Country’s second-largest state-owned explorer, Oil India Limited (OIL), will spend up to Rs 100 crore to evaluate the economic feasibility of shale gas exploitation in the country.

The exercise will be completed in the next 6-12 months. OIL has undertaken a two-phase strategy to decide whether exploration of this kind of natural gas found in shales is economically viable or not, said a senior OIL official.In the first phase, OIL management is reviewing all facets related to shale gas exploration. They are discussing the various scenarios with global consultants dealing in the sector. “OIL officials have met consultants from North America and Australia in the last few weeks,” the official said.After getting a fair idea on the technology needed for the process the company will switch to the second phase. It will drill one or two wells in Assam basin to determine the potential of shale gas exploration. “Drilling of each well will cost nearly Rs 60 crore,” he said.



At the end of the exercise, OIL will come to a conclusion whether shale can exploration is economically viable for the company or not. “We have already discovered the presence of shale gas in the vicinity of our assets. But, so far there is no estimate of hydrocarbon deposit and kind of technology required to monetise the asset,” the official said.OIL chairman N M Borah, while addressing an investors meet in Mumbai on July 2, divulge his company’s plan to exploit shale gas.Till now, India doesn’t have a policy that allows exploitation of shale gas. When asked, how will OIL go forward in absence of a legal mandate, the official said, “Oil regulator directorate general of hydrocarbons (DGH) has already started working towards formulating a policy on shale gas. We hope there will be clarity soon.” “By 2011, we should be able to allow shale gas exploration in at least three-four blocks, out of 26 sedimentary basins in the country,” director general of DGH, S K Srivastava told this newspaper.Financial Chronicle reported on August 6 that DGH will shortly invite international competitive bids to out a feasibility study on shale gas exploration in the country.

Oil India to spend Rs 100 crore to explore shale gas….Siddhartha P Saikia / Financial Chronicle

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US shale gas is fast emerging as a new focus area for global hydrocarbon players. RIL alone has made acquisitions in three shale acreages in a span of just a few months. This marks a global shift away from offshore drilling in the wake of the oil spill in the Gulf of Mexico. By one estimate, BP will have to spend about $30 billion on cleaning up the spill and paying compensation. The company has been forced to sell its upstream assets in various countries. Its stock prices have fallen drastically, bringing forth the serious risks of deep and ultra-deep sea drilling. Meanwhile, there is a fear that governments across the world might tighten regulations for offshore drilling and insurers their risk premiums, further raising the cost of oil and gas production from the sea. Shale gas is a non-conventional natural gas, which entails a higher cost of production. But cost economics of US shale gas acreages compare well with conventional gas sources, which explains the scramble among international oil companies to get a piece of the US shale gas exploration business pie.



Plus, the growing interest of oil companies in the US shale gas market stems from the fact that the US is the only country to have made a breakthrough in the large-scale commercial production of shale gas. This was made possible because of advancements in drilling technology. The technology is still evolving, which means cost of production can further come down. Perhaps that is the reason international companies are betting on the US shale gas market. Companies entering the shale gas business at this stage will also get first mover advantage in technology and cost economics. This is what will give them a competitive edge when exploration begins there. Projections are that the share of shale gas in the US energy basket will rise steadily in the coming decades. This has encouraged the US power sector to plan a shift toward natural gas and cut emissions. Encouraged by the US’ success, India is also planning to explore and exploit its shale gas reserves. The country remains dependent on coal to meet its primary energy requirements. If India can find a big shale gas reserve, that would dramatically transform its energy landscape.

Why not go for shale gas…Noor Mohammad / The Financial Express

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For preparing lubricant base stocks,  crudes are  treated  by subjecting

to atmospheric distillation
 followed by vacuum distillation from which the lube base stock boiling range cut is taken,

solvent extracted, usually with furfural, and then solvent dewaxed, usually with methylethyl ketone or the like to produce a product which, upon filtration, is separated into a lubricant base stock and a wax.

 In order to further purify the wax fraction into a product of extremely high value, it is subjected to conventional deoiling from which a rather hard waxy product is recovered and from which a mixture of oil and soft wax by-product is also produced. This mixture of oil and soft wax is generally referred to as Foots oils.

