The company's Ebita margin has improved due to global fall in crude oil prices, writes Arshad KhanRating agency India Ratings and Research has upgraded I G Petrochemicals Limited’s (IGPL) long-term issuer rating to 'IND A-’ from ‘IND BBB+’, maintaining a stable outlook for the petrochemical company. The rating agency gives reduction in total debt and an increase in EBITDA margins of the company as the prime reason for its up gradation. “IGPL’s EBITDA margin improved 165bp y-o-y to 6.7 per cent in FY15 due to the capex completion and process improvement initiatives taken in FY14. The rating agency expects the EBITDA margin to further improve in FY16 because of high demand of phthalic anhydride (PAN) and improved operational efficiency,” notes the agency in its report, Company’s EBITA margin also improved due to global fall in the prices of crude oil as its main raw material ortho-oxylene is a crude derivative. It is also exposed to forex risk as exports form 19 per cent of the total revenue and imported raw materials form 16 per cent of the total raw material consumption. IGPL partially hedges its exports as well as imports using forward covers apart from having a natural hedge, reducing the risk to an extent. The rating agency reports that the petrochemical company has started drawing benefits from capacity addition as well as process improvement initiatives like reducing furnace oil requirement and using generated steam to meet its power requirements. Other push by the company which improved its rating includes imposing of anti-dumping duty by the government of India which enabled IGPL to protect its margin. Positive cash flow form operation and maintaining moderate liquidity further helped the company to upgrade its rating. The rating agency further reports that company’s plan to raise Rs 400 million in FY16 and FY17to manufacture downstream speciality chemicals will enable IGPL to diversify its product portfolio. The agency expects the credit metrics to remain stable post this capex.
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International oil prices will come down with the imminent lifting of sanctions against Iran and benefit India, Petroleum Minister Dharmendra Pradhan said on Wednesday. "With Iran coming to market, the assumption is that there will be further slide in oil prices... India will be one of the beneficiaries of sliding oil prices," he said. India is the world's fourth largest oil consumer and also the second biggest buyer of Iranian oil after China, importing about 11 million tonnes of crude oil in 2014-15. Due to its relative proximity to Iran and established business ties, India is tipped to be one of the first and biggest takers of Iranian oil once sanctions are lifted or eased, although Pradhan said the government would first have to study available offers. Pradhan remained non-commital on whether India will increase imports from Iran after restricting it at 11 million tonnes in the past two fiscal. "Let's see. It (increasing imports) depends on a lot of commercial considerations," he said. "But one thing is sure, oil prices (in international market) will be reasonable. I believe prices will be reasonable and responsible." The slide in oil prices may, however, put some pressure on exploration and production (E&P) business due to low returns, he said here at an industry event while adding this was "a challenge." As per the deal, sanctions imposed by the US, European Union and United Nations will be lifted in return for Iran agreeing long-term curbs on a nuclear program that the West suspected was aimed at creating a nuclear bomb. However, the sanctions on Iran will remain in place at least until United Nations monitors report on the country's compliance with the deal in December. Also the deal has to be ratified by the US Congress within 60 days. This means Iran may take until next year to bolster crude exports. Its exports may double to 400,000 barrels per day in 2016 production and will likely expand the following year, according to Goldman Sachs. Analysts said that Iran's exports would only gradually increase from 2016. "New oil will not flow from Iran until 2016 and there will probably be less of it than optimists predict," said Richard Nephew, Program Director for Economic Statecraft, Sanctions and Energy Markets at the U.S. Center on Global Energy Policy. "I estimate 300,000–500,000 new barrels of oil on the market within 6-12 months after a deal begins to be implemented." (Agencies)
