FROM being a small company confined to the distant north east for decades, Oil India has come a long way. The company’s chairman and managing director NM Borah says that the company’s future growth will hinge on a clear strategy and a policy and procedural framework. In an interview with ETIG’s Ramkrishna Kashelkar, Mr Borah spoke about the future of the company and and the steps taken by him to enable the state owned firm to take the next big leap. Excerpts:
How has Oil India grown in the past few years?
In the past 25-30 years, the company has primarily been producing three million tonne (MT) of crude oil per year. To grow after such a long stagnation, the first challenge was to make our own people to believe we could go higher. After much effort in the past 4-5 years, we could increase the production. At present, we are producing 3.7 MT of crude oil and now aiming for 4 MT. In fact, the September quarter production of 0.93 MT was the highest ever for the company and I am confident that we are in a position to achieve 3-5% annual growth in the coming years.
In the natural gas business, we have a lot of potential to grow. Within the past 3-4 years, the production has grown over 50% to about 6.8 million cubic metres per day. It can be expanded further also. There are not many small-scale gas-consuming industries in our vicinity, which is why we are dependent on a handful of large customers. It has happened a few times in the past that we had to cut production as customers did not lift the promised quantities of natural gas. We were predominantly a northeastern company for decades. Thanks to the new exploring licensing policy (Nelp), we became a pan-India company and subsequent policy liberalisation enabled us to expand overseas. Today more than 80% of our total acreage is either overseas or obtained under Nelp.
The expansion drive seems to have slowed down in the past one year after your IPO.
In the past one year or so, we have deliberately slowed acquisitions. This is not due to lack of opportunities or we don’t have money. As a matter of fact, there have been plenty of both. But this is a question of strategy. Thanks to our expansion of the past few years, we have enough exploration work on our platter, which is a lengthy and risky process. As part of our newly formed strategy, we decided to consolidate our existing portfolio and not to look for adding new exploration prospects overseas. On the contrary, we would like to look for discovered or producing assets. Arising out of this strategic thinking, we joined the Carabobo project in Venezuela, which is a substantially large heavy oil field. We are also actively looking for acquiring more such producing assets.
How has Oil India grown in the past few years?
In the past 25-30 years, the company has primarily been producing three million tonne (MT) of crude oil per year. To grow after such a long stagnation, the first challenge was to make our own people to believe we could go higher. After much effort in the past 4-5 years, we could increase the production. At present, we are producing 3.7 MT of crude oil and now aiming for 4 MT. In fact, the September quarter production of 0.93 MT was the highest ever for the company and I am confident that we are in a position to achieve 3-5% annual growth in the coming years.
In the natural gas business, we have a lot of potential to grow. Within the past 3-4 years, the production has grown over 50% to about 6.8 million cubic metres per day. It can be expanded further also. There are not many small-scale gas-consuming industries in our vicinity, which is why we are dependent on a handful of large customers. It has happened a few times in the past that we had to cut production as customers did not lift the promised quantities of natural gas. We were predominantly a northeastern company for decades. Thanks to the new exploring licensing policy (Nelp), we became a pan-India company and subsequent policy liberalisation enabled us to expand overseas. Today more than 80% of our total acreage is either overseas or obtained under Nelp.
The expansion drive seems to have slowed down in the past one year after your IPO.
In the past one year or so, we have deliberately slowed acquisitions. This is not due to lack of opportunities or we don’t have money. As a matter of fact, there have been plenty of both. But this is a question of strategy. Thanks to our expansion of the past few years, we have enough exploration work on our platter, which is a lengthy and risky process. As part of our newly formed strategy, we decided to consolidate our existing portfolio and not to look for adding new exploration prospects overseas. On the contrary, we would like to look for discovered or producing assets. Arising out of this strategic thinking, we joined the Carabobo project in Venezuela, which is a substantially large heavy oil field. We are also actively looking for acquiring more such producing assets.
What are the kind of assets that you are seeking to acquire?
This is also a question of long-term strategy, which took a lot of time for us to formulate.
But the time was worth spending because now we have developed not only the structured logic to decide on acquisition matters, but also the entire background policy framework.
The process has also identified more criteria for our prospects. In terms of oil or gas, we are comfortable with both. We have a lot of expertise in onshore, but we won’t mind offshore as we are building our capabilities there. In terms of size, we will be comfortable with asset with production potential of 10,000-20,000 barrels per day, which will be around 0.5-1 MTPA. However, we could look at smaller projects as well to gain an entry point in a particular geography. In terms of specific geographies, we would primarily wish to expand in those areas, where we are already operating. Apart from that, we have identified certain regions of South East Asia, Australia, Latin America and Canada as areas of our interest. We are also considering acquiring a company with niche technical expertise to fill up certain technology gaps within Oil India.
