icraindia.com

7. I C R A L i m i t e d
Page 7
ICRA Limited
An Associate of Moody's Investors Service
CORPORATE OFFICE
Building No. 8, 2nd Floor, Tower A; DLF Cyber City, Phase II; Gurgaon 122 002
Tel: +91 124 4545300; Fax: +91 124 4545350
Email: info@icraindia.com, Website: www.icra.in
REGISTERED OFFICE
1105, Kailash Building, 11th Floor; 26 Kasturba Gandhi Marg; New Delhi 110001
Tel: +91 11 23357940-50; Fax: +91 11 23357014
Branches: Mumbai: Tel.: + (91 22) 24331046/53/62/74/86/87, Fax: + (91 22) 2433 1390 Chennai: Tel + (91 44) 2434 0043/9659/8080, 2433 0724/ 3293/3294, Fax + (91 44) 2434 3663 Kolkata: Tel + (91 33) 2287 8839 /2287 6617/ 2283 1411/ 2280 0008, Fax + (91 33) 2287 0728 Bangalore: Tel + (91 80) 2559 7401/4049 Fax + (91 80) 559 4065 Ahmedabad: Tel + (91 79) 2658 4924/5049/2008, Fax + (91 79) 2658 4924 Hyderabad: Tel +(91 40) 2373 5061/7251, Fax + (91 40) 2373 5152 Pune: Tel + (91 20) 2552 0194/95/96, Fax + (91 20) 553 9231
© Copyright, 2013 ICRA Limited. All Rights Reserved.
All information contained herein has been obtained by ICRA from sources believed by it to be accurate and reliable. Although reasonable care has been taken to ensure that the information herein is true, such information is provided 'as is' without any warranty of any kind, and ICRA in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. All information contained herein must be construed solely as statements of opinion, and ICRA shall not be liable for any losses incurred by users from any use of this publication or its contents.