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New on divestment map: 5% in ONGC, 10% in IOC


Amitav Ranjan / The Indian Express



The disinvestment roadmap is being altered to include sale of 10 per cent government equity in Indian Oil Corp and 5 per cent in Oil & Natural Gas Corp to raise Rs 20,000 crore in the current fiscal year for the National Investment Fund, currently used for social spending. Following a letter from Disinvestment Secretary Sumit Bose, the Petroleum Ministry is preparing the proposal for Cabinet approval, said sources. On August 2, Bose wrote to the Ministry to initiate the disinvestment process in both firms so that the proceeds could be garnered this fiscal. According to the roadmap, IOC would be the first to be disinvested but only after it makes an initial public offer of 10 per cent or nearly 24 crore shares to raise Rs 9,500 crore for part-financing its capital expenditure programme estimated at Rs 75,000 crore. This would be followed by sale of 10 per cent government holding amounting to 19 crore shares to raise Rs 7,600 crore for the NIF. Government equity, after the two-step sale, in the refining-cum-marketing firm would drop to 64.57 per cent from current 78.92 per cent, said IOC officials. Next in line would be ONGC with a disinvestment of 5 per cent or 10.7 crore shares to raise about Rs 12,840 crore at the current market price of Rs 1,200 per share. The government currently holds 74.14 per cent in the oil major.



The inclusion of oil heavyweights in the roadmap follows the recent reforms in the petroleum sector such as increase in kerosene and LPG prices, market benchmarking of petrol and diesel prices, raising consumer price of natural gas and more time for exploration firms under the rig holiday scheme. Without these, both companies had said last March that their shares would not fetch the right price. Bose’s letter reminded the Ministry of the assurance the latter gave early this year and said that since the reform exercise had taken place, the proposals for the Cabinet be readied soon as it takes 4-6 months for the entire disinvestment process to be carried out. He has suggested that IOC conduct an IPO followed by the disinvestment.



Affirming Bose’s view, IOC’s acting chairman BM Bansal has written to the Ministry that the “decontrol has improved the investor sentiments” and IOC shares had breached the Rs 400-mark following price reforms in June. But he wants the IPO to follow the disinvestment. ONGC, said its officials, was awaiting the government decision on the subsidy-sharing mechanism under which it partly funds the state-run oil marketing companies for their losses on account of selling petrol, diesel, kerosene and LPG below market levels.

The UPA government last November allowed a one-time exemption to use disinvestment proceeds in the NIF for meeting the capital expenditure requirements of selected social sector programmes until March 2012 due to “a reduced budgetary resource generation possibility”. The Department of Disinvestment, said sources, was unsure of meeting this year’s target of Rs 40,000 crore through share sale of the public sector enterprises announced so far for disinvestment. Last year, it managed to raise little over Rs 25,000 crore from part sale of Oil India Ltd, NHPC, NTPC and REC.

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The cash-rich public sector company, Engineers India, has been on fast track mode, whether in expanding profits or successfully completing a phase of divestment of shares in the market. Business Line caught up with Mr R.K.Grover, Director (Projects), Engineers India, to understand the company's prospects in India and abroad.

Excerpts from the interview:

Increased discovery of gas reserves, the national grid pipeline and private retailing being allowed all mean higher activity in the oil and gas sector. What do these convert into for Engineers India?



Once gas is discovered there is gas processing. A number of gas processing plants of ONGC and GAIL have all been put up by Engineers India. GSPC with gas-find in the east coast has also engaged EIL. So our experience is ensuring repeat orders.



After processing, gas has to be transported through pipelines. We have done most of the cross-country pipeline for GAIL; even currently, the Dabhol-Bangalore pipeline consultancy is being done by us. So expertise exists there as well.


After gas transportation comes city gas distribution. Only a couple of weeks ago, the Government announced seven or eight additional cities thrown open for city gas distribution. While we do not see much scope for consultancy services in city gas distribution, we will definitely look forward to joining hands with somebody or maybe going alone to bid for city gas distribution as an operator.



Next is our focus on gas-based fertiliser plants; where we are looking at a couple of options. Another use for gas is in gas-based power plants. Again these will be co-generation type of plants. All the captive power plants put up in hydro-carbon industry; whether it is refinery or petrochemical are also mostly co-generation. So we are trying to translate the know-how we have, to bigger power plants.


