SINGHANIA&CO.

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Oil&GasNews

GovernmentalandRegulatoryUpdates

November,2012IssueNo.2

HIGHLIGHTS

1. CAG vs RIL: financial audit or

1. CAG vs RIL: financial audit or performance
performanceaudit?
audit?

The Comptroller and Auditor General (CAG)

2. Reliance Industries gets nod from
has objected to the government's move to
narrow the scope of audit of Reliance
DGHtodrillawellinKGD6field
IndustriesoperatedKGD6 block over alleged

malpractices by the company. CAG is not

3. GovernmenttoissuenoticetoONGC
inclined to conduct a routine audit while
onoilleakissue
Reliancehasarguedthatitscontractwiththe

government allows only financial audit, not a

4. Oil Ministry proposes roster for KG
performance audit a stand that seems
D6gassupplytopowerplants
acceptable to the ministry of petroleum and

naturalgas.
5. Oil Ministry withdraws note

opposingKGD6gaspricehikebyRIL
The petroleum ministry made its stand on

audit clear stating that The Production

6. PNGRB fixes RGTIL EastWest gas
Sharing Contracts (PSC) provides for two
pipelinecapacityat85mmscmd
audits, one by the Management Committee

(MC) and the other by the Government. The

7. CAGasksOilMinistrynottoapprove
Government can get an audit done by its
RILsinvestmentplanforKGD6
representatives or through Chartered

Accountants. Based on the audit by the

Government, the cost petroleum will be 3. Oil Ministry proposes roster for KGD6 gas
determinedanditwillbecrucialforfinalising
supplytopowerplants
GovernmentshareofProfitPetroleum.

Natural Gas production from Reliance

industries KGD6 block dropped to 25.35

2. Reliance Industries gets nod from DGH to
million standard cubic meters a day in
drillawellinKGD6field
November2012.Thishasledtoproratacuts

in supplies to power plants, forcing some

The government has approved Reliance
units
to work at suboptimal levels.To
Industries plan to start drilling for developing
overcome this, the Oil Ministry has proposed
a new area in KGD6, the first major decision
that gas will be supplied to power plants on
after Veerappa Moily took charge at the oil
rotation basis, plants will get fuel supplies
ministry late last month. The decision is seen
needed for operating the unit at optimal
asashotinthearmforexplorationcompanies.
capacityforonemonthturnbyturn.
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SINGHANIA&CO.
November2012
4. Government to issue notice to ONGC on oil
leakissue

The government on 30th September, 2012

approvedRILsproposaltotripleitsKGD6gas
prices from April 1, 2014 after the current
below market rate of $4.205 per mmBtu
expires. The said proposal was submitted for
governmentsapprovalinJune2012foranew
crude oillinked pricing formula to be used in
new sales contracts for the period
commencing April 1, 2014. The proposed
formula was based on the pricing formula
underacontractforlongtermimportofLNG
into India and was universally accepted by
arm'slengthbuyerswhobidinlargenumbers
inanopenpricediscoveryprocess.

5. OilMinistrywithdrawsnoteopposingKGD6
gaspricehikebyRIL

TheOil Ministryhas withdrawn a note it had

circulated to the members of a ministerial
panel opposing hike in price of gas produced
byReliance Industries, as the Rangarajan
Committeeisexaminingpricingofthefuel.The
Ministry had on October 10 moved a note to
the Empowered Group of Ministers (EGoM)
opposing a hike in price of RIL'sKGD6gas
before April 2014 even though the company
itself was not seeking a revision before that
date.Thiswasdoneinviewofpanelheadedby
Prime
Ministers
Economic
Advisory
CouncilChairmanCRangarajanbeingaskedto
suggest structure and elements of the
guidelinesfordeterminingthebasisorformula
forthepriceofdomesticallyproducedgas,and
formonitoringactualpricefixation.

6. PNGRB fixes RGTIL EastWest gas pipeline

capacityat85mmscmd

OilregulatorPNGRBhasfixedthecapacityof
Reliance Gas Transportation Infrastructure
Ltds (RGTIL) EastWest gas pipeline at 85
million standard cubic meters per day. East
Westpipeline,whichferriesgasfromReliance
IndustrieseasternoffshoreKGD6fieldsfrom
its landfall point at Kakinada inAndhra
Pradeshto Bharuch in Gujarat, has been in
operation since April 1, 2009.The capacity of
the pipeline has been declared as 85
mmscmd, the Petroleum andNatural Gas
Regulatory Board(PNGRB) in its order dated
November2statedthatthiscapacityincludes
system use gas considering average system
use gas of 0.3 mmscmd per compressor
station.

7. CAG asks Oil Ministry not to approve RILs

investmentplanforKGD6

TheCAGhasaskedOilMinistrynottoapprove
any of Reliance Industries investment plans
for the flaggingKGD6 gas fieldunless the
companygivesitunfetteredaccesstoauditits
spending.
In
a
strongly
worded
letter,Comptroller and Auditor General of
India(CAG) referred to media reports about
the ministry giving nod to RIL's annual capex
for KGD6 that have been pending for past
three years, to advise the ministry not to
approve any investment except those of
emergentnature.

