Shares in Cairn India rose more than 5 percent in Mumbai trade, a day after the cabinet gave conditional clearance to miner Vedanta Resources to buy controlling stake in the firm.At 12:11 p.m. (0641 GMT), Cairn India shares were up 4.1 per cent to Rs 324.80, but had risen as high as Rs 327.85 in early trade."It has been under pressure because of uncertainty over the deal. It seems to be adjusting for the rise in crude prices since, and the likely faster development of its fields," an oil & gas analyst at a Mumbai brokerage, who declined to be named, said.On Thursday, India approved the deal valued at around $6 billion, but said Cairn would have to share royalty and cess burden with partner Oil and Natural Gas Corp for its key oilfields in western India.Shares in ONGC, which will gain from sharing of the royalty burden that it had entirely borne so far, rose more than 6 per cent in early trade, but had since eased to Rs 278.40, still up 1.5 per cent in a weak Mumbai market.(Reuters)
Read More
The government said it granted Vedanta Resources conditional approval on Thursday to buy a stake in British oil explorer Cairn Energy's Indian business, in a deal valued at around $6 billion.Cairn Energy agreed last week to sell a 40 per cent stake in Cairn India to Vedanta. The sale, one of the largest in India's energy sector, has been delayed for more than 10 months due to a disagreement over royalty payments.The oil ministry has been pushing for Cairn India to share royalty payments with state-run Oil and Natural Gas Corp, which has a 30-percent holding in the Cairn-operated fields in western India but pays 100 percent of the royalties.Cairn and Vedanta cut the price of the deal earlier this week in a move interpreted as bringing the pair closer to agreeing to India's demand that royalty payments be shared.Treating royalty as a cost for developing the field would mean sharing the burden between the two partners, effectively reducing Cairn India's profitability."The (cabinet) gives conditional approval to the sale of Cairn to Vedanta," Oil Minister S Jaipal Reddy told reporters after a weekly cabinet meeting."Royalty should be treated as cost recoverable. The ongoing arbitration proceedings should be withdrawn. The companies will have to accept these conditions. Without that, they will not get approval," he added.The total royalty burden over the life of the asset is estimated at 180 billion rupees ($4 billion).Cairn India currently pays 70 percent of cess liability under protest and has filed an arbitration case. Cess liability is estimated at 130 billion rupees over the life of the asset.The delay to the deal has been undermining investor sentiment in Asia's third-largest economy, where other foreign investors, including ArcelorMittal and South Korea's POSCO have also seen long delays to planned projects."The market was expecting this outcome and it would be happy that this issue is finally coming to an end but the royalty burden is certainly not a very positive development for Cairn," said Eric Mookherjee, the Paris-based chairman of fund management firm Shanti India.Cairn, Vedanta Shares RiseAt 1537 GMT, Cairn Energy's shares were up 2.1 percent in London trade, while Vedanta rose 3.1 percent. Cairn India shares closed 2.2 percent higher, ahead of the announcement, in a firm Mumbai market.Vedanta's move to acquire Cairn India is part of London-based mining magnate Anil Agarwal's plans to grab a slice of India's oil reserves and gain exposure to surging demand. The deal will help Cairn Energy fund its exploration needs in Greenland.Earlier this week, Vedanta agreed to buy a 10 percent stake in Cairn India by July 11, and another 30 percent after the Indian government's approval, but cut the price tag by more than $600 million.It already holds 18.5 percent stake in the firm from an open offer and a stake buy from Malaysia's Petronas, and will increase this to 28.5 percent by July 11.It has already raised $1.65 billion through a private bond offering to help pay for the acquisition.Vedanta said in a statement it had not received official intimation of the approval or the preconditions. "Vedanta continues to work with Cairn Energy towards the successful completion of the transaction," it said.Cairn India issued a similar statement.The conditional approval and likely reduction in royalty burden could also pave the way for Indian state-run ONGC to move ahead with an up to $2.8 billion follow-on share sale.On Thursday, an oil ministry source said the company may file a draft prospectus for the long-delayed offer on July 5. (Reuters)
Read More
