New Delhi: Even as Essar Energy Holdings Ltd prepares for a London listing of shares, it isn’t clear whether issues raised by India’s Directorate General of Hydrocarbons (DGH) on claims on energy reserves made by the company’s subsidiary Essar Oil Ltd (EOL) to the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) have been resolved.
The company claims they have been. The director general of hydrocarbons is silent on the issue. And DGH’s parent ministry says the issue is still open.
Some of these announcements made by EOL to the exchanges are part of a recent advertisement issued by the company in London in preparation for the equity issue.
Essar Energy is a holding company for the Essar Group’s energy businesses and owns all of the unlisted Essar Power Ltd and 89% of EOL, which is listed on Indian exchanges.
DGH is the technical regulator of hydrocarbon reserves and functions under India’s ministry of petroleum and natural gas (MoPNG). And the reserves in dispute in this instance are those in coal bed methane (CBM) blocks. CBM is a viable alternative to natural gas.
In an announcement made on 5 March to BSE and NSE, Essar Energy, referring to a so-called competent persons report (CPR) provided by consultants Netherland, Sewell and Associates Inc., RPS Energy and Advanced Resources Inc., mentioned an aggregate in-place CBM resource of 15 trillion cu. ft (tcf) and recoverable CBM resource of 7 tcf.
This was reported by several newspapers including the Hindustan Times (HT) and The Times of India. Mint is published by HT Media Ltd, which also publishes the HT.
On 8 March DGH reacted to the stories and asked the company for an explanation. Essar responded to DGH on 15 March.
On 29 March, the director general of hydrocarbons S.K. Srivastava seemed to suggest that the issue was still open. “We have taken cognizance of the news items and have asked Essar how such an announcement could be made?” He didn’t refer to Essar’s reply.
On 14 April, an Essar spokesperson said in an email to Mint that “both the DGH head and the MoPNG joint secretary were satisfied with our explanation and treated the matter closed from their side... The DGH generally never sends a written confirmation on such matters. In fact, they would have responded to our March 15 letter only if they were not satisfied.”
On 16 April the joint secretary in charge of exploration at MoPNG, D.N. Narasimha Raju said the issue was still open.
“They (Essar) have made certain announcements and DGH has asked them to issue a corrigendum. According to my information no one has contacted us on this issue.”
“(In fact) we are looking into the issue of companies making such announcements,” Raju added.
In its communication to EOL dated 8 March, and viewed by Mint, DGH had said that the Indian government has awarded only the CBM block in the Raniganj coal field in West Bengal, that has “approved gas in place (GIP) of 2.145 tcf.” The so-called approved reservers refers to the CBM reserves verified by DGH.
In its announcement to the stock exchanges, Essar had stated that the “Raniganj CBM block has in-place resource of 4.6 tcf and recoverable CBM resource of around 1 tcf.”
It had also mentioned that the “CPR for Rajmahal (in Jharkhand) block states in-place CBM resource of 9.5 tcf and recoverable resource of 4.7 tcf.” The company also added that it “has been announced provisional winner of this block”.
With reference to the Mehsana block in Gujarat, the announcement stated that the CPR indicates CBM resources while adding that the petroleum ministry is “considering giving simultaneous rights for CBM operations to owners of all blocks where there is oil and gas and CBM play”.
However, DGH in its communication has clarified that “no other CBM contract has been awarded to EOL either in Mehsana or in Rajmahal”.
To be sure, the DGH website carries an entry posted on 12 October, which declares EOL as a provisional winner in the Rajmahal block.
Significantly, in an advertisement (titled Intention to Float Announcement) issued in London, Essar Energy has claimed that it is the provisional winner in the Rajmahal block, while it has no references to the Raniganj block.
It is not clear as to whether the company would rework these references either in the offer letter or the red herring document ahead of the public issue.
The Essar Group plans to raise $2.5 billion (Rs11,150 crore) by selling shares of Essar Energy Holdings in London.
“A company has to disclose such things (as a regulatory dispute) in its offer document; that is a regulatory requirement,” said Jagannadham Thunuguntla, head of equities at SMC Capitals Ltd, a merchant banker registered with the Securities and Exchange Board of India. “But more importantly, they have to play it carefully while marketing the issue to institutional investors, since this could impact their long-term credibility and future fund-raising efforts.”
Essar Energy’s offer document was to be released on Monday according to earlier media reports, but it wasn’t available on the websites of the London Stock Exchange, the Financial Services Authority—the UK markets regulator—and merchant bankers JPMorgan Cazenove and Deutsche Bank AG till 7.30pm India time.
In its 8 March letter DGH had asked EOL to issue a clarification based on its comments. “While they have revised the estimates for the Raniganj block awarded to them, they are also quoting reserves at Rajmahal and Mehsana. While the Rajmahal block is yet to be awarded to them, the policy to award simultaneous rights for extraction of CBM in the existing oil and gas blocks necessary for the Mehsana block does not exist. We have asked them to issue a clarification,” added Srivastava.
However, the Essar Group spokesperson said in the email to Mint that the “announcement was made based on the competent person report with clear mention of the status of each block”.
“Since there is no factual inaccuracy in the announcement made to BSE, there is no need for a clarification to be issued. We have replied to DGH and MoPNG vide our letter dated 15 March 2010, enclosing all supporting documents,” he added.
Ravi Krishnan and Satish John contributed to this story.