Cairn’s Rajasthan oil to flow from next week

CAIRN India, the country’s second-largest crude oil producer after ONGC, is set to start production from its Rajasthan fields next week. Cairn, a subsidiary of Edinburgh-based Cairn Energy, plans to start production from the first train of 30,000 barrels of oil per day and will introduce a second train of 50,000 barrels per day by the fourth quarter of 2009.
“We are ready for production and it’s just a matter of time. We are consulting all the stakeholders including government officials for a suitable date,” Rahul Dhir, Cairn India’s managing director and CEO, told ET.
Mr Dhir said that the company is close to an agreement with the government on the formula for the pricing of its Barmer crude oil. “The agreement on pricing is imminent and is not a constraint for the production of crude oil,” he added.
When the fields hit peak production of 1,75,000 barrels of oil per day in 2011, they will contribute over 20% of the country’s domestic crude oil production, marking a significant step in India achieving energy security.
Reliance Industries’ KG basin gas production will reach a peak of 80 million metric standard cubic metres per day (mmscmd), or 5,50,000 barrels of oil per day (bopd) of oil equivalent, by December 2009. Together with Cairn India’s crude production from Barmer oilfields, it will contribute to over 60% of India’s oil and gas production and will be instrumental in projected reduction in oil and gas import bills. India is Asia’s thirdlargest oil consumer and imported 2.56 million barrels per day (bpd) in 2008-09, an increase of 5.3% over the previous year. India spent $68 billion on imported crude in 2007-08.
Cairn plans to initially transport the crude oil from its Rajasthan fields to the Gujarat coast by trucks till 2009-end when the company will commission the world's longest heat-insulated pipeline. “The transportation by trucks will cost $7-10 per barrel,” Mr Dhir said. Cairn India’s March quarter net profit plunged 84% on falling crude prices and higher costs. Its consolidated quarterly net profit fell to Rs 18.68 crore from 1.164 billion a year before. According to Mr Dhir the quarter was marked by lower operating income and also there was one-time impact from foreign exchange exposure. Income from operations in the quarter ended March declined to Rs 182 crore from Rs 316 crore a year ago.

CONFIDENCE Petroleum: Powered By Gas

By offering key services for petroleum retailing, Confidence Petroleum is set to emerge as an important player in LPG and CNG businesses across the country

Beta 0.39
Institutional Holding 0.83%
Current Dividend Yield 0%
Current P/E 10.1
Current Market Price Rs 9.1
Current Market Cap Rs 234 cr

CONFIDENCE Petroleum has emerged a key vendor for marketing operations of oil and gas players. Focussing on its key clientele the company is expanding its bouquet of offerings and is adding capacities. Considering the interesting opportunities lying ahead for this little known company, it appears attractive for the long-term investors.

BUSINESS:
Confidence Petroleum (CPL) is establishing itself as an allservice provider for the marketing and distribution needs of Indian oil marketing companies. The company has scaled up its traditional businesses of LPG cylinders and LPG bottling and is investing heavily in auto LPG and natural gas distribution related businesses. CPL has emerged India’s largest bottler of liquefied petroleum gas (LPG) operating out of 51 locations. These dispersed facilities offer greater flexibility and cost advantage to petroleum retailers in supplying LPG to domestic users spread across the country. The company is also the largest LPG cylinder manufacturer with 6 facilities having an installed capacity of around 42 lakh cylinders per annum. Its 7.5 lakh unit per annum plant near Kandla in Gujarate is a 100% export oriented unit (EOU). The company has set up 50 auto LPG dispensing stations (ALDS) across various cities under the brand of GoGas. The company has also entered the natural gas related businesses and recently commissioned a 3-lakh unit per annum cylinder manufacturing facility for compressed natural gas (CNG). It has also launched auto meter reading solutions for piped natural gas (PNG) sold to households by the city gas distributors (CGD). Towards the end of year 2008, the company acquired two ethanol manufacturing units with a combined capacity of 1.5 lakh liters per day and one crude oil refining unit with 2 lakh liters per day capacity in Maharashtra. The company acquired these distressed assets for a low investment of around Rs 7.5 crore, which allows them the flexibility of operating only when profitable.

