Oil and Petroleum Industry Analysis

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Industry Awareness
Oil and Petroleum Industry
Section A, Group 8 PGP-1 2012-13

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Agenda

Overview Major Players Indian and International Scenario Petroleum Industry life cycle M&A Technological trends & innovations Key drivers of Growth and Price Key financial performance indicators (KPIs) Impact of Budget 2011-2012 Regulations- Global and Indian perspective Summary

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Petroleum and Oil Industry Business


Exploration, Extraction, production

Store and Transport

Oil Refineries, petrochemicals and Retail

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Indian Production and Consumption

Source: US Energy information Administration

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Global Reserves

India

1349 billion bbl 0.7% of total (5.7 billion bbl) 82.095 million 1% of global bbl (8.209 million bbl) 87.382 million bbl 3.9% of global

Production

Consumption

Source: Statistical Review of World Energy Report, 2011

Major International players


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Saudi Aramco National Iranian Oil Company Qatar petroleum Royal Dutch Shell Exxon Mobil Corporation

Major Indian players


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BPCL (Bharat Petroleum Corporation Limited) HPCL (Hindustan Petroleum Corporation Limited) IOCL (Indian Oil Corporation Ltd) ONGC (Oil and Natural Gas Corporation) RIL (Reliance India Limited) Essar

Petroleum Industry Life Cycle


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Steep rise in prices towards end of 1970s and Global Recession. By 1982, non-OPEC countries produced more oil than OPEC countries OPEC production peaks in 2009 and Non-OPEC production peaks in 2003 OPEC production exceeds non-OPEC production in 2007

Statistics on India - Production and Consumption

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Porters analysis of oil and petroleum industry


Upstream Entry Barriers - Large investments required with long gestation period. Technology intensive sector Internal Rivalry among firms High due to limited resources Bargaining Power of buyers Low/limited due to limited resources Bargaining Power of suppliers - High because of few participants. Threat of Substitutes Limited substitution with

Downstream Entry Barriers - Entry restricted into auto fuel marketing. Distribution & logistics intensive sector Internal Rivalry among firms Low due to high demand. Mostly keen in deregulated products, e.g. lubricants Bargaining Power of buyers - High with bulk /corporate customers, who can purchase products from 10 competitors 10 Bargaining Power of suppliers - Marked by

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Strategic importance of oil and petroleum sector


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% of Indias GDP Indian Oil and Gas Industry have been effective in driving the rapid progression of the Indian economy. Crude Oil Important commodity to import
Given Annual

rise to high fiscal deficit

fuel subsidies 110000 crore Rated as Stable by Fitch Ratings Fossil fuel price escalations has given rise to wholesale price index inflation
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M&A Activity in the industry

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CNOOC has announced the acquisition of Nexen for nearly USD 15.1 billion. Kinder Morgan divested all of the oil and gas exploration and production assets of El Paso Corp for approximately $7.15 billion. Reliance Industries and BP have completed the $7.2billion deal in which the British company will pick up 30% in 21 blocks in August 2011. ONGC and Cairn (Rajasthan Joint Venture) have commenced production from the Bhagyam Field in Rajasthan.

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Technological Trends & Innovations

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Extracting heavy oil XTL technology Monotowers Carbon capture and storage Use of technology to work at remote places

Key Drivers of Growth

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Raw

Material Constraints Large constraint as India depend upon import for 80% of its crude supply demand for Petroleum Petroleum by products is an important input in various industries for the following

Growing

Key Drivers of Price

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Factors
-Global

Scenario Regulations

-Government -Taxes

and Subsidies

Effects of Government Regulations


-Price -Price

control discourages innovation. control, subsidies and taxes can introduce distortions

Key Financial Performance Indicators (1/2)


For financial year 2010-2011

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Company

Net Revenue Million)

(INREBITDA Million)

(INRNet

Profit

Million)

(INR EPS (INR)

