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ONGC scouts for global partners to take on Reliance in Nelp VII

INDIA’S largest public sector enterprise Oil and Natural Gas Corporation (ONGC) is in talks with global energy giants such as British Petroleum, BG Group, Brazil’s federal energy company Petroleo Brasileiro (Petrobras) and ENI of Italy to jointly bid for blocks proposed to be offered under the New Exploration and Licensing Policy (Nelp). The government plans to offer 70 blocks covering around three lakh square kilometers in the seventh round of Nelp in August.

The ONGC consortium will go head-to-head with Reliance Industries (RIL), which has been an aggressive and successful bidder. The Mumbai-based firm is likely to team up with US energy major Chevron Corp for the bids.

During Nelp VI, the government attracted 16 5 bids for 5 5 blocks on offer with ONGC and RIL bagging most of the lucrative deepwater blocks. ONGC walked away with 24 blocks and while seven blocks were awarded to RIL.

“We are in talks with global players such as BP, Petrobras and ENI for jointly submitting bids in Nelp VII. We will decide on the blocks at the last moment. We are also in talks with some of these firms to jointly develop our recently discovered gas block in the KG basin,” ONGC director-offshore N K Mitra told ET.

For ONGC, tie-up with a foreign firm’ is essential as BE BG, ENI and Petrobras have expertise in deepwater exploration and ONGC often seeks their help in searching for hydrocarbon reserves in the deep waters of India. Some of the recent discoveries by RIL, GSPC and ONGC have brought the KG basin in the global hydrocarbon map with global players keen to bid for blocks in the hydrocarbon rich basin. ONGC plans to double its hydrocarbon reserves to 6 billion tonne of oil and oil equivalent gas (O+OEG) and plans 4 billion tonne to come from deep waters.

ONGC holds 57.2% of the country’s total hydrocarbon acreage and contributes 84% of India’s domestic oil and gas production. However, ONGC has been unsuccessful in finding any major discovery in the last many years. Its recent gas discovery in the KG basin has not yet been approved by the government.

India imports about two-thirds of its crude oil requirement. Exploration and production (E&P) of oil and gas is critical for India’s energy security and economic growth. India’s share is a meagre 0.5 % of global oil reserves of 1,189 billion barrels, while it consumes 3.2 % of global oil consumption every year. The growing demand for crude oil and gas in the country and policy initiative of the government towards increased E&P activity, have given a great impetus to the Indian E&P industry raising hopes of increased exploration. The efforts have resulted in a number of oil and gas discoveries in India and have changed the perception and prospects of the Indian sedimentary basins and the focus on Indian E&P Industry.

Nelp VII, will be the last round under Nelp bidding policy and is likely to witness one of the most fierce competition in the sector as the government is planning to move to Open Acreage Licensing Policy (OALP), which gives companies a round-the-year window to pitch for oil and gas in blocks of their choice.

ONGC and RIL have also been discussing with the government to allow them to bid for the 10 blocks relinquished by them in the past two years. The Directorate General of Hydrocarbons (DGH), the upstream regulator, has proposed that ONGC and RIL be barred from bidding for the 10 blocks for not fulfilling the minimum work programme. The blocks were won by the companies in earlier rounds but were taken away after the government discovered that they had not completed the minimum work programme.

An interesting part of the Nelp VH bidding will be the three pre-Nelp Krishna Godavari (KG) basin blocks, earlier owned by ONGC and in which BG was offered joint operator ship through international competitive bidding in 2005. The companies had to surrender the blocks after the DGH said that they had not done the work programme within the stipulated time.

While ONGC-BG will bid for these blocks again, it will also draw interest from host of other players including RIL. The government is now examining the option of giving ONGC-BG a chance to match the highest offer of any other bidder after hectic lobbying by the companies and the government-appointed investment commission.
GAIL India (GAIL) is gearing up to team with overseas mid-sized firms from Canada, US, UK and Australia. Anil Ambani-owned Reliance Natural Resources (RNRL) has also shown keen interest in Nelp VII round and is also believed to have sounded out some international firms. About 36 companies from 17 countries participated in the Nelp VI round of bidding.

Oil above $70 as cyclone reaches Oman

OIL pulled back slightly but remained above $70 on Tuesday as a powerful cyclone reached the coastline of Oman and shut its oil and gas export terminals. The storm, the worst to hit Oman in 30 years, began lashing eastern coastal areas on Tuesday morning. The country’s 650,000 barrels per day (bpd) of crude exports have stopped but supplies from Saudi Arabia, the world’s top oil exporter, were expected to escape disruption. The kingdom, with oil output capacity of more than 11 million bpd, can easily offset any lost Oman supplies.

London Brent crude was down 17 cents at$70.23 a barrel in midday trade. US light crude fell 50 cents to $65.71, Oil surged $ 1.33 on Monday on news the storm was headed for the energy-rich Gulf. At one stage it was equivalent to a maximum-force Category Five hurricane and. the market disruptions to shipping and production.

Shipping agents said it was also business as usual in major exporter the United Arab Emirates.

ONGC to swap block stakes with Petrobras

BRAZIL’S Petrobras and ONGC have agreed to swap stakes in exploration blocks. To begin with, Petrobras has offered 25-30% stake in three blocks to ONGC in return for a share in three blocks at Mahanadi, Krish-na-Godavari (KG) and Cauvery basins.

According to sources, Petrobras has offered 25-30% stake in Barrierin-has, Sergipe-
Alagoas, and Santos basins. In return, ONGC has expressed its willingness to give between 15% and 40% stake in its three deep-water blocks.

