New Delhi: State-owned Indian Oil Corp. Ltd (IOC) has dropped plans to go it alone, and is in talks with Indian private sector companies for jointly acquiring stakes in oil sand blocks in Canada.
The change in strategy is because the company wants to mitigate its risks, as it is strapped for investible resources, having to absorb growing losses due to subsidy sharing on the sale of petroleum products.
Even a small stake in oil sand blocks could run into billions of dollars, simply because it is very expensive to extract oil from oil sands—which are essentially deposits of bitumen (a kind of coal)—which is first converted to crude oil using specialized technology and then further refined to produce petroleum products.
Viable option? Oil sands in Alberta, Canada. With crude oil touching $115 a barrel, expensive alternatives such as oil sands are now in focus.
“We have been approached by a few private sector companies to partner for the oil sand blocks in Alberta. We are planning a consortium approach for it, where we may also take along other public sector oil firms. In June, a delegation will be leaving for Canada to firm up the details,” said an IOC executive, who did not wish to be identified. He declined to name the consortium partners.
IOC has been in talks with Shell Canada Ltd and BP Plc. to buy a 10-20% stake in oil sand blocks in Canada as reported by Mint on 25 February.
However, the spurt in international prices in the last one year, with prices topping $100 (Rs4,000) per barrel, and the reluctance of the government to pass it on to consumers has meant that oil companies have had to absorb the subsidy.
The total losses of the marketing companies in 2007-08 was Rs77,304.50 crore. This is expected to double to Rs1.5 trillion this fiscal.
Companies have therefore begun to roll back their investment plans or reconfigure them as joint ventures with private companies. IOC had planned to invest Rs56,000 crore by 2012 and at present has total debt on its books of Rs34,000 crore.
The owners of Canadian oil sand blocks are, for their part, keen on foreign investment because of the high capital expenditure, estimated at $123.55 billion, for commissioning future oil sand projects.
Canada’s oil sands are estimated to have reserves of 173.7 billion barrels; they currently produce a million barrels a day of crude. Venezuela, too, has significant deposits of oil sands. With crude oil prices touching $115 per barrel, expensive alternatives such as oil sands are now in focus.
“Oil sands have become a viable option with crude oil prices skyrocketing. However, due to the rising crude oil prices, there has been a significant impact on the oil marketing companies and they have not been sufficiently compensated for it. Partnering with private sector companies also help in less regulated markets, where there is a need to take quick actions, which is not the case with the PSUs (public sector undertakings),” said Arvind Mahajan, executive director at audit firm KPMG.
IOC ended 2006-07 with Rs2.21 trillion in revenues and Rs7,499 crore in net profit; in the first nine months of 2007-08 ended December, it returned a net profit of Rs7,377 crore on revenues of Rs1.77 trillion.