P/E

ROE (%)

HPCL

1602087

55162

9120

26.3

55.9

7.1

BPCL

2119638

46369

8513

21.6

32.5

ONGC

1463700

577700

284300

29.2

8.7

19.9

IOCL

3742483

173166

78307

32.1

9.3

12.8

Key Financial Performance Indicators (2/2)


For financial year 2011-2012

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Company

Net Revenue Million)

(INREBITDA Million)

(INRNet

Profit

Million)

(INR EPS (INR)

P/E

ROE (%)

HPCL

1147962

22005

16364

48.3

5.8

13.6

BPCL

1536450

42762

17570

45.6

15.4

11.2

ONGC

1176200

484600

224600

26.3

9.6

20.9

IOCL

3106254

150243

77976

32.3

9.3

14.2

Regulatory Board Key Functions


Ministry of Petroleum and Natural Gas Ensure availability Monitor prices and transportation rates Secure equitable distribution

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Enforce retail & marketing service obligations for retail outlets and entities

Lay down technical & safety standards Affiliate code of conduct

Government Regulations

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Petroleum and Natural Gas Regulatory Board Act, 2006

Establishment of Petroleum and Natural Gas Regulatory Board

Refining, processing, storage and transportation, distribution, marketing and sale

Natural Gas Pipeline Policy, 2006


Development of natural gas pipelines Promote investment from the public and private sectors Ceiling rate for transportation charges

Government Initiatives

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FDI

100% in private and 26% in government refineries Marketing permitted subject to minimum investment in oil and gas sector

New Exploration Licensing Policy (NELP)

level the playing field in the upstream sector between private and public sector companies

Open availability of exploration acreage

Abolition of the administered pricing policy


APM- prices controlled at production, refining, distribution and marketing Moving away from subsidies

The Global Scenario

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Industry cartels and organizations


Organization of Petroleum Exporting Countries- Gulf Countries OPEC -79% of world crude oil reserves and 44% of the worlds crude oil production

Control the prices of crude oil

World Trade Organisation


Do not deal with energy as a distinct sector Increasing energy needs have led to a growing interest in competition rules and export restriction practices.

Substantially larger amount of energy trade is now in the hands of WTO Members trade.

Indian Scenario

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Subsidies

High subsidies due to high global prices of crude petroleum Rs. 1, 31,212 Crore in 2010-2011 1.5 per cent of GDP in 2011-2012

Problem with subsidies


Subsidizing both the rich and the poor Government paying for under-recoveries- No incentives Absence of price signaling

Deregulation of petrol and fuel hikes

Welcome by investors, Important for government

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New Exploration Licensing Policy (NELP)

Private operators same terms as applicable to NOCs

100% Foreign participation allowed Option to amortise exploration and drilling expenses Production Sharing Contracts (PSC) signed on blocks of land for exploration; No cess levied

First five rounds of NELP expected investment $5 billion

NELP-VI 55 exploration blocks (24 deep water, 6 shallow water and 25 on land) on offer

Impact of Union Budget 20122013


Expectations: boost the domestic oil & gas production
creation of oil & gas infrastructure bringing in demand side efficiency in consumption of products through pricing

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Budget Proposals: Direct Taxes Exemption to foreign company selling crude oil in India Relaxation to foreign companies selling crude oil in India Indirect Taxes Cess levied -increased from Rs. 2500/- to Rs. 4500/- per metric tonne Blow to oil producers Government Subsidy Oil subsidy aimed at Rs. 43,580 Cr; 36% below the FY12

Impact of Budget (2012 -2013)

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Company

Industry

Impact

Comments Will be hit by the increased cess and decrease in subsidy provision Under-recoveries are expected to increase with the reduced subsidy allocation. However, being eligible for viability gap funding sector is a positive.

ONGC, Oil Exploration India & Production

BPCL, Refining and HPCL and Marketing IOCL

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Thank You

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