Oil and Gas India report (Part 2) 2011

IndiaEnergy reportDecember 2011

CarGail_OGFJ_1112 1 11/8/11 4:14 PM

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•India Pt.2

In its search to solve the question of India’s energy security, the Indian state government has been pushing to promote exploration activities in the country, and efforts of both public and private sector enterprises have recently been concentrating on the offshore exploration. With shallow

water expertise steady in place, India’s shores are witnessing a new round of development as deep-water explorations attract high levels of both domestic and foreign engineering and manufacturing.

Nonetheless, the dominance of state-owned players, strong price awareness, and modest foreign investment might throw grit in the machine of India’s offshore oil and gas sector.

Focus Reports presents you with an insight look from Mumbai, India’s offshore epicenter.

The Silent Revolution

Project Director: Federica Torgneur. Editorial Coordinator: Nicolas Carayon. Project Assistants: Mathilde Paquet & Fleur Richard. Editorial Con-tributor: Herbert Mosmuller. Report Publisher: Ines Nandin. For exclusive interviews and more info, please log onto energy.focusreports.net or write to [email protected]

Kedarnath jack-up rig, drilling depth 20,000 feet, courtesy of Great Offshore Limited

www.ogfj.com Oil & Gas Financial Journal December 2011 energy.focusreports.net 3

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4 energy.focusreports.net December 2011 Oil & Gas Financial Journal www.ogfj.com

New Horizons OffshoreThe story of India’s offshore started with the discovery of the

Bombay High oil!eld 160 kilometers off the coast of Mumbai. “The

Oil and Gas (O&G) discovery in Bombay High took the country

by surprise,” explained Satpal Singh, managing director and

CEO of Dolphin Offshore, one of the !rst Indian offshore support

companies. “There was no expectation that India had offshore oil

resources. We had historic !ndings in Assam and Gujarat, which

had been found during the days of the British presence in India.

The entire production was oil - hardly any gas was restricted to that

source. There was no development of O&G technology; there was

no trading institution over here, although after a period of time,

Oil & Natural Gas Corporation (ONGC) started to develop certain

institutions.”

“It actually all started with a lot of foreign companies, consider-

ing there was no Indian company that had suf!cient expertise,”

Amit Biswas, CEO of Ambico, explained the initial development

of India’s offshore industry. Biswas’ company is a service bound

offshore agency with Joint Ventures (JV) with Malaysian offshore

engineer IEV, British Found Ocean and a partnership with the Aus-

tralian offshore project contractor Tamboritha. “Over the last !fteen

years, a lot of Indian companies have come in, for exploration and

production (E&P) of offshore oil and gas,” Biswas continued.

“The crews of the vessels, along with the companies mastering

the supply vessels, were foreigners,” Biswas continues. “It took us

some time to train local people and qualify them (…) My partner

was, in fact, the !rst ever Indian master to handle an offshore ves-

sel. Slowly, Indian companies came in. Now we see some JV or full-

"edged Indian companies taking lump sum turnkey jobs. Before,

only foreign companies were doing it, and Indian companies were

providing a bit of support.”

“The country’s offshore sector”, said Singh, “possesses such

levels of homegrown expertise nowadays that it could do without

foreign expertise. The growth and development of the Bombay

High !eld provided tremendous opportunities for Indian companies

to start new ventures and over the next 2 decades the country grew

towards self reliance in being able to meet the requirements of the

Oil & Gas industry.”

Beyond Bombay HighWhile the output of the Bombay High !eld run by state-owned

ONGC decreased from a 20 million ton peak in 1989 to 9 million

tons now, India’s offshore industry received a next boost in 2002,

when Reliance Industries, India’s largest private player in the petro-

leum sector, discovered the biggest natural gas reserves in India.

This was in the D6 block in Krishna Godavari (KG) basin, 37 miles

off the Indian east coast in the Bay of Bengal. The !eld has proven

plus probable reserves of 11.3 Tcf. Similar to what happened in the

Bombay High !eld, the development of the operations at the east

coast has seen India’s domestic industry, with the support of foreign

companies, working hard to close the knowledge gap .

Reliance Industries’ operations in the KG basin were quickly

recognized as India’s most important offshore activity and even one

of the most important in the world; the !eld was the world’s largest

gas discovery in 2001. Indeed, as P.M.S. Prasad, Reliance Industries’

executive director, told Focus Reports, “our drilling partner, Trans-

ocean, says that our operations at a water depth of 10,194 feet are

the deepest that have ever been done [worldwide]”; this project

has also seen the participation of the Houston-based oil!eld service

company, Oceaneering, with an all Indian team.

“We had to start from scratch, so having created an organiza-

tion, trained a lot of people and acquired some competencies and

infrastructure, we are now looking at opportunities outside India,”

continues Prasad. “We have a very good safety, exploration, devel-

opment and project management record, and now we are looking

to capitalize on these competencies outside the country.”