GROWTH DRIVERS:
The company has recently commissioned CNG cylinder manufacturing plant in Vizag for exports market. It is currently setting up LPG and CNG cylinder manufacturing complex in Uttarakhand, which will commission operations by end of 2009. This new plant will enjoy 15-year exemption from sales and excise duties. The company is carrying an order book of over 30 lakh LPG cylinders. It has significant growth plans in ALDS to scale up to 250 stations in next couple of years and has also won a turn-key contract for Indian Oil to set up 9 similar stations. The company has tied up with Israel’s Energetech to introduce an innovative technology for automotive natural gas called ‘Adsorbed Natural Gas’ (ANG). This would enable it to store large quantity of natural gas under less pressure, enabling light-weight cylinders, which could be installed even on two-wheelers. This being a new concept in India needs government approval and the company has received permission from the Chief Controller of Explosives to conduct tests. This technology, when commercialised, would enable it to transport natural gas from the marginal fields. The company also has plans to augment its offering to the petroleum companies by adding fuel-dispensing units for petroleum retailing and also move into setting up auto CNG stations.

FINANCIALS:
The current management has taken over the listed company with two LPG bottling plants, which was a sick unit, few years back and has turned it around. Hence, we do not have long financial history for the company. Last year the company raised over Rs 100 crore through a GDR issue and share warrants. The company’s debt-to-equity ratio has been steadily coming down to 0.1 for the year ended March 2008. Post completion of its Uttarakhand plant, CPL would be carrying around Rs 30 crore of debt. The company has approved a share buy-back of upto 5% of its equity from open market at a price less than Rs 20 per share. The company is currently in the process of amalgamating three of its subsidiaries with itself.

VALUATIONS:
At the current market price of Rs 9.10, the scrip is trading 10 times its earnings for the 12-month ended December 2008. We expect the company to end FY09 with a net profit of Rs 30 crore, which discounts the current price 7.8 times. During FY 2010, the company is expected to derive meaningful benefit of its investments in Vizag and Uttarakhand plants as well as the acquisitions.

ONGC’s reserve accretion sees record rise in FY09

Reserves Go Up By 68.9 MTOE Even As Current Production Dips To A Three-Year Low

INDIA’S largest petroleum producer ONGC recently announced a record jump in its annual addition to domestic and overseas petroleum reserves for FY09, an indicator that the country is on a strong footing as far as energy security is concerned. Stagnant current production, however, is cause for concern.
In FY09, reserves went up by 68.9 million tonne of oil equivalent (MTOE) from ONGC’s fields in India alone — an 18-year high — even as most companies globally are reporting a depletion of resources. While the recent announcement means ONGC will be able to produce more from its existing oilfields, for FY09, the company reported production of 47.85 MTOE, a three-year low.
ONGC’s ultimate reserves net of cumulative production stood at 1.12 billion tonne of oil equivalent in March 2008, which will now rise to 1.14 billion tonne. This means the company will be able to maintain its production level for nearly 23.8 years from its existing discoveries. Ultimate reserves refer to the volume of hydrocarbons the company expects to extract from its oilfields over their lifetime.
A further 114.24 MTOE of reserves were accounted for by its overseas arm OVL, which acquired the UK-based Imperial Energy for $2.8 billion, with around 25 MTOE of proven reserves. ONGC’s joint ventures in India, though, added just 2.82 MTOE. At the group level, ONGC’s total reserve accretion for FY09 stood at 185.96 MTOE, a historic high. On the production front, the company’s performance has been deteriorating. It was only in FY06 that the company reported a lower production than in FY09, following an accident at Mumbai High.
ONGC’s crude oil production during the March 2009 quarter is an estimated 6.5% lower y-o-y at 6.03 million tonne, which is the lowest since the quarter ended December 2005.
Sudhir Vasudeva, director (offshore), ONGC said that despite the natural decline phase in ageing fields, ONGC’s production between 2000 and 2008 has increased by 3%.
He added that investment plans to maintain this level of production are on, despite the fall in crude oil prices. The officers’ strike in January and delays in the arrival of some materials, he said, had resulted in a fall in offshore production in the March 2009 quarter, but in April 2009, he added: “We are back on track.” This jump in reserve accretion, while the production stagnated, has resulted in a marked improvement in the company’s reserve replacement ratio. This ratio between the increase in petroleum reserves during the year and the quantity withdrawn by way of production underlines the longevity of the company’s operations.
RRR above 1 indicates the company’s production life is increasing with every passing year. ONGC has maintained an RRR above 1 for five consecutive years. As a result, the company, which had 21.8 years worth of reserves in FY05, now has 23.8 years of ultimate reserves with it.