Disclaim

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SINGHANIA&CO.
November2012
Marketupdates

1. Oil India Limited commences drilling well in

Gabon

Oil IndiaLimited (OIL) has commenced the

drilling in a well in Gabon. First well
inGabon(WellNo:Koungouleu1,LocSA)was
spuddedin.TheonshoreblockinShakthi(G4
220) was obtained from Government of
Gabon for hydrocarbon exploration in April
2006 forming a joint venture withIndian Oil
CorporationLimited (45%) and Marvis (10%)
where OIL (45%) was the operator.The wells
arearound250kmfromLibreville,thecapital
city of Gabon by road. Both the wells are
vertical wells inside deep forest with depth
3460mand3200mrespectively.

2. ONGC finalises Rs 8,000cr surface facility

revampingprogramme

OilandnaturalgasmajorONGChasfinalizeda
Rs 8,000 crore surface facility revamping
programme for its three onshore mature
assetsAnkleshwar,AhmedabadandMehsana
in Gujarat. The project aims at replacing old
pipelines and other surface infrastructure in
thenextthreeyears.

3. Japans Inpex buys 26% stake in ONGCs KG

basinblock

ONGC and Japans largest oil firm Inpex Corp

have entered into a strategic partnership for
exploration of hydrocarbons in one of the
acreages in KG basin. Inpex acquired 26 per
cent interest in ONGC's Krishna Godavari
DWN2004/6blocklocatedindeepwatersof
KGBasinintheBayofBengal.Thecompanies
enteredintoafarmoutagreementatONGCs
corporate headquarters in New Delhi on 5th
November,2012.

HIGHLIGHTS

1. OilIndiaLimitedcommencesdrillingwell
inGabon

2. ONGCfinalisesRs8,000crsurfacefacility
revampingprogramme

3. Japans Inpex buys 26% stake in ONGCs

KGbasinblock

4. IndianOilaimstobuy200,000bpdfrom
KuwaitinFY14

5. Cairn JV to invest $100 million to drill

deeperwellinKGbasin

6. HMEL plans to halt import of oil from

Iran

7. ONGC Videsh plans to restart crude

productionfromSouthSudanfields

8. Gas output in eastern offshore KGD6

fieldsfallsfurther:RelianceIndustries

9. RIL pitches for marketdriven price for

naturalgas

10. BPdemandsmarketpricefornaturalgas

11. RahulDhirandWarburg Pincustoset up

newoilcompanyDelonexEnergy

Marketupdates

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SINGHANIA&CO.
November2012
4. Hindujas unit Gulf Oil buys USbased 6. CairnJVtoinvest$100milliontodrilldeeper
HoughtonInternational
wellinKGbasin

HindujaGroups
lubricantssubsidiaryGulf
Cairn Indiaand its joint venture partners of
OilCorp acquired USbased specialty
RavvafieldsareplanningtoinvestaboutUSD
chemicals
company
Houghton
100 million to drill a deeper well in the
Internationalfrom aprivate equityfund for
KrishnaGodavari basin.The JV plans to drill
$1.05 billion.The acquired company is nearly
the exploration well to 4,000 meters deep,
four times as big as Gulf Oil in revenues and
and estimates that the deepwater prospect
six times bigger in terms of EBITDA (earnings
in the Ravva Oil Fields may hold about 350
before interest, taxes, depreciation, and
billion cubic feet of 'recoverable gas'.Cairn
amortization).Thisisthelargestacquisitionby
Indiaasanoperatorintheventurewith22.5
anIndiancompanythisyear.
per cent stake shares Ravva with Marubeni

ownedRavvaOil(12.5percent),Videocon(25
The acquisition was announced on Tuesday,
percent)andONGC(40percent).
6th November, 2012. On the same day an
agreement was signed for the acquisition by 7. HMELplanstohaltimportofoilfromIran
its whollyowned subsidiary in the UK, with

the
sellers,
a
USbasedprivate
HPCLMittal Energy Ltd (HMEL), partowned
equityfund.Gulf OilCorporation Ltd (GOCL)
by steel tycoonLakshmi Mittal, plans to stop
willoperateHoughtonasaseparatecompany
importing oil from Iran, in a move that could
and the rest of Gulf's operations will be able
help New Delhi secure a waiver renewal
to leverage Houghtons extensive base of
fromUS sanctions.India's oil imports from
industrialcustomerstoofferthemacomplete
Iranhavedeclined19percentfromayearago
endtoendrangeoflubricants.Theacquisition
toabout257,000bpd.
fits extremely well with Gulf's Lubricant
HMELbeganbuyingIranianoilwithouthaving
portfolio. Houghton has a very strong
a banking mechanism in place to settle Iran
industrial
portfolio,
which
perfectly
payment.Thecompanyisnowtryingtoopen
complements Gulf's very strong presence in
an account with Turkey'sHalkbankto pay for
theautomotivelubricantsector.
Iranianoil.TheIndiancustomersofIranianoil

currently settle 45 percent of their trade in

5. Indian Oil aims to buy 200,000 bpd from
euros through Halkbank and pay the
KuwaitinFY14
remainder in rupees through an Indian bank.

