Explorer Seeks $2.2 Billion Russian Redemption: Corporate India

By Rakteem Katakey - Feb 7, 2013

Oil & Natural Gas Corp., stung by criticism its biggest Russian acquisition has failed to pay off, is banking on crude trapped in Siberian shale rocks to redeem its $2.2 billion wager.
Imperial Energy Corp., which India’s biggest oil explorer bought in 2009, is seeking bids from surveyors to assess the Bazhenov formation, ONGC Chairman Sudhir Vasudeva said in an interview, without giving details. Bazhenov may hold as much as 360 billion barrels of recoverable reserves, Bloomberg Industries said in a Dec. 19 report, citing estimates by Russian subsoil agency Rosnedra. Venezuela holds 296.5 billion barrels, the world’s biggest known oil reserves.
The U.S. shale boom, which reinvigorated industry and is leading the world’s largest economy toward energy independence, has spurred oil companies to blast open shale rocks in other parts of the world. ONGC, seeking to raise overseas production more than sixfold by 2030, is also betting Russian tax breaks on oil extraction will help stem Imperial’s 35 percent decline in output in the last three years.
“ONGC’s challenge will be to find a viable way to produce the oil,” said Gagan Dixit, a Mumbai-based analyst with Quant Broking Pvt., who has a buy rating on the stock. “Tight oil requires specialized technology and costs are high. The tax benefits will be a first step.”
ONGC fell as much as 0.8 percent to 317.30 rupees and traded at 318.95 rupees as of 9:54 a.m. in Mumbai. The shares have advanced 20 percent this year, beating a 0.8 percent advance in the benchmark Sensitive Index.

Tougher Block

Bazhenov, which has yet to yield oil, has proved to be a tougher shale block to drill than areas in the U.S., prompting Russian oil majors such as OAO Rosneft and OAO Gazprom Neft to seek partnerships with Exxon Mobil Corp., Royal Dutch Shell Plc and Statoil ASA.
Tight oil is so called because it is trapped in non-porous shale rock formations, also found in the Bakken area in North Dakota that has helped the U.S. cut crude imports. The oil can be extracted by cracking open the rocks using a mixture of water and chemicals at high pressure, a process pioneered in the 1990s in the U.S. Different technologies need to be used and modified for different types of shale and tight reservoir structures, Vasudeva said.
“It may turn out to be very important for us in Russia,” said Vasudeva. “It’s still very early days and we have to see how it turns out in the months to come.”

Falling Output

Current output at Imperial’s fields in western Siberia has declined to 11,000 barrels a day from about 17,000 barrels in April 2010. Production may drop 17 percent to 512,900 tons, or about 10,000 barrels a day, this year from 621,100 tons in 2012, according to a Jan. 17 statement on Imperial’s website. The decline is because the company is searching for an economically feasible technology to recover oil from tight reservoirs, according to the website.
“We’re hoping the shale and tight oil will help revive that,” Vasudeva said. “We’re getting more confident.”
Imperial is also seeking an exemption from the Russian government from paying taxes for oil production from tight reservoirs, according to the website. The nation’s energy ministry has proposed 15-year tax exemptions on oil extracted from the Bazhenov deposits, according to a ministry document. While export duties would remain, the tax cut would be worth an additional $20 per barrel to producers, based on a price of $100 a barrel, according to the document.