ONGC in a statement said it has reached an agreement with Petrobras ‘on swapping of interests in offshore blocks’. It, however, did not mention the names of blocks and stakes involved. ONGC had recently made a major discovery of hydrocarbon in the KG basin adjacent to Reliance Industries’ discovery in the region.

ONGC and Petrobras have signed a swapping agreement that ‘marks an increased presence of ONGC Videsh (OVL) in Brazil and the entry of Petrobras in India,’ a company statement said. The agreement was signed by ONGC chairman and managing director RS Sharma, OVL managing director RS Butola and Petrobras president Jose Sergio Gabrielli de Azevedo in the presence of Prime Minister Manmohan Singh and Brazilian President Luiz Inacio Lula da Sil-va, here on Monday.

“Earlier, Petrobras had accommodated OVL by waiving its right of pre emption in the offshore block BC-10 in favour of OVL and a 15% interest in the block was transferred to OVL. Thereafter, the companies had entered into a MoU to jointly participate in the oil and gas exploration in Brazil, India and third countries,” the statement said.

Later, petroleum minister Murli Deora called on Mr. Silva and thanked him for facilitating the signing of the agreement. He also discussed the potential for collaboration and co-operation between the two countries.

He said that inspired by the Brazilian example, India has also started mixing ethanol with petrol and would like to collaborate with Brazil in this regard.

BG-ONGC tie-up for KG basin may get nod

BRITISH Gas’ strategic tie-up with ONGC for the Krishna-Godavari deepwater blocks may get a new lease of life. British Gas had won the blocks through a bidding process, but the oil ministry had rejected the award on grounds of ‘valuation and other inconsistencies’. The ministry is now examining the option of giving British Gas a chance to match the highest offer for the KG deepwater blocks when they are again put up for bidding under Nelp-VH.

The case has been of special interest following diplomatic pressure at the highest level and a recent letter from Investment Commission chairman Ratan Tata, pointing out that reneging on such contracts would shake global investor confidence. The PMO had earlier flagged the issue with the petroleum ministry following a representation from UK Prime Minister Tony Blair’s office. Sources said the finance ministry is also in favour of reviewing oil ministry’s rejection of the original award to BG-ONGC.

The petroleum ministry’s move could come as a compromise as it had decided to put up the same blocks for a rebid. In ‘ the first instance, British Gas was the only company to have put in a final bid after ONGC short listed three bidders.

Now British Gas may be given a chance to retain the blocks if it matched the highest bid in case of a rebidding. Experts have argued that the bid given by BG was far lower than the bids for blocks in the region. The bid for an exploration block has a direct bearing on the profit share that the government gets. BG had countered this argument by saying the price offered is higher in the case of a 100% owned block. The price offered is somewhat lower in a joint venture framework.

ONGC, which had got these blocks on a nomination basis had put up these blocks for bidding under NELP-V. Although almost 16 companies had shown interest in the initial stages, British Gas happened to be the only bidder for the block. ONGC had then signed a deal with BG on the strategic partnership in mid-2006. However, the petroleum ministry had held that ONGC had not got the right value on the blocks. Comparison of these blocks with other blocks may not be quite right as the blocks had several other requirements like a signature bonus, sources said.

Regarding the competitiveness of BG’s proposal, Mr Tata had written ONGC was independent commercial entity, and it had issued a letter of acceptance in November 2005 to BG.

ONGC had also already written to the ministry in August 2006, explaining that the BG offer did not compromise the quality of the bid and that the bid was superior to other comparative bids in NELP-V in terms of the government’s share of profit petroleum.

ONGC not to get stake in Tidewater

KOLKATA: The government will not sell Andrew Yule’s 28% stake in Tide Water Oil to ONGC and will instead go ahead with a fresh due diligence of the lube manufacturing company. Sources in the heavy industries ministry said that the government was of the view that the valuation of Tide Water Oil’s stake as done by ONGC was too low for which it preferred not to sell it to major.

Bhilwara Energy may sell 20% to PEs for Rs 250 cr

BHILWARA Energy (BEL), part of the Rs 2,400-crore LNJ Bhilwara Group, is in talks with US -based private equity investors Wachovia Capital Partners and Jacob Bailas to raise Rs 250 crore by diluting 15-20% equity in the company. LNJ Bhilwara Group chairman Ravi Jhunjhunwala declined to name the investors but conceded that PE funds were interested in his company. “We are still in discussions with investors. At this stage, I cannot name them,” he said.
BEL has been in talks with investors for over six months to raise money. Sources said negotiations have reached an advanced stage. Both Wachovia and Jacob Bailas declined comment.
BEL was incorporated last year to act as the holding company of the group’s existing power generation firms Malana Power Company (MPCL) and AD Hydro Power {ADHPL).

The group is raising private equity funds to grow its power generation business. It is looking to invest Rs 7,000 crore over 5-7 years. While the first phase of investment will be funded through private placement of shares with one of the foreign funds, the company may look at listing its shares on the bourses for the next phase.
Jacob Bailas, one of the PE funds BEL is talking to, is the investment adviser for New York Life Investment Management India (NYIIM) Fund. The fund has New York Life, the investment affiliate of New York life Insurance Company, as its principal sponsor. It has equity stake in manufacturing companies, including Punj Lloyd and ABG Shipyard. Besides advising NYLIM on its
India investments, Jacob Bailas also co-invests with New York life.

The other PE fund, Wachovia Capital, is the private equity arm of US-based financial services company Wachovia Corporation. It recently made an Rs 234 crore investment in Gurgaon-based real estate company Vipul Estates.

BEL is looking at developing Greenfield power projects in Himachal Pradesh, Uttaranchal, Sikkim, Madhya Pradesh, Chhattisgarh and Arunachal Pradesh and is keen on projects that involve renovation and modernization of old power stations.

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