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A day after an Iran nuclear deal was finally reached oil prices edge higher as investors recognised it would take time for Tehran to raise output, but the eventual increase in its exports will add fuel to a market already plentifully supplied.Under the agreement, sanctions imposed by the United States, the European Union and the United Nations are to be lifted in exchange for curbs on Iran's nuclear programme."New oil will not flow from Iran until 2016 and there will probably be less of it than optimists predict," saidRichard Nephew, Program Director for Economic Statecraft, Sanctions and Energy Markets at the US Center on Global Energy Policy."I estimate 300,000–500,000 new barrels of oil on the market within 6-12 months after a deal begins to be implemented," he said.Morgan Stanley said most assessments saw 500,000 to 700,000 barrels per day (bpd) of new supply by the first half of 2016.Front-month Brent crude prices were trading at $58.72 per barrel at 0353 GMT, up 21 cents from their last settlement. U.S. crude was up 28 cents at $53.32.Iran, a member of the Organization of the Petroleum Exporting Countries (OPEC), exported almost 3 million bpd of crude at its peak, before sanctions over its alleged ambitions to build a nuclear bomb saw shipments collapse to about a million bpd over the last 2-1/2 years.Adding To A Glut, For NowBeyond the realisation that it will take time for Iranian exports to return to pre-sanctions levels, the prospect of more supply coming into the market just as China's economy grows at its slowest pace since the 2008/2009 crisis means oil prices are likely to remain low in the foreseeable future. Even without a jump in production from Iran there are already 2.5 million bpd of available crude that consumers don't need.Oil prices have halved over the past year as established producers like OPEC and Russia pump near record levels at the same time that American shale drillers have turned the United States into the world's top oil producer.In China, the world's biggest energy consumer and number two economy, growth is stalling and there are signs that its fuel thirst will also start to ebb. Other parts of Asia are showing signs of economic weakness as well.China halved its 2015 forecast for vehicle sales growth to a meagre 3 percent last week as a major slump in the country's stock market depressed sales to consumers concerned about economic prospects."Given the current macroeconomic environment and unbalanced fundamentals we have revised our central oil prices down once again," investment bank Natixis said."For Brent we expect 2015Q3 and 2015Q4 to average $60/barrel and $59/barrel, respectively, and 2016Q1 to average $57/barrel," the bank said, adding that U.S. crude would trade at a discount of $4-6 per barrel to Brent.Natixis also said Brent would average $59.20 a barrel in 2015 and $62.30 a barrel in 2016, and that there was a risk of even lower prices if China's economy slowed further while global oil production stayed close to its near-record highs.It is only further in the future, analysts say, that Iran's oil will help prevent a shortage rather than add to a glut."In long-term, the Iranian oil will actually be needed to keep the market balanced, especially as demand will generally rise for some time to come," said Richard Gorry, managing director of JBC Energy Asia.(Reuters)
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Oil prices dipped on Tuesday as the market awaited a nuclear deal between Iran and six global powers that could see an easing of sanctions against Tehran and a gradual increase in its oil exports, while Asian economies showed new signs of slowing. Sources present at the talks in Vienna, Austria, said that an announcement was likely in the early hours of Tuesday. Iran's semi-official Fars news agency reported that a meeting would be held at 0800 GMT on Tuesday between all parties to discuss a possible final deal to curb the country's nuclear work in exchange for lifting sanctions. Front-month Brent crude futures dropped 61 cents to $57.24 a barrel at 0409 GMT. U.S. crude was trading at $51.48 per barrel, down 72 cents. "With a nuclear deal imminent, it is clear that Iran is preparing to make up lost ground and re-establish itself as a major supplier," said Sarosh Zaiwalla, a London-based sanctions lawyer. "Sanctions have crippled Iran's oil production, halving oil exports and severely limiting new development projects. The prospect of them being lifted is creating great excitement ... as foreign trade and investment will allow Iran to make huge efficiencies and drive down the cost of production." Analysts say it would take Iran many months to fully ramp up its export capacity following any easing of sanctions. But even a modest initial increase would be enough to pull international oil prices down further as the market is already producing around 2.5 million barrels per day above demand. "We continue to expect further (oil price) drops if Iranian crude flows into the market," Daniel Ang of Singapore-based Phillip Futures said in a report. Slowing AsiaMeanwhile, the outlook for some Asian economies dimmed further, potentially eroding oil demand. China's economic growth is forecast to be the weakest since the 2008/2009 global financial crisis in the second quarter, which together with a stock market rout raises pressure on authorities to do more despite little pay-off so far from a run of stimulus steps. In Singapore, Asia's main oil trading hub and one of the region's biggest ports, the economy unexpectedly contracted in the second quarter as sluggish global demand knocked the city-state's manufacturing sector. (Reuters)
