Energy security is high on the agenda of the Indian government and oil & gas companies, To address the growing need for energy, India is working on a four-pronged strategy:
Increase domestic reserves and production
Acquire hydrocarbon equity overseas
Maintain self-sufficiency and surplus in refining
Promote unconventional and renewable energy
The universe of Indian companies with interests in overseas hydrocarbon assets has expanded dramatically in recent years, reflecting a government strategy to address dependence on imports through multiple channels. Today, most oil & gas PSUs have overseas investment plans across different segments of the hydrocarbon value chain.
The growing importance of gas in India?s energy mix has added new dimensions to the overseas investment plans of many companies. Till a few years back, the overarching central theme was acquiring exploration/production assets abroad, mostly in conventional type of assets. Some of the recent outbound transactions clearly display the changing acquisition landscape?from interests in unconventional assets to securing supplies through investment in infrastructure.Recent transactions underlying the significance of shale gas assets include:
GAIL?s acquisition of a 20% stake in US?based Carrizo?s Eagle Ford shale assets
RIL?s investment in Atlas Energy’s Marcellus Shale acreage and in Pioneer Natural Resources? Eagle Ford shale acreage
Long-term agreements and investment in infrastructure to secure LNG supplies is another focus area, notable deals being:
GAIL?s signing of an agreement with Cheniere Energy in the US for securing long?term LNG supplies; it is understood to be in discussions with other LNG sellers around the world
Petronet LNG securing supplies of 1.48 mtpa from the Gorgon LNG project in Australia for its Kochi LNG terminal.
Though not outbound M&A in a strict sense, some other significant developments in the LNG space include Gujarat State Petroleum Corporation?s long-term LNG supply deal with BG India and commencement of work on Indian Oil Corporation’s LNG terminal on India?s east coast.
The burgeoning demand for natural gas, which is projected to have a larger share in the energy mix by 2017 (relative to oil?s steady share), underscores the increasing interest in overseas gas assets. Further, India plans to augment its LNG re-gasification significantly over the next few years to support this growing demand for gas. Many PSUs are scouting for long-term sourcing of LNG and partnership in foreign LNG gasification terminals.
Another upcoming strategy in natural gas is akin to securing international coal supplies for home grown thermal power projects; given the dwindling domestic gas supplies, gas power generation plants are facing supply issues. LNG sourcing combined with investment in the related infrastructure, liquefaction/re-gasification plant, may drive outbound investments.
Over time transaction structures have evolved. Apart from acquisitions, joint venture-like transactions have also happened. Notable among them being RIL-BP deal and the more recent ONGC MoU with ConocoPhillips. The MoU?s objective is to promote technical and business cooperation in shale gas and deep-water operations. Under the scope of the MoU, the companies aim to cooperate in deep-water assets in the offshore basins of eastern India and conduct joint studies to explore and develop shale gas resources in India and overseas, including North America. The cooperation is expected to help ONGC build its capabilities in shale gas operations by leveraging ConocoPhillips?s extensive experience.
In terms of geographical coverage, Indian companies have struck cross-border deals recently across Asia and North America. In terms of successes in investment made in the past three years in exploratory assets, it was encouraging to see BPRL and Videocon in partnership with Anadarko making major discoveries in offshore Brazil assets and Mozambique.
Going further, Indian companies will actively pursue M&A in equity oil & gas overseas. Besides the daunting challenge of energy security, the strategic focus of the Indian players will include:
Indian National Oil Companies (NOCs) are looking towards becoming integrated players?upstream players are considering downstream plays, while downstream players are considering entry into upstream. The focus of the NOCs is to obtain oil & gas assets and products overseas to secure energy needs of the country while hedging against a highly volatile hydrocarbon market.
Private oil companies, such as Reliance and Essar, are looking towards overseas markets for their refining capacity, while also looking at opportunistic upstream acquisitions on account of strong balance sheets.
Large consumers in the power (Lanco, Adani) and fertiliser sectors (Iffco, Zuari, Nagarjuna, RCF) are looking to acquire feedstock (gas & coal) for their plants.
New entrants with commodities & resources interest have entered the hydrocarbon space to diversify.
Many companies, public and private, have spelt out their strategic intent to deploy funds for overseas acquisitions/investment. It is estimated that Indian E&P and refining companies could pull together a war chest of about $8-12 billion. In addition, over the next five years, the government has plans for substantial investments across the hydrocarbon value chain. With the government’s planned outlay on overseas activities for the hydrocarbon sector, the war chest of NOCs of about $6 billion could be significantly higher.
New frontiers in the hydrocarbon space are emerging in around the globe in deep-water and non-conventional oil & gas (shale assets, oil sands and coal bed methane). These new prospects are at an initial exploratory/development stage and significant investments may happen in future.
The author is manager, Deloitte Touche Tohmatsu India