Petronet LNG: Exciting results

INDIA’S largest LNG importer, Petronet LNG, posted exciting results for the quarter ended March ‘09. The company’s net profit for the quarter jumped 70% to Rs 204.4 crore - its highest quarterly profit so far. Its net sales posted a 51% growth to Rs 2,654.9 crore.
The company achieved mechanical completion of its expansion project of 5 million tonnes per annum, which doubled its LNG import capacity to 10 MTPA during the quarter. The additional capacity is expected to be fully operational by end May ‘09.
During the quarter ended March ‘09, the company was aided by the spurt in net sales, which came on the back of a 3.3% growth in volumes of natural gas to 82.46 trillion British thermal units (TBTU). A 5% increase in regassification charges starting January ‘09 to Rs 30 per million metric British thermal units (MMBTU) also helped. The operating margins improved marginally and with an 11% growth in other income the PBDIT for the quarter stood 55% higher at Rs 361.64 crore. Stagnancy in interest and depreciation costs helped the company post 70% growth in pre-tax profits at Rs 309.80 crore.
With this result, the company’s profit for the entire year FY09 stands at Rs 518.44 crore, translating in per share earnings Rs 6.9. At the latest closing price of Rs 51.75, Petronet’s shares are trading at a P/E of 7.5.
The company has also increased its dividend to Rs 1.75 per share from Rs 1.50 last year, which translates to a yield of 3.4%.

Cheap oil policy shrinks tax kitty

THE government has systematically choked its cash cow, the petroleum industry, with its cheap-oil policy. Historically, the government’s largest source of tax and non-tax revenue and a valuable cushion against the troughs in economic cycles, the industry is today barely able to keep its head above water. In the current downturn, therefore, the government can no longer fall back on this sector to pump up its revenue position. Not only has tax collection from this sector dwindled, but dividend payouts by government-owned oil companies too have been severely cut.
Three years ago, the sector accounted for nearly a quarter of the government’s gross tax and nontax revenue. In FY09, the figure is estimated to have fallen to 17%, the outlook for the next financial year is not very encouraging either.
Again, in FY05, oil companies accounted for over a third of the government’s total dividend income and made up 14% of its corporate tax kitty. In FY09, this sector’s contribution is expected to fall to 14% and 6%, respectively. Dividends totalling Rs 7,641 crore last year are likely to fall to Rs 5,500 crore for FY09.
Over the years, the government has not allowed oil companies to raise prices in line with international trends, which has drained their profitability. Further, excise and customs duties on petro products were cut in 2004, and again in 2008.
The three public sector oil marketing companies — Indian Oil, HPCL and BPCL — reported losses worth Rs 11,000 crore for the first nine months of the year and may end up paying neither dividend nor corporate tax for FY09. At the same time, the largest dividend payer, ONGC, is feeling the pressure of subsidy sharing and a fall in crude oil prices.
While duty cuts have ensured that indirect tax collection from the sector has been stagnant for the past three years, public sector oil companies’ poor profitability has hit direct tax collection. The government will also lose revenue on the indirect tax front, with the reduction in tariffs and fall in petroleum product prices reflecting on excise and customs duty collections.
The excise contribution by 10 leading listed petroleum companies, which was 13.4% higher in the June 2008 quarter, fell by 4.8% on a y-o-y basis in the December 2008 quarter to Rs 14,300 crore. Excise duty collections for the year are likely to remain flat during FY09, even though Essar Oil’s refinery provided Rs 4,500 crore in incremental excise revenues. On an aggregate basis, the excise contribution of the listed players of the petroleum industry is declining. The scene is even more bleak in the case of corporate tax collections. The top 10 listed companies in the petroleum industry have witnessed a 35% reduction in their tax provisions in April-December 2008.