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Bharat Petroleum Corp Ltd plans to expand its Bina oil refinery in Madhya Pradesh by 30 per cent to 156,000 barrels per day at a cost of about $472 million, its chairman S. Varadarajan told Reuters on Monday (13 July).The expansion of the refinery, operated by a joint venture of BPCL and state-owned Oman Oil Co in Madhya Pradesh, will be completed by 2018, he said.Oman Oil, which has a minority stake in the venture, is not participating in the Rs 30 billion expansion as of now, Varadarajan said.(Reuters)
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Russia's top oil producer Rosneft has taken a significant step towards expanding its global reach by signing a preliminary deal to acquire up to 49 per cent in Essar Oil Ltd, India's second biggest private refiner.Rosneft had initially said it would buy into Essar's Vadinar refinery. But a company spokesman clarified on Thursday (9 July) the deal included Rosneft entering into Essar Oil's charter capital, echoing a statement from the Indian firm.The companies have signed a non-binding term sheet for Rosneft to buy an equity stake of up to 49 percent in Essar Oil, the Indian company said in a statement on Thursday.Rosneft, the world's top listed oil producer, has long sought to increase its exposure to the global markets but its efforts have been hampered by Western sanctions over Moscow's role in the Ukraine crisis.The deal with Essar from India, a country Russia has close ties with since the Soviet era, was announced as Indian Prime Minister Narendra Modi met President Vladimir Putin on the fringes of a summit of emerging nations.Rosneft said on Wednesday that it had also finalised a deal to supply 10 million tonnes of oil a year, or 200,000 barrels per day, to Essar's Vadinar refinery over 10 years."Thanks to this agreement Rosneft grants itself a secure market outlet of crude oil, which will create an additional possibility of production planning and marketing," the company said in a statement.Deal Subject To Corporate ApprovalRosneft has been in talks with Essar to buy a key stake in the unit that owns the Vadinar refinery, but the deal has faced delays due to difference over the price, sources have said. They said Rosneft valued the refinery at less than $6 billion, while Essar wanted a higher price.The latest proposal to purchase a stake in Essar is conditional upon due diligence, determination of the transaction price, execution of definitive transaction documents and receipt of requisite approvals, the Indian refiner said.A source close to the matter said the entire process, including due diligence, will take at least two to three months.Rosneft is interested in only picking a stake in the refinery and there is a possibility that Essar Oil may have to hive off or de-link exploration assets from its portfolio, added the source, who did not want to be named because he was not authorised to speak to the media.An Essar Oil spokesman said the agreement, as signed, was for the entire company, including its refining, exploration and marketing businesses.Mumbai-based Essar, whose business interests include steel, oil and gas, power and ports, has been forced to consider selling some of its assets to reduce its debt pile, after expanding in India and overseas in the last few years.Essar's founders own 90.5 percent of Essar Oil, of which 65.6 percent is in the form of overseas depository shares.Supplying Oil To VadinarEssar depends heavily on Iran to feed its 400,000 bpd Vadinar refinery in Gujarat.The intent for an oil supply agreement between Rosneft and Essar was first signed in December during Putin's visit to India. However, processing 200,000 bpd of Russian oil will hurt the profitability of Vadinar because of the higher transport costs and yield.Rosneft's chief executive officer, Igor Sechin, did not rule out the possibility of supplying oil via swaps, but declined to elaborate. A source said last month that Rosneft may supply Venezuelan oil to the Vadinar or it may sell Iranian oil to Essar, once international sanctions against Tehran are lifted.Rosneft on Thursday withdrew its statement about its intention to more than double Vadinar's capacity to 900,000 barrels per day by 2020.(Reuters)