They are also exploring a payment route

Indias stateowned refinerIndian Oil
through Russia. HMEL may resume imports
Corporation aims to buy 200,000 barrels per
in the JanuaryMarch quarter after India gets
day (bpd) of oil fromKuwaitin the 2013/14
itswaiverrenewed.
financial year, unchanged from the current

year, revealed on 9th November, 2012 by its

headoffinance,P.K.Goyal.

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SINGHANIA&CO.
November2012
8. ONGC Videsh plans to restart crude
productionfromSouthSudanfields

ONGC Videsh Ltd, the overseas arm of state

ownedOil and Natural GasCorp (ONGC),
plans to restart crude oil production from its
fields in SouthSudanin next few weeks.OVL
and its partners had in January shut oil
production from the Greater Nile Petroleum
project after a dispute between South Sudan
and
Sudan
over
pipeline
transit
fees.Production can resume within a few
weeksfollowingresolutionofthedisputeand
outputmaystartasearlyasmidDecember.
In September South Sudan signed a long
awaited cooperation agreement, paving the
way for resumption of oil exports. South
Sudan has billions of barrels of oil, but the
pipeline to export it runs through the north.
The south shut down production in January
after feud with north over terms.As per the
agreementreached,oilproducerslikeGreater
Nile Petroleum Operating Company, where
ONGC Videsh Ltdhas 25 per cent interest
alongside Chinese and Malaysian firms, will
payUSD8.40perbarreltransportationcharge
and another USD 1.60 as processing
fee.Further, a USD 1 per barrel transit fee is
tobepaidforallowingpassageofoil.

9. Gas output in eastern offshore KGD6 fields

fallsfurther:RelianceIndustries

RelianceIndustrieshasreportedafurtherfall
innatural gasproduction from its eastern
offshoreKGD6fieldsto25.1millionstandard
cubic meters a day as high water and sand
ingress shut onethird of the wells.Gas
production from KGD6 in the week ended
November4droppedto25.11mmscmdfrom
about 26 mmscmd last month, according to
anoutputstatusreportfiledbythecompany
with theOil Ministry. KGD6, where water
and sand ingress coupled with drop in
pressure led to a drastic fall in perwell

output, had produced about 33 mmscmd at

thebeginningofthefiscalinApril.

10. RIL pitches for marketdriven price for

naturalgas

Pitching for marketdrivenprices for natural

gas,Reliance Industrieshas said it has found
very large gas reserves that need a price of
morethanUSD10permillionBritishthermal
unit to be developed and produced.In its
submission to the C Rangarajan Committee,
which is examining terms of future contracts
for exploration of oil and gas as wellas basis
for gas pricing,RILsaid only market related
prices can provide an incentive to help
produce the vast domestic resources that
either concentrated in small pools or are
located in technologically challenging ultra
deepsea.

11. BPdemandsmarketpricefornaturalgas

BP Plc, Europe's secondbiggest oil company,

hasdemandedamarket pricefornaturalgas
to enable immediate development of a huge
10 Trillion cubic feet of discoveries to help
unlock up to 100150 billion value.In its
submission to the C Rangarajan Committee,
which is examining terms of future contracts
for exploration of oil and gas as wellas basis
for gas pricing, BP advocated a market price
linked to liquid fuels like diesel, naphtha and
fueloil.

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SINGHANIA&CO.
November2012
12. RahulDhirandWarburgPincustosetupnew
oilcompanyDelonexEnergy

RahulDhir,themanwhobuiltCairnIndiafrom
scratch
to
a
Rs
63,000croreoil
explorationmajor, is teaming up with
leadingprivate equityfirmWarburg Pincusto
set up an internationaloiland gas exploration
andproductioncompanyfocusedonpromising
assets in subSaharanAfrica.The company,
calledDelonexEnergy,isstillinstartupphase.
WarburgPincushasasubstantialexposureof
over $6 billion in oil and gas exploration
businessesworldwide.Italsohasasignificant
Indiafootprintwithover$3billioninvestedto
date. The PE major was an early investor in
SunilMittal'sBhartiAirtelandalsopickedupa
stake in Narottam Sekhsaria's Ambuja
Cements.

Disclaimer

This news letter has been prepared from material

and articles available in many newspapers and
their websites, purely for the noncommercial
purpose and for the sake of information only. No
Copyright infringement is intended and the
references of the all articles and materials would
be made available on request. The information
containedhereinisnotintendedtoconstitutelegal
or other professional advice or services. The
information is not intended to be relied upon as
the sole basis for any decision which may affect
you or your business. Before making any decision
or taking any action that might affect your
business, you should consult a qualified
professional adviser. Singhania & Co. shall not be
responsible for any loss whatsoever sustained by
any person who relies on the information
containedherein.

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