Industry Profile

Petroleum

Kasturi Dutta
Khushboo Vaish

24th September’06
 Evolution of Oil & Gas Industry in India

• At Independence, domestic oil production was 250,000 tones per annum.

• E & P was controlled by the NOCs, ONGC and OIL.
70s Nearly 70% of the domestic requirement.
80s Production declined, Steady increase in consumption.
Today Two NOCs meet about 35% of domestic requirement.

• Petroleum Sector Reforms, 1990

4th – 8th bidding between 1991-94. Indian companies permitted to bid.
JV Exploration Program in 1995. 25% to 40% Participating Interest.

• Foreign Companies Exploration in India since early 50s.

Indo Stanvac Project- GOI and Standard Vacuum oil Company, West Bengal
offshore, in early 50’s.
Carlsbons Natomas for Bengal offshore in early 70’s.
Shell for Kerala offshore and Chevronn- Texaco in Krishna-Godavery Offshore.
• Indian E&P Companies
Except HOEC, riding piggyback on the foreign companies.
Reliance Petroleum Ltd. joined with ONGC in bidding for exploration and
development ventures in India and abroad.
Downstream companies IOC, GAIL entered upstream with ONGC and OIL.
• Opening of the Oil/Gas Fields for Development by Private Companies
The Indian oil/gas fields discovered by the two NOCs, were first offered in 1992
under the First Offer.
The second such offer was made in 1993.
• Development of fields
Cost intensive venture
Contracts have upfront payments to be made to the NOCs for past costs as well

as in the form of signature bonds.

Companies are also required to make production bonus payments.
74 Exploration Contracts and 28 Development Contracts are in operation.
 Major Players in India
ONGC
• Public sector company; Contributes 77% of India’s crude oil production; Revenue
(2006): $ 10.5 billion; Employees: 41000
• ONGC's setbacks in acquiring major oil resources and the government's order to
help shoulder the burden of subsidized fuels earlier this year, pushed the
country's biggest refiners into the red
• The 50-year-old firm has acquired interests in 16 overseas projects since it started
looking abroad in 2001.
• For three years in a row, the firm has failed to replace the reserves it produced.
• ONGC must boost its reserve-to-production ratio(22 years) by improving its drilling
technology and management practices. In some onland areas the ratio is 57 years.
• ONGC lost a major offshore platform at Bombay High, reducing the company's
output by 123,000 barrels per day (bpd). It has since restored half that production.
• Oil Minister Mr Aiyar has pushed for Indian and Chinese firms to cooperate not
compete, for overseas assets, but his efforts appear to have met with little interest in
Beijing.
IOCL
• India's largest commercial enterprise; sales turnover of US $36.537 billion
• IndianOil Technologies Ltd.(a wholly owned subsidiary company ) is the 19th
largest petroleum company in the world
• World-class R&D Centre has developed over 2,100 formulations of SERVO brand
lubricants and greases.

BPCL
• 3rd largest oil company in India; Owned by the Government of India; Revenue (2005):
$17.613 billion; Employees: 12400
• In 1976, the Burmah Shell Group of Companies was taken over to form Bharat
Refineries Limited. Renamed Bharat Petroleum Corporation Limited in 1977
• First refinery to process newly found indigenous crude (Bombay High), in the country
 Global Oil Prices
• From the foundation of the Organization of Petroleum Exporting Countries in
1960 through 1972 member countries experienced steady decline in the purchasing
power of a barrel of oil. In March 1971, the balance of power shifted.
• Arab Oil Embargo 1973: Prices increased 400 percent in six short months.
• Events in Iran and Iraq led to another round of crude oil price increases in 1979 and
1980
• Prices spiraled in 2004 and 2005 as the spare capacity to produce oil has been less
than one million barrels per day which cannot cover an interruption of supply from
almost any OPEC producer. In a world that consumes over 80 million barrels per
day of petroleum products, that adds a significant risk premium
• Fear that oil supplies might be reduced because of turbulence in the Middle East
and Venezuela
• Other reasons: US dollar’s slump; Peak Oil Theory and Speculation; Ever-
increasing demand, as witnessed by oil shortages in Africa, India, and China.
• Today: Oil prices into a downward spiral of more than 20 percent since the middle
of July. The price of oil fell 4 percent just this week.
• Reasons: Light hurricane season this summer, the cease-fire between Israel and
Hezbollah and the fact that UN has not imposed sanctions on Iran.
 How is India Combating Price Hike?

• The oil price is increased, Revenue loss of Rs 73,512 crore in 2006-07 fiscal.
• India's ONGC Videsh, Spanish Oil Company Repsol YPF and Norway’s Norsk Hydro
to explore six offshore blocks in Cuba.
• India's ONGC Videsh Ltd. and GAIL together hold 30 per cent stake in A-1 field
operated by Daewoo of South Korea. Myanmar agreed to sell gas from offshore A-1
field to India through a land route bypassing Bangladesh.
• India is considering joining a Central Asian gas pipeline that originates from
Turkmenistan.
• China National Petroleum Corporation (CNPC) and India's ONGC, jointly won a bid to
acquire 37% of Petro-Canada's stake in Syrian oilfields for US$573 million.
• India is seeking the revival of Iran-Pakistan-India pipeline deal which has currently
reached a deadlock.
• Reliance Petroleum Ltd is working on a new 29-million-tonne (5,80,000 barrels-a-
day) refinery which will be housed in a SEZ adjacent to the existing Jamnagar
refinery of Reliance Industries.