New Delhi: State-owned Hindustan Petroleum Corp. Ltd (HPCL) is evaluating about 10 Australian companies with expertise in coal bed methane (CBM) and shale gas for an acquisition.
Shale is a fine-grained sedimentary rock containing an organic material called kerogen, which, when distilled, can produce oil and gas.
The Barnett shale gas field in Fort Worth, Texas. Photo by: Bloomberg
“We are looking at a small-size company which has the technology for CBM and shale gas. We are building our capacity and are currently looking at around 10 companies. We will select one out of these,” said a top HPCL executive who didn’t want to be identified. He declined to give details.
HPCL’s efforts are aimed at being able to qualify technically when India bids out shale gas blocks shortly.
India is finalizing a policy framework for commercial exploitation of domestic shale gas reserves and launching auctions for blocks shortly. The country has sought the assistance of the US Geological Survey to identify areas where shale gas reserves exist, to transfer the technology required to tap these and to finalize an exploration policy.
“We are evaluating companies. Nothing has been finalized yet,” said another HPCL executive who also requested anonymity. He too declined to name the firms.
While there are no official estimates of shale gas reserves in India, according to oilfield services provider Schlumberger Ltd, the country has shale gas reserves of between 300 trillion cu. ft (tcf) and 2,100 tcf.
The north-eastern states and the Cambay basin are thought to have shale reserves. Given India’s growing dependence on energy imports, there is emerging interest in tapping alternative energy sources such as shale gas and gas hydrates.
“There is a keen interest to build technical and commercial credentials and competencies in respect of the opportunities for shale gas in India. Overseas acquisitions are being viewed from this perspective by domestic players,” said Gokul Chaudhri, partner at audit and consulting firm BMR Advisors Pvt. Ltd.
Mukesh Ambani-owned Reliance Industries Ltd (RIL) has been the most active in buying shale gas assets in the US. It has already acquired stakes in three assets in the US for about $3.44 billion.
The deals included a 45% stake in Texas-based Pioneer Natural Resources Co. for $1.32 billion and a 40% stake in Atlas Energy Inc.’s Marcellus shale assets for $1.7 billion.
Around 32,500 tcf of shale gas reserves have been identified globally.
The US is the leading producer, with shale gas accounting for 17% of its domestic gas production.
In another development, HPCL plans to invest Rs 3,000 crore towards exploration and production (E&P) efforts through Prize Petroleum Co. Ltd, which has a presence in 24 blocks.
HPCL is in the process of acquiring the stakes of ICICI Bank Ltd, ICICI Venture Funds Management Co. Ltd and HDFC Ltd, HPCL in the company.
“Prize will become our 100% subsidiary shortly,” said the first HPCL executive quoted above.
HPCL hasn’t made much headway in the E&P business and plans to focus on producing assets. This comes at a time when HPCL and other oil marketing companies (OMCs) have been suffering losses because of selling fuel below cost and on higher interest payments.
HPCL’s loss widened to Rs 3,080 crore for the June quarter from a loss of Rs 1,884 crore a year earlier. Its revenue increased 28% to Rs 40,438 crore but gross refining margin (GRM) fell 71% to $3.72 a barrel. GRM is the difference between the total value of petroleum products sold and the price of crude.
Net profit in the fiscal year ended 31 March increased 18% to Rs 1,539 crore on higher refining margins.
HPCL’s gross refining margin rose to $5.30 a barrel from $2.68 in 2009-10.
Net profit would have been higher had it not absorbed a loss of Rs 1,509 crore on selling fuel below cost in 2010-11, a 23.18% increase over Rs 1,225 crore in losses in 2009-10.
The operating environment for OMCs is marked by uncertainties as they continue to sell below fuel cost and are not sure about the extent to which they will be reimbursed by the government and when.