Azerbaijan, Kazakhstan

ONGC is planning to spend 11 trillion rupees ($207 billion) by 2030 as it seeks to add assets and boost production at home and abroad. ONGC Videsh Ltd., the company’s overseas unit and owner of Imperial Energy, needs $20 billion as it targets production of 20 million tons of oil equivalent by March 2018 and 60 million tons by March 2030 from 8.75 million tons in the year ended March 31, according to the company’s annual report.
In September, the New Delhi-based explorer said it would spend $1 billion to buy Hess Corp.’s stake in an Azerbaijan field and a related pipeline. Two month later, it agreed to buy ConocoPhillips’s 8.4 percent stake in Kazakhstan’s Kashagan project for $5 billion, its biggest acquisition. ONGC has won approval for Azerbaijan and is awaiting permission from Kazakhstan’s government on the Kashagan purchase.
A plan to revive production from Imperial’s fields was scrapped just months after ONGC completed the purchase because the fields didn’t perform as expected. India’s federal auditor in March 2011 said ONGC lost 11.8 billion rupees in the 15 months ended March 31, 2010, after Imperial produced at half of the target rate.
The explorer last year backed away from buying a 25 percent stake in a second Russian producer, OAO Bashneft, after failing to agree on a price.
Exxon Mobil, the world’s biggest oil company by market value, plans to spend as much as $300 million on a pilot project with Rosneft to tap tight oil resources in Russia. The venture will explore in areas including the Bazhenov formation, Rosneft said in a Dec. 7 statement. Bazhenov may be holding billions of barrels of oil, Exxon CEO Rex Tillerson said on Oct. 8.
To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net
To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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IMF Says India Should Hold Rates Until Inflation Curbed

By Unni Krishnan - Feb 6, 2013

India’s central bank should refrain from cutting interest rates until inflation is contained even as the nation faces a subdued economic recovery, according to the International Monetary Fund.
“With policy space strictly circumscribed because of high fiscal deficit and elevated inflation, the economy is in a weaker position than before the global financial crisis,” the IMF said in a statement released yesterday. “It is advisable to maintain the current level of policy rates until inflation is clearly on a downward trend.”
Gross domestic product will climb 5.4 percent in the 12 months through March 2013, and 6 percent the following fiscal year, the Washington-based lender said. Inflation will ease to 7.2 percent by March 2014 from 7.8 percent in March this year, while the budget deficit may be 5.6 percent of GDP this fiscal year, above the government’s 5.3 percent goal, it added.
India’s Finance Minister Palaniappan Chidambaram has vowed to pare the budget shortfall to damp prices, part of a wider policy overhaul since mid-September to revive confidence in Asia’s No. 3 economy. Inflation exceeding 7 percent has limited the central bank to two interest-rate cuts since the start of April last year, even as a government report today may estimate growth has slid to a decade low.

Easing Delayed

“The IMF is highlighting a similar stance as what the Reserve Bank of India governor has been saying, that room for easing is limited because of the twin deficits and high inflation,” said Rohit Arora, a fixed-income strategist at Barclays Plc in Singapore. “The possibility of easing in March is getting lower and may be delayed.”

The rupee has strengthened about 4 percent against the dollar since Prime Minister Manmohan Singh began the policy changes to contain energy subsidies, lure foreign investment and speed up infrastructure projects.
Singh is trying to narrow the budget deficit and a current- account shortfall and avert a credit-rating downgrade.
Efforts to facilitate investment and “slightly” stronger global growth will lead to a “modest rebound” in near-term Indian expansion, the IMF said. “Structural reforms, fiscal consolidation, and low inflation” are seen as key to a sustained recovery and to lower “vulnerabilities,” according to the lender.

Growth Risks

While the climb in the country’s GDP remains one of the highest in the world, risks are on the downside, the IMF said.
Indian authorities, in discussions with IMF staff, said they plan to continue to focus on liberalizing capital inflows “with a view to facilitating the financing of infrastructure and building the corporate bond market,” according to a report released along with the statement.
The Indian officials also said the statutory liquidity ratio, or the proportion of deposits lenders must keep in government bonds, may be “further recalibrated in accordance with evolving monetary and fiscal conditions.”
The Reserve Bank of India cut the ratio to 23 percent from 24 percent, effective Aug. 11 last year, the first such reduction since 2010. It lowered the repurchase rate to 7.75 percent from 8 percent last month, while signaling the space for further easing is limited.
The government will estimate 5.5 percent GDP growth for the 12 months through March 2013, according to a Bloomberg News survey of analysts before a report due today. That would be the slowest since 2002-2003.

