RUNNING AN OIL COMPANY IN INDIA BY SASTRY KARRA FROM 1999 – 2009 INTRO 1 INDIA BACKGROUND • POPULATION 1.3 BN • AREA - 3.3 MM SQ KM, A THIRD OF CANADA • 5,000 YEARS (OR MORE) OF HISTORY • YOUNG POPULATION - AVERAGE 24 YEARS OLD • SIZEABLE ILLITERACY AND POVERTY STILL REMAINS • PROBLEMS ARE MYRIAD • MANY CHALLENGES 2 INDIA AND CHINA ACCOUNTED FOR 75% OF WORLD GDP IN THE 15TH CENTURY UNLIKELY THEY WILL REACH BUT ROBUST GROWTH WILL AND INDIA, FOURTH TODAY THIS FIGURE AGAIN PUSH CHINA AS THE NO 1 WILL REACH 3RD POSITION ECONOMY SOON TECHNOLGY BILLION CELL PHONESPACE MOST NUMBER OF CELL PHONES ACHIEVEMENTS IN SPACE MANY FIRSTS JUST LAUNCHED A VESSEL TO MARS 3 FROM OUT-SOURCING AND BACKOFFICE TO INTERNET AND CORPORATE POWER • FINANCIAL ANALYSIS FOR MOST USA, CANADIAN AND EUROPEAN BANKS • A YOUTH FROM HYDERABAD NOW CEO OF MICROSOFT • ANOTHER YOUNG MAN FROM CHENNAI CEO OF GOOGLE • SEVERAL CEOS OF WESTERN BANKS • CEO OF PEPSI • MAJORITY ON THE DIAMOND COUNCIL IN ANTWERP 4 OIL AND GAS SITUATION • ONLY 4% OF WORLD’S SEDIMENTARY BASINS IN INDIA SERVING 18% OF POPULATION • STILL MANY AREAS REMAIN TO BE EXPLORED • YEAR 2002 WAS A GREAT YEAR WITH RELIANCE MAKING BIOGENIC GAS DISCOVERIES IN THE KRISHNA GODAVARI (KG) BASIN DEEP WATER • CAIRN MADE MEGA DISCOVERIES IN RAJASTHAN • CURRENT IMPORTS 4 MMSTB OF OIL PER DAY AND 15 MMT/YR OF LNG • DEMAND SOARING AND DOMESTIC PRODUCTION ON DECLINE 5 FOREIGN OIL COMPANIES IN INDIA • FEW EXPLORATION WELLS DRILLED PRIOR TO THE EIGHTIES WITH NO SUCCESS • EARLY NINETIES SAW THE ENTRY OF CAIRN ENERGY, HARDY OIL, NIKO RESOURCES, CANORO, GEOPETROL, JOSHI TECHNOLOGIES - ALL THROUGH FIELD AWARDS • A DECADE LATER ENI, SANTOS, SIGNED UP FOR EXPLORATION • DECADE AGO BP (DON’T CALL US BRITISH PETROLEUM) ACQUIRED 30% OF THE RELIANCE EXPLORATION AND PRODUCTION ASSETS - GOOD DEAL? (RECENT WRITE-DOWNS TELLS A DIFFERENT STORY) • BRITISH GAS HAS BEEN OPERATING THE PANNA,MUKTA, TAPTI (PMT) COMPLEX SUCCESSFULLY IN A JV WITH RELIANCE AND ONGC 6 BUSINESS ENVIRONMENT FOR OIL COMPANIES BRIGHT SPOTS • TIMELY PAYMENT FOR PRODUCTION (NEVER FAILED) • INDIA NEVER HAD SOVEREIGNITY DEFAULT • FOREIGN COMPANIES PAID ABROAD IN USD • INTERNATIONAL FLOATING PRICE FOR OIL • PROMISE OF MARKET PRICING FOR GAS THINGS THAT NEED FIXING • SLOW APPROVAL PROCESS • TEDIOUS TENDERING PROCESS RESULTING IN POOR PERFORMERS WINNING CONTRACTS 7 FOREIGN COMPANIES WERE/ARE TREATED THE SAME AS INDIAN OWNED PRIVATE COMPANIES • OIL AND GAS CORPORATION (ONGC) AND OIL INDIA (OIL) ARE MAJORITY GOI OWNED BUT LISTED ON STOCK EXCHANGE • BOTH STARTED WITH NOMINATION ACREAGE BUT THIS ENDED WHEN NEW EXPLORATION LICENSING PROGRAM (NELP) STARTED IN 1999 • OTHER GOI COMPANIES IN E & P ARE BHARAT (BPRL), GAS AUTHORITY OF INDIA LTDP), (GAIL), AND HINDUSTAN PETROLEUM (HP) 8 FIELD AWARDS AND NEW EXPLORATION LICENSING PROGRAM (NELP) • THREE NOTABLE HIGHLY SUCCESSFUL FIELD AWARDS FROM 1992 - 1995 • CAIRN ENERGY ENDED UP WITH THE PROLIFIC RAVVA OIL FIELD (EUR WENT FROM ESTIMATED 130 MMSTB TO ACTUAL OF MORE THAN 300 MMSTB) • NIKO RESOURCES WAS AWARDED THE HAZIRA GAS FIELD (FROM 5 BCF TO 380 BCF) • HARDY TOOK OVER AS OPERATOR OF PY-3 OIL FIELD (FROM EUR LOW OF 9 MMSTB TO CUM OF 24 MMSTB + 18 MMSTB REMAINING) 9 PRODUCTION SHARING CONTRACTS (PSC) • ALL SUCCESSFUL NELP BIDDERS AND FIELD AWARDS CAME UNDER PSC REGIME • INDIAN PSC REMAINS AS A VERY FAIR AND PRACTICAL CONTRACT FOR EXPLORING, DEVELOPMENT, AND PRODUCTION OF OIL AND GAS • STRICT ADHERENCE HOWEVER WAS NOT PRACTISED, ESPECIALLY WHEN IT CAME TO GAS PRICING • DISPUTES AROSE ON COST RECOVERY AND CESS • THE MOST SUCCESSUL EXPLORATION PSC RESULTED IN BILLIIONS OF BARRELS DSCOVERED BY CAIRN IN RAJASTHAN 10 OIL & GAS PRICE • OIL PRICE, RARELY A DISPUTE • BUT GAS PRICING A SERIOUS PROBLEM D6 GAS PRICING IS A MAJOR ABERRATION AT $ 3.80! 