The government on Thursday hiked petrol and diesel prices by a marginal Rs 0.27 a litre and Rs 0.15 per litre respectively following increase in the commission paid to petrol pump dealers.The government approved raising dealer's commission paid on petrol from Rs 1.218 per kilolitre to Rs 1,499 per kl, resulting in a Rs 0.27 per litre increase in retail price with effect from midnight tonight, an official said here.Similarly, the dealers' commission on diesel was hiked from Rs 757 per kl to Rs 912 per kl, resulting in a Rs 0.15 per litre increase in rates at retail level.Petrol, at present, is priced at Rs 63.37 per litre in Delhi and will from tomorrow cost Rs 63.64 per litre. Diesel, whose rates had last week been hiked by Rs 3 a litre, will cost Rs 41.27 per litre instead of 41.12 a litre.The official said the increase in dealers' commission is lower than 39.5 paisa hike recommended by an expert committee of the Ministry of Petroleum and Natural Gas. Similarly, the increase in commission on diesel too is lower than 17 paisa per litre increase suggested by the committee which was headed by Apurva Chandra, Joint Secretary (Marketing) in the Ministry of Petroleum and Natural Gas. (PTI)
Read More
Exxon Mobil Corp and Rosneft signed an agreement to extract oil and gas from the Russian Arctic, in the most significant US-Russian corporate deal since US President Barack Obama began a push to improve ties.The pact, which includes an option for Rosneft to invest in Gulf of Mexico and Texan properties, ended any hope of Britain's BP reviving its deal with state-owned Rosneft to develop the same Arctic territory. That deal was blocked in May by the billionaire partners in another BP Russian venture.The pact gives Exxon, the biggest US oil company, access to substantial reserves in Russia, the world's top oil producer. For Rosneft, it's about bringing in one of the few companies capable of drilling in the harsh, deep waters of the Arctic.Russia has shown greater willingness in the past year to secure foreign partners, even if some deals later fell apart. The Exxon announcement comes only months after the demise of a Rosneft deal with Chevron Corp for a $1 billion investment in an estimated $32 billion Black Sea project.Analysts cited differences between Chevron and Rosneft over the choice of contractor, the joint venture's domicile and the jurisdiction of arbitration for any business disputes.Yet Chevron, like Royal Dutch Shell Plc, was also considered a potential partner for Rosneft's Arctic venture.Russian Prime Minister Vladimir Putin attended the Tuesday signing - in the Black Sea resort of Sochi - by Exxon Chief Executive Rex Tillerson and Russia's top energy official, Deputy Prime Minister Igor Sechin."New horizons are opening up. One of the world's leading companies, Exxon Mobil, is starting to work on Russia's strategic shelf and deepwater continental shelf," Putin said.Exxon and Rosneft agreed to invest $3.2 billion to develop East Prinovozemelsky Blocks 1, 2, and 3 in the Arctic Kara Sea and the Tuapse licensing block in the Black Sea.Rosneft will own 66.7 per cent and Exxon the rest of the joint venture to develop the blocks, which Exxon said were "among the most promising and least explored offshore areas globally, with high potential for liquids and gas.""The fact that someone with the stature of Exxon Mobil is willing to give it a stab is very significant," said Amy Myers Jaffe, of the Baker Institute at Houston's Rice University.While Rosneft will tap Exxon's expertise to open up one of the last unconquered drilling frontiers, it will also diversify further by getting a piece of some of Exxon's US developments."To get into Russia offshore you give up some of your domestic offshore. I think it's a fair trade," said Brian Youngberg, senior energy analyst at brokerage Edward Jones in St. Louis, who has a "hold" rating on Exxon shares.It marks a big move for Exxon after it spent a year swallowing XTO - a much-criticized purchase that shifted its profile toward the depressed US natural gas market. "Now Exxon Mobil is starting to look elsewhere for deals," Youngberg said.Analysts also said the Rosneft-Exxon agreement indicates that the reset in relations Obama sought was working to reduce the political risk for US businesses operating in Russia."Three years ago, American companies were being excluded. Here, an American company is at the centre of a flagship announcement. This deal demonstrates that reset has had a positive effect on US-Russia energy relations," said Cliff Kupchan, director of Eurasian Practice at Eurasia Group.An Obama administration official said the deal was a result of the new cooperation between the United States and Russia."Today's announcement of a deal between Exxon-Mobil and Rosneft valued at $3.2 billion is another example of the expanding economic relationship and the potential for mutually beneficial collaboration between Russian and American businesses," the official said.In explaining the deal's significance, Myers Jaffe pointed to previous failed efforts in the past decade to foster joint energy interests. "There was a lot of disappointment on both