From revenues traditionally driven by consultancy, EIL has seen increasing contribution from lumpsum turnkey (LSTK) projects. Is there a conscious shift and would it not affect profit margins?

Our margin last year in consultancy was 40 per cent whereas it was 9-10 per cent in LSTK. When you talk of margins, you look at the percentage. One other way is to look at the actual value. Actual value is shooting up in LSTK. If I execute a Rs 1,000-crore project and make a 9-10 per cent margin then I have Rs 90-100 crore.

If the same project is given to me as a consultancy job then I will charge a fee may be in the range of 6-10 per cent. Even assuming a 10 per cent fee, I charge Rs 100 crore. Profit on that may be Rs 30-40 crore.

So in absolute terms, my profits are higher in LSTK. Whether I do a job on EPC management (EPCM) basis or LSTK basis, the technical man hours I spend is the same. If you look at the profit per man hour, it is higher under LSTK and lower under EPCM.

The most important factor in the business of companies such as EIL is that our manpower must remain engaged and they must book their man-hours on actual billable jobs. The moment this slows, overheads shoot up. So we cannot have manpower idle. We want to get back to fertilisers, balance of plant for nuclear power plants and so on, to keep our manpower engaged.

Has your overseas revenue declined as a result of slowdown in the Gulf?

The slowdown in overseas revenue did happen from 2008 but its impact was felt with a lag. But overseas hydrocarbon orders are picking up again. If you take Algeria, they are putting up some new refineries and we are talking to them. In Oman, we have made a good breakthrough in upgrading refineries. In Abu Dhabi, we have a small office exploring options. However, we do not restrict ourselves to one region or country. For instance, we were in Qatar for 3-4 years and then moved away. We have worked in Vietnam, Malaysia, Ghana and Kuwait. We move wherever opportunities arise.

Is there intense competition in the regions you mentioned?

The problem in the Middle-East is different altogether. Many of the companies in countries such as Saudi Arabia want our manpower, which we desist unless there is an assignment. But when it comes to awarding consultancy jobs, they go to European companies.

So does their (European companies) edge lie in pricing or technology?

It is not so much the technology nowadays. Many of the companies such as Shell for instance have some shareholding. So the preference is for these companies.

There have been a lot of Chinese and Korean companies coming to India in the power segment. How is the competition from these nations in your space?



For many of the grassroot projects, there is not much competition in the domestic arena as there are not too many players to take up such huge jobs and when someone comes from abroad they are not cost-effective. But when it comes to small projects like putting up a single processing unit, there is competition and we have to do some strategic pricing there. But again even in these small projects, when there is a revamp of existing units, most of the clients tend to come to us.



Refinery capacities are expected to be high and India is expected to be a net exporter. Does that mean lower opportunities for EIL?



Yes capacities that is being talked about is definitely high but I expect demand in India to keep growing, whether we look at our population or per capita income vis-à-vis other countries. Secondly, lot of coastal refineries will be focussing on export. As for the future market, I can tell you of the jobs I am aware of. HPCL has already announced a new refinery on the West Coast. That will be over 15 million tonnes and they have already asked us to start the preliminary work. HPCL Vizag is also thinking of expanding to 30 million tonnes and has asked us to go the configuration study. Cochin Refinery of BPCL is already out with tender for further expansion. We are also participating in that tender. CPCL is also talking of 10 million tonnes and we are in discussions. These are ones in which we are in talks. There are more existing refineries which will be expanding. For instance layers like Bina Refinery already have some infrastructure like a 1000 km pipeline. They only have to push more crude through that by adding more pumping stations. They even have land. So they will either move to petrochemicals or further expand refining capacities. Sitting in Central India with no refineries nearby gives them the option to expand. So I see no dearth of opportunities for us for the next 4-5 years.



Do you expect the proportion of private clients to increase?



It depends where the investment comes from. If you look at the history of Indian hydrocarbon industry, investment was only by PSUs. The private sector investment came only from MRPL, Essar and Reliance. We were there when the first two were put up. We have offered our services for Haldia Petrochemicals. As we diversify we may have more clients from the private sector.

http://www.thehindubusinessline.com/2010/08/08/stories/2010080852140300.htm

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