11 WHAT HAPPENED TO THE FOREIGN COMPANIES ? • GEOPETROL REMAINS WITH INTEREST IN ONE FIELD • CAIRN SOLD OUT 90% TO NEWLY FORMED CAIRN INDIA • CANORO DISAPPEARED (REASON?) • NIKO SHRUNK TO A TINY FRACTION OF ITS PEAK (GOOD PRODUCTION REVENUE IN INDIA BUT MANY DRY HOLES ELSEWHERE) • HARDY SHRUNK TO A FRACTION FROM ITS PEAK, DUE TO COSTLY DRY HOLES IN D9, D3, AND GS-01 • ENI AND SANTOS EXITED WHITOUT DRILLING A WELL • THE GLOBAL ECONOMIC CRISIS IN 2008 DECIMATED VALUES 12 SITUATION IN ALBERTA / B. C. TODAY • CHOKING IN OIL, NO WHERE TO TAKE PRODUCTION EXCEPT THROUGH THE OLD P/L ROUTES TO USA • NEW LNG PROJECTS STUCK • NO WAY TO GET O/G PHYSICALLY TO INDIA WHERE THERE IS A GROWING SHORTAGE OF OIL AND GAS, SWAPS ARE UNVIABLE • SURPLUS OF TALENT, EXPERIENCE, AND EQUIPMENT, GOOD OLD CANUCK KNOW HOW AND INDIA? • OIL INDUSTRY IS SHORT OF EXPERIENCED PROJECT MANAGERS, NEW DRILLING TECHNLOGY, IOR AND EOR, AND SO ON - DOES THIS SUGGEST A WAY FORWARD FOR BOTH? 13 PAST IS NOT PROLOGUE, HOPE IS NOT A STRATEGY • THE CURRENT GOVERNMENT OF INDIA (GOI) IS IN PLACE FOR TWO YEARS • APPEARS TO HAVE WIPED THE SLATE CLEAN ON NELP AND FIELD AWARDS • INSTEAD, THE REVENUE (NOT PRODUCTION) WILL BE SHARED WITH THE GOI, A BRAVE STEP FOR BOTH SIDES • CESS ON OIL HAS BEEN DROPPED • STILL NO BONUSES INVOLVED • NO PRIOR EXPERIENCE IN E & P REQUIRED TO BID 14 2016 DISCOVERED SMALL FIELD AWARDS (DSFA) AS PRESENTED TODAY • ONSHORE AND OFFSHORE TOTAL OF 67 FIELDS • THEY ALL CONTAIN CERTIFIED DISCOVERIES, MOSTLY GAS, WITH A TOTAL OF 130 WELLS DRILLED BY ONGC OR OIL • ONE OR MORE WELLS INCLUDED IN EACH FIELD OFFERED • MOST HAVE BEEN FLOW TESTED (CANNOT OVER-EMPHASIZE THE IMPORTANCE OF THIS IN PREPARING AN FDP AND IN SAVING COSTS) • NO DEPTH LIMITATIONS (ABILITY TO GO FOR DEEPER ZONES, COVERS ALL HC) • GENEROUS TIMELINES FOR FIRST OIL/GAS • INTERNATIONL PRICE FOR OIL AND MARKET PRICE FOR GAS (NO EXPORTS) 15 WHAT FOLLOWS DSFA? HYDROCARBON EXPLORATION PROGRAM • OPEN ACREAGE CAN BE POSTED AND DATA CAN BE PURCHASED • AFTER A LIMITED PERIOD OTHER COMPANIES WILL BE INVITED TO PARTICIPATE IN A BID EXERCISE • SUCCESSFUL BID CONSORTIUM EXPECTED TO SIGN A RSC WITH GOI • INDIA EXPERIENCING A DEMAND GROWTH FOR FORESEEABLE FUTURE AND DROPPING PRODUCTION FROM THE CURRENT FIELD IS SENDING AN APPROPRIATE CALL - HELP! THIS IS NOT A CALL FOR AID BUT FOR INNOVATIVE COMMERCIAL VENTURES INVOLVING BILATERAL PROJECTS 16 OTHER OPPORTUNITES BEYOND DSFA AND HELP NOT OFFICIAL – SK RECOMMENDS • DIRECT FARM-OUTS FROM ONGC AND OIL • RISK SERVICE CONTRACTS CULMINATING IN SHARED PRODUCTION OR REVEUE • MATURE FIELD AWARDS • IMPROVED OIL RECOVERY PROJECTS • ENHANCED OIL RECOVERY PROJECTS 17 ALBERTA – INDIA JV • DIRECT FARM-OUTS FROM ONGC AND OIL • RISK SERVICE CONTRACTS CULMINATING IN SHARED PRODUCTION OR REVEUE • MATURE FIELD AWARDS • IMPOROVED OIL RECOVERY PROJECTS • ENHANCED OIL RECOVERY PROJECTS • TRANSFER OF EQUIPMENT, TECHNOLOGY AND EXPERIENCE • HOCKEY RINK IN MUMBAI? THANK YOU 18 .