sides," she said. "The US industry just gave up on Russia."Plan B For RosneftRosneft said the Kara Sea blocks contain an estimated 36 billion barrels of recoverable oil resources. Total resources are estimated at 110 billion barrels of oil equivalent - more than four times Exxon's proven worldwide reserves.The Black Sea block is estimated to hold 9 billion barrels of oil reserves. First drilling is planned to start in 2015, with Exxon shouldering most of the costs."The Russians very quickly had a Plan B, and Plan B was Exxon," said Fadel Gheit, energy analyst at Oppenheimer & Co, referring to the quick switch to Exxon from BP.The deal marks a turnaround in Russia for Exxon, which was widely thought to be on the verge of taking over Yukos, then Russia's largest oil company, before Yukos's boss, Mikhail Khodorkovsky, was arrested in 2003.Khodorkovsky was subsequently jailed for fraud and tax evasion and Yukos's prime assets were bought at bankruptcy auctions by Rosneft, now Russia's industry leader and with enough reserves to cover 27 years of production.Uncertainty persists over whether Putin or President Dmitry Medvedev will seek the presidency next March. Putin can now show off the deal as a success if he decides to run.The transaction also marks a comeback for Sechin, who was ousted as Rosneft chairman earlier this year in a purge of state company boards ordered by Medvedev. Sechin estimated total investment in the project at $200 billion-$300 billion.In anticipation of all the money flowing there, oilfield services companies including Schlumberger Ltd, Baker Hughes Inc and Weatherford International Ltd have been picking up assets in Russia.Environmental concerns are unlikely to create barriers to oil extraction in Russia's remote Arctic regions, if moves this year by the country's Natural Resources Ministry to shift nature reserve boundaries are any guide.US UpstreamRosneft will be offered an equity interest in Exxon exploration projects in North America, including deepwater Gulf of Mexico and fields in Texas, as well as in other countries.The deal thus fulfills a demand for reciprocity often made by Putin, helping Rosneft, which already works with Exxon offshore Russia's Sakhalin island, toward its long-term goal of being a global energy major.It was not clear whether any such investments by Rosneft would need approval from the Committee on Foreign Investment in the United States. An Exxon spokesman declined to comment.There is no exchange of equity in the agreement, while the BP deal called for a $16 billion share swap in which BP would have exchanged a 5 per cent stake for 9.4 per cent in Rosneft."Exxon is double or triple the size and market value of BP," said Gheit at Oppenheimer. "So, obviously, this would be much more important for a BP than it is for Exxon."While Rosneft shares rose 1.4 per cent in Moscow, Exxon fell slightly on the New York Stock Exchange on Tuesday.(Reuters)
Read More
India ONGC Videsh Ltd, the overseas investment arm of Oil and Natural Gas Corp, seeks to buy producing assets in politically less risky countries like North America to cut its risk and boost output, its managing director said on Tuesday.The Indian government has charged ONGC with securing energy supplies overseas to fuel the country's fast-growing economy.India, the world's fourth-biggest oil importer, buys in nearly 80 per cent of its oil needs as expanding refining capacity has outpaced growth in local oil output. ONGC's local oil output has been almost stagnant in the last five years."We need to spread our risk. We need to diversify into politically less risky countries like north America ... USA, Canada. We would like to readjust our portfolio," Joeman Thomas told reporters.He said his firm wants to acquire producing assets in two to three years. "Our short-term focus is to acquire stakes in producing properties. Our focus is more on growing production".ONGC Videsh aims to source 400,000 barrels per day of crude from its assets overseas by 2020. It expects output from such assets to reach 175,000 bpd in the current financial year through to March 2012, he said.The social and political upheaval in the Middle East and parts of Africa has raised the risk profile of some of the hydrocarbon-rich countries.US and Canadian companies such as Marathon, ConocoPhillips, Hess, Occidental and Suncor pulled out of Libya at the start of the year and have had little direct involvement there since then.Thomas said a force majeure was still continuing at its exploration block in Libya and it was still negotiating with Iran to get development rights for the Farsi block.India has recently managed to find a solution to a payment issue with Iran after the Reserve Bank of India scrapped a long-standing clearing house mechanism to pay for Iran oil imports under US pressure.ONGC Videsh has a stake in 33 projects in 14 countries including Vietnam, Sudan, Colombia, Russia, Syria, Venezuela, Brazil, Myanmar, Libya and Kazakhstan.(Reuters)
