INDIAN OIL & GAS SECTOR

INNOVATION NORWAY ONS - Stavanger AUGUST 2006

Per Reinboth

BACKGROUND
First discovery of oil in Digboi, Assam, North East India in 1889 ONGC formed in 1954 under the auspices of Geological Survey of India
Became Oil & Gas exploration company in 1959 Presently 78% share in Oil & Gas Exploration Is also into refining Recently completed 50 years. Permission granted by government to go into petrochemicals on 14th Aug 06

OIL was formed in 1959 1974 Discovery of Bombay High 1989 Production was 34 MMTPA Bombay Highs contribution 22 MMTPA 1984 GAIL was born
Production before independence (1947) of 0.25 MMTPA to present 35 MMTPA

IMPORTANCE OF O&G IN ECONOMY

India is seventh largest importer of crude and is the second fastest growing economy India has insignificant share of <1% in worlds O&G production and <3% in petro product consumption Crude accounts for 30% of total imports Oil contributes to 20% to exchequer through customs and excise

IMPORTANCE OF O&G IN ECONOMY

Energy price contribute 14.2% in WPI 38% of ports and 7% railway traffic are comprised of petroleum sector cargo Total public sector capital outlay of Sixth Plan (1980-1985) of 5% increased to 6.5% in Tenth Plan (2002-2007) PSUs in O&G sector account for 38% of total revenue and 45% of dividend declared by PSUs as a whole

ENERGY REQUIREMENT
38% of Indias primary energy consumption from O&G
Per capita consumption 117 kg compared to world average of 925 kg

Around 2/3rd of the requirement is through imports

This will increase to 91.6% by the year 2020 as per IEA

Indias average oil production level for 2005 was 837,000 bbl/d and net oil imports was 1.7 million bbl/d
Future oil consumption will increase from 2.5 million bbl/d in 2005 to 3.1 million bbl/d in 2010

Source: Directorate General of Hydrocarbon

CATEGORIZATION OF BASINS
Basin Category Nature No. of Basins Onland and Offshore Area (sq. km) 518500 95000

Category - I Category - II

Proven commercial production Identified prospectivity Known accumulation of hydrocarbons but no commercial production Potentially prospective basin

7 2

Category - III Geologically prospective basin Category - IV Subtotal Deep-waters Total

7 10 26

710000 461200

1350000 3134700

GOI POLICIES
Directorate General of Hydrocarbon (DGH) has been made responsible for carrying out preliminary assessment of possible hydrocarbon potential of all the sedimentary basins New Exploration Licensing Policy (NELP) First announced in 1997 which permits foreign involvement in exploration activity
Total five rounds of bidding has taken place under NELP so far Initial response was not very encouraging but later on it picked up

100% FDI on exploration, refineries, pipelines and marketing from Jan 2004

GOI POLICIES - RESULTS

Hitherto underrated basins / areas due to failures in the earlier exploration have proved to be commercially hydrocarbon bearing e.g.
Barmer Sanchor sub-basin of Rajasthan Offshore Mahanadi Gulf of Cambay

Helped in breaking scientific barriers related to hydrocarbon generation, migration and accumulation

GOI STRATEGY
Four pronged strategy of Ministry of Petroleum & Natural Gas Exploration in frontier areas
Deep sea exploration

Intensive exploration in proven areas* Strengthening overseas exploration Initiation of exploration for non-conventional hydrocarbon resources like CBM and gas hydrates
* Indian firms investment in overseas oilfields is projected to reach US$ 3 billion within a few years. Particular interests are in Sudan & Nigeria in Africa, Syria in West Asia, Sakhalin in Russia and Vietnam & Myanmar in South East Asia. Most attractive is Caspian Caspian Basin in Central Asia.

OVL: ONGC Videsh Ltd. A wholly owned subsidiary of ONGC is spearheading the overseas investments in oilfields.

