On 1 November, the government and other shareholders approved the public issue of Oil India Ltd. Mulk Raj Pasrija, the chairman and managing director of the state-owned oil exploration company which will now make a public offering of its shares early in 2008, spoke to Mint on the company’s strategy. Edited excerpts.
When is your public issue coming and how big will it be?
Our public issue will be sometime in February next year; we are planning to raise around Rs2,000 crore. This will constitute 10% of the post-issue capital of the company. After the initial public offering, the government’s stake will come down to 78.43%.
Going public:Oil India Ltd chairman and MD M.R. Pasrija.
Besides, the government will divest 10% of its holding in the company to national oil companies—5% to Indian Oil Corp. Ltd and 2.5% each to Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd (all three companies are state-owned). At present, the government has a 98.13% holding in the company. Our net worth as of 31 March 2007 was Rs6,849 crore with a net profit of Rs1,639 crore.
What is your net realization per barrel, after the subsidy (the company shares the losses of oil marketing companies that have to sell fuel at prices below the cost price as mandated by the government)?
Around $50 (Rs1,965) a barrel in the last quarter. Our subsidy was $22 a barrel.
Most of your exploration blocks are on-land and in the North-East. Will your geographic and on-land focus continue?
Over the last year we have started to branch out. We have added 12 new blocks—eight of these are in India. We have also acquired four blocks overseas—two in Yemen, one each in Gabon and Nigeria. In Gabon, we are the operator; in Nigeria Suntera is the operator. We are also exploring the possibility of acquiring assets in Libya along with Gazprom of Russia and we are looking at onshore blocks in Algeria. We are also looking in southern Africa and countries in the Commonwealth of Independent States.
Of the new blocks, six are onshore blocks in which we are the operators. One of these is a Krishna-Godavari basin block and shares a boundary with Ravva, which is a producing block. In fact, we have tried to ensure that most of our blocks are near known reserves or producing blocks, which increases the probability of our finding oil. Our Assam block, Amguri, is a known reserve as are the Mizoram and Dibrugarh blocks. Our strategy has been to target blocks with known prospects.
Discoveries in most onshore blocks have been small. Why is that so?
Not all discoveries are small. We have recently made two medium sized discoveries at Barekuri and Baghjan both near Tinsukia in Assam. We believe that these discoveries have a potential of 1 million tonnes of oil. We have also found some gas reserves that we expect will yield around 3 million cubic meters of gas per day. Much of the Assam-Arakan area is still unexplored, so we don’t know what we are sitting on.
What are your plans for the New Exploration Licensing Policy (Nelp) 7? You bid pretty aggressively in the last round.
We were not aggressive, we were smart. We decided to offer the government a declining profit share—starting with 91% in the first year after cost recovery. We consulted our legal team and found there was nothing illegal in offering that kind of a profit sharing to the government. This allows us to maximize our profits. But this year the government has disallowed this—they want a rising share.
Whether we bid for the next round of Nelp blocks (or not) will depend on how good the blocks on offer are—as I said earlier our strategy is to look for blocks with the highest prospects.
We are not looking for blocks just for the sake of it. We may look at some deepwater blocks this time. We already have an interest two such blocks from Nelp 6.
What about your relationship with Geo Global, the Canadian exploration company, that you tied-up with last year—will it continue for the next round of Nelp also?
We tied up with them for the first time last year. Out strategy is to find partners with niche experience—companies that will bring in experience in areas where we are weak.
Will Oil India remain an exploration company or would you be looking to move down the petroleum value chain?
We are primarily an exploration company but we are also moving down the value chain. We already have a 45,000 tonnes a year LPG plant in Assam and an 1,100km long crude oil pipeline. We are putting up a pipeline from Numaligarh in Assam to Siliguri in West Bengal, which should become operational by December this year. This will give us an additional revenue of Rs170 crore a year. We are setting up a joint venture with Indian Oil Tankers Ltd for constructing pipelines.
We have the expertise—our crude oil pipeline one of the best maintained in the country. There is a huge potential in the country in the pipeline business as gas discoveries start getting operational.
We will initially focus on India and would then like to go abroad. For the Numaligarh-Siliguri pipeline, we already have the right of way, so why should we let anyone build that pipeline? We have already completed two contracts. So far this (the venture with Indian Oil Tankers) is an unincorporated JV but the?plan?is?to incorporate it.
Are you also considering entering refining?
We have a 26% participatory interest in the Numaligarh refinery. In October, we signed an agreement with Total of France, Gail India Ltd, Mittal Investments and HPCL for a grassroots refinery and petrochemical complex at Vizag. How much each partner will contribute is yet to be worked out. We are also looking at getting into compressed natural gas marketing and eventually entering city gas distribution.
How much will you be investing in these businesses?
In the 10th plan we have an outlay of Rs9,300 crore, in which we had kept only a minimal outlay for the Nelp blocks. But our commitment to exploration alone is Rs1,200 crore. Secondly, we are also targeting overseas acquisition. So we expect that our plan outlay will be to the order of Rs13,000 crore.
Majority of the investment would be (in) upstream activities as of now.