Read More
Reliance Industries on Tuesday announced completion of its 30 per cent stake sale in 21 oil and gas blocks, including the showcase KG-D6 block, to British energy giant BP Plc for over $7 billion.Industrialist Mukesh Ambani-led Reliance Industries (RIL) said in a statement that the completion of the deal has paved the way for commencement of its strategic alliance in India with BP. "This significant step will commence the planned alliance which will operate across the gas value chain in India, from exploration and production to distribution and marketing."The completion of the deal delivers one of the largest ever foreign direct investments into India," RIL said.RIL will get $7.2 billion for the stake sale in 21 blocks and could get further $1.2 billion as performance payments based on exploration success resulting into development of commercial deliveries.Commenting on the completion of the deal, RIL Chairman and MD Mukesh Ambani said: "The alliance with BP will boost our efforts to realise the true potential of India's hydrocarbon reserves.""The globally renowned expertise of BP and the in-depth domestic experience of Reliance make for a formidable alliance which will deliver unparalleled value for the country in its pursuit of energy security," he added.RIL said that the two companies would also form a 50-50 joint venture for sourcing and marketing of gas in India which will also accelerate the creation of infrastructure for receiving, transporting and marketing natural gas.BP Group CEO Bob Dudley said: "This major investment is directly aligned with our strategy of creating long-term value by forming alliances with strong national partners, gaining material positions in significant hydrocarbon basins and increasing our exposure to growing energy markets."RIL is India's largest private sector company with a turnover of Rs 2,58,651 crore ($58 billion) and net profit of Rs 20,286 crore ($4.5 billion) in the last fiscal ended March 31, 2011.It had on February 21 agreed to sell 30 per cent stake in 23 out of its 29 oil and gas blocks to BP. Earlier this month, the company said that it has received the government approval for sale of stake in 21 blocks.However, the approval has been held back for two blocks, one a deep sea area off the Orissa coast and the other an onland block in Assam, over technical issues.(PTI)
Read More
Higher prices at diesel pumps across India will nibble at demand rather than crush it as robust growth in Asia's third-largest economy fuels oil consumption.Before the price hike, India's oil ministry estimated its million-plus barrels a day diesel market was set to grow by 5-6 per cent this fiscal year for the most popular transport fuel among its 1.2 billion population.The latest price increase may see industrial users and power plants switch to cheaper fuel oil, analysts said, trimming growth in diesel demand by at most 19,500 barrels per day, from estimated growth of about 60,000-80,000 bpd in 2011.Much of India's diesel demand is inelastic, driven by the main consumers in the transport and agriculture sectors."I expect there to be some moderation in diesel demand growth although this will be due to seasonal as well as pricing factors," Thomas Grieder, an analyst at IHS Global Insight, said."It will not be too extreme as many consumer groups have limited options to switch their consumption patterns."India's fractious coalition government raised prices of diesel and kitchen fuels to cut the hefty bills it has to pay to allow state oil firms to sell at subsidised rates.The government also eliminated the import duty on crude boost the finances of the state oil firms, which dominate the retail market.Morgan Stanley estimates the government could save as much as a third of its near $40 billion subsidy payout to state oil firms in the current fiscal year, helping it stay on course to meet a fiscal deficit target of 4.6 per cent of gross domestic product in 2011-12.Some Indian states have also not added local levies to the Rs 3 a litre increase in diesel prices. For example, the increase in Delhi would have been 3.40 rupees/litre if the state government had also levied extra tax on the fuel."Even if there is no tax reduction (by state governments) the impact on demand growth may be 5-10,000 bpd, but closer to 5,000 bpd," said Mark Freier, senior analyst at PFC Energy."If you look at the last seven years, demand is pretty inelastic in transportation and agriculture."Profit Cuts?Satwant Singh, a 46-year-old rice and wheat farmer in Punjab, expresses views typical of many rural users of diesel."Because of higher prices, I have brought down usage of diesel in the past few years, but it's not possible to cut it further ... the diesel price rise will cut our profit, but we don't have