Taiwan Exports

The IMF statement and report were released after so-called Article IV talks with Indian officials.
Elsewhere in Asia today, Taiwan’s exports probably rose 23.2 percent in January from a year earlier, according to the median estimate in a Bloomberg News survey after a 9 percent gain in December.
Australian employers added part-time jobs in January and fewer people hunted for work, helping keep the unemployment rate unchanged, a report showed today, as interest rates at a half- century low support hiring.
The European Central Bank will probably keep its benchmark interest rate unchanged at a record low of 0.75 percent, according to a Bloomberg survey. The Bank of England will also hold its benchmark interest rate at 0.5 percent, a separate survey showed.
Spain, the U.K. and Germany will probably report declines in industrial production in December compared with a year earlier, according to the median estimates in Bloomberg surveys. Initial jobless claims in the U.S. probably fell to 360,000 in the week ended Feb. 2 from 368,000 the previous week, a separate survey showed before a report today.
To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net.
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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Coffee Exports From India Set to Drop as Europe Demand Slows

By Swansy Afonso - Feb 5, 2013

Coffee exports from India, Asia’s third-biggest supplier, may decline for a second straight year as an economic slowdown in Europe cuts demand and as damage from pest attacks reduces the harvest.
Shipments may drop below 300,000 metric tons this year from 310,886 tons in 2012, Ramesh Rajah, president of the Coffee Exporters Association of India, said by phone from Bangalore. Exports fell 9.4 percent last year, the first annual drop in three years, according to data from the Coffee Board of India.
A drop in Indian supplies may help limit a 34 percent slump in arabica prices in the past year in New York and cut costs for Starbucks Corp. and Nestle SA. Stockpiles monitored by ICE Futures U.S. reached 2.63 million bags of 60 kilograms each on Feb. 1, the highest since March 2010. Slowdowns in Italy, Russia and Spain, India’s main buyers, curbed demand for the commodity brewed by specialty coffee makers.
“The order book is thinner this year because the economies of the main markets aren’t faring well and buyers are aggressively searching for cheaper coffee,” Rajah said. “Arabica exports from India will be lower as prices have come down sharply and shippers don’t want to sell at these prices.”
The euro-area economy shrank 0.1 percent in the third quarter after a 0.2 percent contraction in the three previous months. Gross domestic product probably fell another 0.4 percent from October to December and will stagnate in the first quarter of 2013, according to a Bloomberg survey. Europe accounted for 38.3 percent of the global green coffee consumption in 2012, according to the U.S. Department of Agriculture.

Pest Attacks

Arabica is grown mainly in Latin America and brewed by specialty companies including Starbucks. Robusta beans, used in instant coffee, are harvested in Asia and parts of Africa. India produces both the varieties.
Aarabica for March delivery fell 0.2 percent to $1.4405 a pound in New York yesterday, while robusta for delivery in the same month gained 1.5 percent to $2,066 a ton in London.
The coffee crop in India may decline this year because of pest attacks caused by dry weather during the flowering period and rains during the harvest, Rajah said. Output may drop to 310,000 tons in the year started Oct. 1 from a record of 314,000 tons a year earlier, he said.
“The weather was very unusual last year,” he said. “Late rains has led to the delay in arrival of the new crop by three- four weeks and the crop is just coming into the market.”
Pest attacks like the white stem borer due to dry weather after blossoming reduced productivity, he said.
India shipped 21,557 tons of coffee in January, comprising of 6,689 tons of arabica, 6,257 tons of robusta beans and 8,611 tons of instant coffee, data from the board showed.
To contact the reporter on this story: Swansy Afonso in Mumbai at safonso2@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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Tata Seeks Investors for Clean-Energy Expansion: Corporate India

By Archana Chaudhary - Feb 4, 2013

Tata Power Co. (TPWR), India’s second- largest generator, is seeking investors to help its renewables unit more than double capacity in five years and acquire projects at home and overseas.
The unit of India’s largest business group, which plans to spend about 17.5 billion rupees ($328 million) annually, may also consider selling shares in Tata Power Renewable Energy Ltd., Rahul Shah, chief of business development at the generator, said in a telephone interview from Mumbai. The company plans to build 2,000 megawatts of wind, solar, hydro and geothermal plants from a total of 852 megawatts last year.
Tata Power, part of the group led by Cyrus Mistry, is planning to boost clean-energy generation to a fourth of its capacity as coal prices increase and the costs of alternative sources decline. A shortage of fossil fuel used in thermal power projects has prompted India to grant incentives to wind and solar plants to cut chronic blackouts that the government says shaves about 1.2 percentage points off annual economic growth.
“Even though the profitability of clean energy projects is still not on a par with thermal energy at the moment, in the long run, this would be a profitable bet,” said Sitaraman Iyer, a Mumbai-based analyst with MSFL Research. As the cost of clean- energy drops, “growing in renewables would make sense for Tata Power.”

