In an attempt to secure oil supplies for its refineries and strengthen India’s energy security, the state-owned Indian Oil Corp. Ltd (IOC) is looking to acquire stakes in oil sand blocks in Canada and is talking to Shell Canada Ltd and BP Plc. for the same.
The move is indicative of IOC’s desperation: Analysts say payouts for 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.
A senior IOC executive, who did not wish to be identified, confirmed the development and said the company was looking to buy a 10-20% stake in oil sand blocks in Canada. “We have initiated talks with the major operators in Canadian oil sands blocks such as Shell and British Petroleum. The talks are at a preliminary stage,” added the executive.
IOC has been trying to acquire equity stakes in overseas exploration and production (E&P) blocks, but has not met with any significant success. The company has admitted that it will not be able to meet its 2012 target of sourcing 2 million tonnes per annum (mtpa) of crude oil from its own overseas blocks as reported by Mint on 19 February.
Shell’s oil sand project is at Cadotte Lake, while BP has a joint venture with Calgary-based Husky Energy Inc. and owns half of Sunrise thermal oil sand project in northern Alberta.
A spokesperson for Shell Canada declined to comment. A BP spokesperson said in an email that the company was not aware of any such development.
An Indian delegation led by petroleum secretary M.S. Srinivasan was in Canada earlier this month to discuss the proposed investment. Other Indian firms interested in acquiring oil sands assets in north-eastern Alberta region include Oil and Natural Gas Corp. Ltd and Oil India Ltd.
Energy security, from local supplies and assured long-term import contracts, iscritical if India wants to sustain its economic growth. The country consumes around 112mt of petroleum products a year. It is also the world’s fifth largest oil importer and around 78% of its energy needs are met through imports.
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 (Rs4.94 trillion), required 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 the crude oil prices crossing $100 per barrel, expensive alternatives such as oil sands are now in focus.
“Oil sands have become a viable option with crude oil prices skyrocketing. It will be exciting if IOC does manage to get a stake. Not only will it be the first such stake in an oil sands project on the part of an Indian company—it will also be first presence of an Indian company in the hydrocarbon sector in a developed economy,” said Arvind Mahajan , executive director at audit firm KPMG.
IOC is the largest oil importer in the country and its E&P initiative was driven by the desire to insulate itself against volatile crude prices and also ensure long-term supplies of the commodity to keep its refineries running. The oil refining company needs 60mt of crude oil a year. The company currently has a total of 21 E&P blocks in India and elsewhere.
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.