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Oilfield services firms are scrambling for contracts from India, which has emerged as a rare bright spot for the sector hardest hit by a slump in global crude oil prices that has driven most countries to slash spending on exploration and production. This fiscal year, state-run Oil and Natural Gas Corp (ONGC) plans to boost its capital spending by more than a fifth to 362.49 billion rupees ($5.7 billion), in stark contrast to analysts' forecasts for energy firms globally to cut spending by a fifth in 2015. These prospects have attracted scores of bidders for Indian contracts as an increase in supply from U.S. shale oil producers and slower demand growth have halved crude prices since June 2014. India's government has made boosting domestic energy a priority to end chronic current account deficits. Winners of ONGC's recent oil services tenders include Transocean Ltd, one of the world's top offshore drilling companies, Southeast Asia's largest oilfield service firm SapuraKencana Petroleum, Indian conglomerate Larsen & Toubro and mid-sized Singapore-based offshore construction services company Swiber Holdings. "We are getting better participation in our tenders both from Indian and overseas players due to current market conditions where exploration activity is low because of lower oil prices," said an ONGC official. "We are getting offers for better vessels and rigs at lower rates," the official added, declining to be identified as he is not authorised to speak to the media. The Indian contracts are especially attractive given the dearth of business from the majority of European and North American energy firms. With prospects for a rebound in oil prices and overall spending by the industry slim for the next few years at least, competition for Indian business is fierce, hurting service firms' margins, but alternatives are few and far between. Swire Pacific Offshore, part of Hong Kong-based conglomerate Swire Pacific Ltd, says the low rates in India are a challenge, but it is still bidding for projects there. "Even though there might be relatively more activity in the Indian market, I think you'll find that that's no boom town," said Duncan Telfer, commercial director of Swire Pacific Offshore. Discounts And DemandState-owned ONGC's spending spree is part of efforts by Prime Minister Narendra Modi's government to reduce India's reliance on imports, which account for nearly 80 percent of its energy requirements. Crude oil prices are critical to India's current account deficit, which just two years ago widened to a record high 4.8 percent of GDP as oil prices soared, triggering the worst currency crisis since 1991. The low global crude prices have helped narrow the current account deficit to just 0.2 percent of GDP in the previous January-March quarter, but the government has said its reliance on imports is unsustainable in the long-term. ONGC accounts for about 70 percent of India's overall oil production. A recent tender by the state-owned firm for 20 offshore service vessels attracted a record 26 bidders who offered 168 vessels, the ONGC official said, largely at favourable rates. ONGC is now able to contract offshore support vessels for about $14,000 a day, a 20 percent discount from last year's $20,000 a day, the official said. It is also hiring vessels for five years now compared to three years earlier to benefit from the lower rates, he added. Even with these discounts, the oil services firms are flooding in. Singapore's Swiber, which bagged three contracts from ONGC worth a total of nearly $800 million this year, says profit is its main driver. "In the short term, I strongly believe that India will be one of our anchor regions for us to focus on," said Darren Yeo, deputy group chief executive officer of Swiber. (Reuters)
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French oil industry engineering and construction group Technip will cut 6,000 jobs and book a 650 million euro ($719 million) restructuring charge as it steps up a cost-cutting drive in the face of an industry slump. With clients cutting projects due to low oil and gas prices, the company said it targeted cost cuts of 830 million euros with 700 million to be delivered in 2016 and the rest in 2017. "The slowdown in the oil and gas industry is prolonged and harsh," Chief Executive Thierry Pilenko said in a statement. "Therefore we have decided to accelerate our cost reduction and efficiency measures – which I know will have tough consequences for employees across the Group," he added. (Reuters)
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Videocon Industries plans to invest $2.5 billion in oil and gas ventures in Brazil over the next two to three years, the consumer electronics-to-energy group's chief said, as part of its strategy to boost the business. "Brazil oil finding is four times higher than the largest oil field in India ... It's just (the) beginning," billionaire Venugopal Dhoot told Reuters at the sidelines of an industry event. A consortium that includes Videocon and Brazilian state-run oil company Petroleo Brasileiro SA (Petrobras) earlier this year discovered new light crude oil in the Sergipe basin off Brazil's northeast coast. Videocon, which gets most of its revenue from its consumer durables business, has expanded its oil and gas business in recent years with investments in countries including Australia and Indonesia. In the next three years, Videocon, which also has interests in telecoms and power, will be known as an oil and gas firm, Dhoot told Mint newspaper last month.