POTENTIAL
26 Sedimentary Basins - Only six explored so far Onland and offshore upto 200m isobath - area 1.79 million sq. km Deep water beyond 200 m isobath area 1.35 million sq. km 30% of total 3.14 million sq. km is unexplored India is one of the least explored regions with a well density of 20 per 10,000 sq. km

POTENTIAL
The oil and oil equivalent of gas (O+OEG) as estimated by Directorate General of Hydrocarbon are 32 billion tonnes.
As on 01/04/2004 initial in place oil of 7.89 billion tonnes and ultimate reserves of 2.94 billion tonnes have been established

Last four year discoveries

By National Oil Companies 25 Nos.
10 offshore by ONGC 15 onland 10 by ONGC & 5 by OIL

By Private Companies / Joint Ventures 32 significant discoveries

Worlds largest gas discovery in 2002 by RIL

OPPORTUNITIES FOR NORWEGIAN COMPANIES Technical Expertise

Improvement in recovery rate that average to around 30% Deep sea exploration Seismic survey

Companies having expertise in North Sea exploration

CHALLENGES FOR THE NORWEGIAN COMPANIES Geological complexities Low drilling recovery rates Chances of abandoning license at any stage of E&P exercise ranges from 35% (at development plan preparation) to 80% (at exploratory drilling stage)

CRITICAL SUCCESS FACTORS

Geological knowledge & experience: Help in determining the areas where the company should bid Reserve Replacement to Production (R/P) Ratio: To keep on adding to the reserve base to sustain earning growth Cost Competitiveness: Since no control over prices so keep lifting cost low to survive phase of low prices Financial Strength: Availability of necessary capital at low cost

CRITICAL SUCCESS FACTORS

Risk taking ability: High risk and high return business. Forming consortium to minimize risk. Ability to win contracts: Be competitive. Technological Advancement: Undiscovered reserves are likely to be located in more difficult environment hence technological advancement may be crucial. Fully Integrated Player: Present across all value chain e.g. global players like Royal Dutch/Shell, Exxon Mobil, Chevron Texaco and BP Amoco, in India are Reliance, ONGC alongwith IOC.

INDIAN COMPANIES
ONGC Central government company. Top 30 upstream companies in the world. Top 20 in the world in market capitalization
Turnover - Net Profit 495732 MINR 342714 MINR 129831 MINR 86644 MINR 2005 2004 2005 - 2004

OIL Central government company Gujarat State Petroleum Corporation Ltd. State government Company GAIL Central government company

INDIAN COMPANIES
RIL Private company. Fully integrated
Turnover - Net Profit 891240 MINR 2006 731640 MINR 2005 90690 MINR 2006 75720 MINR 2005

Other Private Indian Companies Aban Loyd Chiles Offshore Ltd.* Essar Oil Ltd. Hitech Drilling Services India Ltd. Jubilant Enpro Ltd. Petrocon India Ltd. Shiv-Vani Oil & Gas Exploration Services Ltd. Tata Petrodyne Ltd. Videocon Industries Ltd.
* Indo US JV. This company and Frontier Drilling ASA of Norway have established a JV company Frontier Aban Drilling (India) Ltd.

FOREIGN COMPANIES IN INDIA

Clough Engineering Ltd. - Australia Cairn Energy UK Niko Resources Canada Mosabacher Energy USA Gazprom Russia Hardy Oil UK ENI S.p.a. Italy Geoglobal Resources Ltd. GeoPetrol International Canoro Resources Ltd. Oakland Offshore Holdings Ltd. British gas

Thank You

OIL PRODUCERS EXPORTERS AND IMPORTERS

Source: IEA

VALUE CHAIN ANALYSIS

Crude Oil Value Chain
Exploration
Using technology to find new Oil resources

Production
Bringing oil to the surface using natural and artificial methods

Transportation
Moving oil to refineries and consumers with tankers, pipelines and trucks

Refining
Converting crude oil into finished products

Marketing
Distributing and selling refined products

Natural Gas Value Chain

Exploration
Using technology to find new gas resources

Production
Bringing gas to the surface

Processing
Treating gas to be sent to the market

Transportation
Moving gas over pipelines and tankers

Marketing
Distributing and selling natural gas

INDUSTRY STRUCTURE
Indian Petroleum Sector

Upstream Sector Oil & Gas Exploration ONGC, OIL, RIL

Downstream Sector

Refining & Marketing

Natural gas distribution GAIL

IOC, BPCL, HPCL, ONGC, RIL, CPCL, BRPL, KRL, NRL, MRPL

ONGC: Oil & Natural Gas Corporation Ltd., OIL: Oil India Ltd., GAIL: Gas Authority of India Ltd., IOC: India Oil Corporation Ltd., CPL: Chennai Petroleum Corporation Ltd., KRL: Kochi Refineries Ltd., BRPL: Bongaigaon Refinery & Petrochemicals Ltd., NRL: Numaligarh Refinery Limited, MRPL: Mangalore Refinery & Petrochemicals Ltd., RIL: Reliance Industries Ltd.