To spot the opportunities that match our appetite from the numerous proposals we get, we have created a parameter checklist. Only when a proposal meets this parameter, we take it up for further study. We also have identified a few financial institutions to facilitate in getting such proposals and have also laid out a transparent procedure to decide their fees etc. With this entire set up ready, we are very comfortable in going ahead with our acquisition strategy. In the calendar year 2011, we plan to make minimum two such acquisitions.
What will be your strategy for diversification?
While we would like to stick to our core competence in E&P and long distance oil & gas pipelines, we have a strategy for ‘selective diversification’. However, these diversifications will be related to the petroleum value chain such as refinery or petrochemicals. Apart from the a 26% stake in Numaligarh refinery, Oil India has also bought 10% in the Brahmaputra Cracker & Petrochemicals, which is scheduled to go on stream in 2013. Similarly, the company has tied up with BPCL, Gail and ONGC apart from Indian Oil to participate in bidding for the city gas distribution business. We also have a 45,000 TPA plant to produce LPG, which we sell to Indian Oil. An earlier idea of petro-product retailing was dropped due to under-recoveries.
In gas transportation, we can extend our upcoming Duliajan-Numaligarh pipeline to Guwahati and further to Barauni as we already have the right-of-way, thanks to our existing pipeline. We have also done survey on market potential and anchor customers on this route. We are also looking for certain opportunities in Bangladesh in pipeline business. In non-conventional energy, we are readying ourselves for the bidding rounds for shale gas that the government is planning for.
These are all strategies for the long-term growth that you have outlined. What will drive the company’s earnings in the near term?
Today, 100% of our oil and 95% of gas comes from the northeast. While the exploration and development work progress in our other fields, our majority production in the next few years will continue to flow from the northeast fields. And we feel that a lot more can be done to increase production — induction of better technology to arrest decline in old fields and improving operational efficiency to reduce the time in bringing new discoveries to production. In the next 1-2 years, we would aim to increase our oil production to 4 MTPA level.
Our natural gas volumes would grow once the pipeline supplying 1 mmscmd to Numaligarh refinery commences operations in February 2011. Oil India also holds 23% in the pipeline with Assam Gas Company and Numaligarh Refinery holding the rest. The next big jump in gas volumes would come in 2013, when the Brahmaputra Cracker project commences operations. We will be the largest gas supplier at 1.35 mmscmd to the project.
In other exploration blocks through Nelp, we have two highly prospective onshore blocks — one in KG basin and another in Mizoram. We are trying to bring them to drilling phase as fast as possible.
Today, 100% of our oil and 95% of gas comes from the northeast. While the exploration and development work progress in our other fields, our majority production in the next few years will continue to flow from the northeast fields. And we feel that a lot more can be done to increase production — induction of better technology to arrest decline in old fields and improving operational efficiency to reduce the time in bringing new discoveries to production. In the next 1-2 years, we would aim to increase our oil production to 4 MTPA level.
Our natural gas volumes would grow once the pipeline supplying 1 mmscmd to Numaligarh refinery commences operations in February 2011. Oil India also holds 23% in the pipeline with Assam Gas Company and Numaligarh Refinery holding the rest. The next big jump in gas volumes would come in 2013, when the Brahmaputra Cracker project commences operations. We will be the largest gas supplier at 1.35 mmscmd to the project.
In other exploration blocks through Nelp, we have two highly prospective onshore blocks — one in KG basin and another in Mizoram. We are trying to bring them to drilling phase as fast as possible.
You spoke about shale gas. Has Oil India done any work on this front ?
Our geological perception is that the northeast in general is a rich source of shale gas, although it is not possible to give a definite figure. The problem we are facing today is too much of data. In over 50 years of operations in the north east, we have gathered a lot of geological data. When we were drilling for our target reservoirs, the wells have passed through the shale ranges at different depths. However, the data was generated without any specific perspective on shale gas.
Compiling all this data, processing it and taking a fresh look at it from the shale gas perspective is a time-consuming process. We have set up a small team within the company for this purpose. Within the next 4-6 months, we will be in a position to complete the study to find the resource potential. And once we have this information, we can tie-up with someone, who has actual shale gas drilling experience to help us identify the best locations to drill. Secondly, we would also like to go to acquire a shale gas asset overseas to gain hands-on experience. Since it will be a producing asset, the cost will be high. Hence, we have taken steps for a strategic tie-up with suitable domestic partners.
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