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The elusive dreams of connecting the interests of Asian countries through natural gas pipelines have been chased for over 3 decades. Prime Minister Narendra Modi’s visit to Turkmenistan in the second week of July as a part of his tour to 5 central Asian countries will be an attempt to seal the deal for the TAPI (Turkmenistan-Afghanistan-Pakistan-India) natural gas pipeline. If Modi manages to close the deal which was envisaged to solve the geo-political issues between the South Asian neighbours, it would be a milestone in the direction of securing India’s energy needs.But was the TAPI deal hanging fire only because India did not have a statesman like prime minister Narendra Modi to foster the decision making among the other three participating nations? More than the politics, it is the economics that has acted as a hurdle in the implementation of the project.The TAPI gas pipeline was envisaged in 1990s by the US as a means of providing economic stability to Afghanistan that has been under Taliban for many decades. Initially it was a three nation (Turkmenistan, Afghanistan and Pakistan) project and India came into the picture only in 2008. However, the risks attached to the pipeline that is supposed to pass through the most disturbed areas of Afghanistan and Pakistan make the project unviable for any private sector company to show interest. Turkmenistan would export 90 million standard cubic meters per day of gas through TAPI, with Afghanistan getting 14 mmscmd and India and Pakistan 38 mmscmd each.In 2008, the cost of the pipeline was pegged at around $7.5 billion, with the completion date of 2014. However, the construction of the pipeline has not even begun and the project stares at a cost-overrun of about $3-$5 billion. The pipeline is viable only till it supplies natural gas at a rate cheaper than imported LNG. The cost of gas for the three countries would be between $7 per mmbtu to $9 per mmbtu. Any further delay may make the cost of importing natural gas via pipeline unviable for countries like Pakistan and Afghanistan who cannot afford to buy expensive gas due to the small size of their economies.Moreover, the price for LNG in the spot market has reached $8 per mmbtu. However, the pipeline has a long terms horizon in terms of prices which are expected to hover above $10 -$15 per mmbtu.India had agreed to pay around $9 per mmbtu in 2012 under a formula that calculates the price of gas on the international price of crude oil. The final cost of gas after adding the transit fee was around $13 per mmbtu. This saved India around $2 per mmbtu of gas as compared to the spot market price in 2012. However since, then the cost of crude oil as well as natural gas has fallen in the international market and this will have an impact on the logic of purchasing gas through a pipeline with an upfront investment cost of above $10 billion with various risks.The final cost of natural gas from the pipeline must save involved parties between $2-$5 per mmbtu.So, the pipeline dream is running against time to manage its costs to be financially viable.Other than this, a major problem is the national policy of Turkmenistan that does not allow any foreign company to take up participating stake in the country’s national projects. None of the companies in the four nations have the financial power to take up a project that covers the international border of 1700 Km.Interestingly, even if Modi convinces Turkmenistan to change its national law to allow a foreign company be chosen as the consortium leader with participating interests in the project, there would be a pressure from the US to chose only a US based company. However, the ADB has been in favour of French upstream company Total to execute the project. Even though the French oil &gas giant has backed out from the project, it is not necessary that the involved parties, especially Turkmenistan would agree to have a US company for the project.The heads of TAPI countries will have to look for a reason why these natural gas pipelines projects have always remained in the pipeline for decades. Other then TAPI, there are other envisaged projects like IPI (Iran Pakistan India) MBI (Myanmar-Banglades- India) that could never take off due to cost factors that were affected by the Geo-political dangers and pressures from the US. Until the governments of the Asian countries understand that they need to envisage projects purely based on economics and not on political rhetoric and obligations, these projects will remain in the pipeline for ever.
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