an option," he said.HSBC expects growth in diesel use to ease to around five percent -- or 61,000 bpd -- in the current financial year and the next, down from 6.6 percent in the year to March 2011."We expect moderation in diesel demand growth due to several concurrent factors including the latest end-user price increase," said Kumar Manish, HSBC's senior oil and gas analyst for India.Praveen Kumar, senior consultant at FACTS Global Energy in Singapore, does not see a change in diesel demand."As this remains a one-off price hike we do not expect demand to take a major hit. From a seasonality point of view, diesel demand usually takes a drop during Q3 due to monsoons. Thus a hike around this time would also limit the extent to which diesel demand could take a hit," he said.FACTS sees an annual 4.5 percent rise in India's diesel demand to about 1.3 million bpd in 2011.Freier said the government could even consider a reduction in diesel prices later in the year depending on the outlook for inflation and global oil costs."There is little upside potential for crude prices in the second half, so that the Indian government may opt to lower diesel prices somewhat in the fall, depending on its inflation expectations for the winter months," he said.Economy To Fuel DemandState fuel retailers feel India's diesel demand is unlikely to soften much because of the price increase and will be more sensitive to the country's economic growth, targeted at 8.5 percent in 2011/12."As it is, product demand is growing because of growth in the economy. We have seen in petrol, the demand has not come down despite price increases," said S. K. Joshi, head of finance at BPCL.India freed petrol prices a year ago and since then they have gone up in stages by about 23 percent.While India should keep growing at rates many nations would envy, Asia's third-largest economy faces a period of reduced growth and stubbornly high inflation.India's industrial output growth slowed in April, the latest sign that the rising cost of credit and inflation are acting as brakes on the economy.Inflation, currently at about nine percent, could climb into double digits with the latest fuel increases and prompt further interest rate rises, adding to pressure on family finances in a country with 500 million people living on under $1.25 per day. (Reuters)
Read More
Softening its stance on mining in heavily-forested areas, the Environment Ministry on Wednesday gave its nod for clearing six coal blocks, including five in 'no go' areas, for three major power plants in Orissa."All the six coal-blocks are part of the IB Valley coalfield and only one (Meenakshi-A) is presently in the 'go' area, the other five being in 'no go' areas...All six blocks will now be considered by FAC (Forest Advisory Committee) as 'go' areas," Environment Minister Jairam Ramesh said in a statement.Giving green signal to clear coal-blocks linked to UMPP, NTPC and OPGC power plants, the Minister said the Power Ministry should give "special focus" on ash disposal and water availability.Three coal-blocks (Meenakshi-A, Meenakshi-B and Meenakshi Dipside) have been allocated to the 3960MW/4000MW Ultra Mega Power Plant (UMPP).Coal-blocks (Manoharpur and Manoharpur Dipside) have been allocated to the 1320 MW power plant of Orissa Power Generation Corporation (OPGC). One coal-block (Dulanga) has been allocated to NTPC's 1600 MW power plant.Hailing the Environment Ministry's move, the Power Ministry said it will now pave way for raw material security for the project."We are delighted... We will immediately go for further process of the Orissa UMPP," Power Secretary P Uma Shankar said.Ramesh, who last week granted a stage-I forest clearance to three blocks in dense forests in Chhattisgarh, said the Environment Ministry's intervention will help reduce biodiversity impacts on the forests where coal blocks will be opened up.After a developer gets stage-I forest clearance, it needs to demonstrate and provide requisite documents that the project will be restricted to the area for which the clearance has been given.Ramesh said both the Power and the Environment Ministry had a relook into the three projects to assess biodiversity impact and also took satellite imagery of the forest areas to be mined.He said the power units which will set up with the coal mined in these six blocks will use supercritical technology, "which will result in a saving of around five to eight per cent in terms of carbon dioxide emissions from each of the generating units as compared to a comparable sub-critical 500 MW unit".The additional condition that will be imposed over and above the usual conditions governing forest clearance is that the project proponents will bear the cost of regeneration of an area of open, degraded forest land equivalent to the amount of medium density forest land being diverted, Ramesh said. (PTI)
Read More