Energy Costs

Tata Power’s shares, which have fallen 11 percent in the past year, dropped 0.3 percent to 100 rupees in Mumbai at 9:50 a.m. The benchmark Sensex index has advanced 12 percent in the trailing 12 months.
The company expects to profit from “acceptability” of wind and solar generation at a time when the gap between conventional and renewable energy costs is “narrowing significantly,” Shah said.
Government incentives, such as lower tax rates and cheaper raw materials, are driving down prices of clean energy and may help the company attract investors, said Iyer.
The average per-unit cost of wind power in India is now on a par with coal-fired electricity, Shah said. The cost of solar power is expected to drop by 10 percent, according to Shah.
Developers’ bids in recent auctions for coal-fired power stations have ranged from $49 to $78 a megawatt-hour, compared with tariffs for wind farms of between $66 and $105 a megawatt- hour, according to Ashish Sethia, India country manager for Bloomberg New Energy Finance.

Installed Capacity

Goldman Sachs Group Inc., the top arranger for renewable- energy stock offerings last year, forecasts more than $395 billion in annual investments in renewable energy by 2020, Stuart Bernstein, the Goldman partner overseeing its renewables unit, said on Jan. 18.
Tata Power, which has 7,700 megawatts of installed capacity, will expand wind generation by as much as 200 megawatts a year and solar by as much as 50 megawatts a year, according to Shah. The Mumbai-based company will also bid for projects overseas, including South Africa and the Middle East, adding a total of 2,000 megawatts of clean-energy capacity in five years, he said.
“Renewable projects are also attractive because these can be set up in 18 to 20 months compared to the four to five years it takes to build a thermal plant,” said MSFL’s Iyer.
Tata Power has wind ventures in South Africa, after being selected in May to build two projects, Shah said. The country’s auction of renewable-energy capacity also drew Suzlon Energy Ltd. (SUEL), India’s largest wind-turbine maker, in an earlier round. The company said Feb. 1 it received approval to build a 138- megawatt project.

Tax Benefit

At home, wind installations topped 3,000 megawatts for the first time in 2011, a 138 percent increase in two years, according to data compiled by Bloomberg.
Those investments were driven by a tax benefit called accelerated depreciation and a subsidy known as generation-based incentive, which boosted project returns, helping wind compete with other forms of energy. The incentives expired on March 31 and the Ministry of New and Renewable Energy is seeking Cabinet approval for them to be reinstated, according to Joint Secretary Tarun Kapoor.
Tata Group, which also owns Corus Group and Jaguar Land Rover, has invested in geothermal projects in Australia and Indonesia with Sydney-based Origin Energy Ltd. (ORG)

Indonesian Coal

Tata Power reported a loss of 838 million rupees in the quarter ended Sept. 30, citing higher costs at its 4,000- megawatt Mundra power station. To ensure supply for the plant, the company in 2007 bought 30 percent stakes in two coal mining units owned by Indonesia’s PT Bumi Resources. (BUMI)
Tata Power’s unit plans to finance 70 percent of all project costs with loans and 30 percent with equity from the parent company, Shah said. It may also consider selling stakes to financial institutions and companies to raise funds, he said.
The company’s fuel costs have risen 25 percent since the financial year ended March 2008, while its total debt rose 200 percent in the same period, according to a January presentation to investors on the company’s website.
To contact the reporter on this story: Archana Chaudhary in New Delhi at achaudhary2@bloomberg.net
To contact the editor responsible for this story: Arijit Ghosh at aghosh@bloomberg.net

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