Oil demand & supply

Source: University of Petroleum & Energy Studies (UPES), IORS 2011

400350300250200150100500

Demand

2001-02

99.7

32.03

2002-03

114.3

33.05

2005-06

140

33.98

2011-12

199.6

33.47

2024-25

376.5

61.4Supply

InMMT

CarBha_OGFJ_1112 1 11/9/11 2:59 PM

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CarAmb_OGFJ_1112 1 11/22/11 10:58 AM6 energy.focusreports.net December 2011 Oil & Gas Financial Journal www.ogfj.com

Full of achievements, including

125 deepwater wells drilled and a

strong track record, Reliance Indus-

tries signed another milestone in its

international strategy by signing a

joint venture with BP last Febru-

ary through which the American

supermajor committed to invest 7.2

billion USD (30 per cent stake) in 21

of Reliance’s oil and gas blocks.

In a press conference following the signing of the deal, Reliance

Industries chairman Mukesh Ambani said that “These guys are the

best (in exploration). If you want to climb the Mount Everest, make

sure you have the best Sherpa with you.”

Reliance’s successful deal was followed last August by news

that ONGC was holding talks with international oil companies

already present in India including Shell, Eni and BG to sell stakes

in its deepwater wells off the country’s resource-rich eastern shore.

At the same time, ONGC has also been carrying out a Rs. 9,000

crore (approximately 2 billion USD) redevelopment investment to

increase oil and gas output of its Bombay High !eld.

Indeed: “In India we are endowed with around 138 billion

barrels of oil and oil equivalent, but most of them lie in frontier

locations/deep water and ultra deep water. In order to search for

these resources our country needs advanced technology,” explains

Ashley Jerome D'sa, CEO of Oil Field Instrumentations (OFI), a

company delivering mud logging services.

D’sa praises the New Exploration Licensing Policy (NELP) intro-

duced in the early 1990’s to further liberalize participation at E&P

tenders, as: “the general impact of such policies is the increasing

entry of foreign investment and private companies in the Indian

upstream market. Obviously, this has also given more opportuni-

ties for growth in the sector that we are in. We have been working

on almost every project; with ONGC for instance, we have been

working with them in all the assets and basins – onshore as well as

offshore. We have also been working with private and MNC’s like

Cairn, Reliance, GSPC, British Gas, Shell, Gazprom, NIKO, Hardy

Petroleum and many others. If the exploration industry continues to

grow we hope to see growth in OFI’s business as well.”

The growth should be supported by the upcoming Open Acre-

age Licensing Policies (OALP), which will replace the old NELP,

and could play an important role in bringing in the necessary

technologies.

“It will de!nitely attract further investment. Under the NELP,

Satpal Singh, managing director & CEO, Dolphin Offshore Enterprises

Amit Biswas, CEO, Ambico Ashley Jerome D'sa, CEO, Oil Field Instrumentation (OFI)

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companies have to follow a !xed format and process and must

participate in the tenders. With the new Open Acreage Licensing

Policy, whether it happens in 2012 or 2013, there should be more

opportunities for new players to come in. This would also give easy

access of geological data to E&P operators,” hopes D’Sa.

As the government is working on more investor-friendly policies,

India is quickly becoming a strategic location for global players.

Parmjit Singh Nayyar, Oceaneering country manager India, is one of

those who clearly spots India as key for business: “Wherever there

is deep water, Oceaneering comes in,” he told Focus Reports.

“We have always gone for strategic locations, and in fact India is a

standalone location. The country has a lot of open future for oil and

gas and that is why India was selected. The country currently makes

a signi!cant contribution to the growth and Oceaneering is also

very keen on India for the future.”

The company can also provide a solution not only in deep

waters but even when it comes to shallow water. “Let’s say where

divers cannot go, we come in. We are the kind of company that can

support any type of operation. For any kind of dif!culty we come

up with a solution,” clari!es Nayyar.

“India is a strategic location to establish operations,” agrees

K.G. Remesh director of Swiber Offshore, a Singaporean com-

pany that controls a "eet of offshore support service vessels and

construction vessels, when asked what made his company come to

India.“We believe India to be one of the most dynamic and fastest

growing markets for offshore oil and gas activities, with a big and

CarDol_OGFJ_1112 1 11/8/11 4:55 PM

Kedarnath being towed by Great Offshore'sanchor handling tug supply vesselsCourtesy of Great Offshore

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growing demand for offshore marine support services in India. India

has a signi!cant pool of engineers and is a strategic location for

market expansion.”

Another deepwater specialist, Weatherford, has been active

in India since 1996, when it opened an of!ce in Mumbai. Olivier

Konig, country manager India of Weatherford Oil & Tools, sees

an important role for the deepwater sector in modernizing India’s

O&G industry. “Deep offshore operations require top class technol-

ogies,” Konig said. “This sector has been driving the trend for India

to accept, bring in and adopt new technologies, being pushed by

service companies as well, consider-

ing we have the knowledge, the

understanding and the experience

in this sector.

“Weatherford has pioneered the

drilling of deep hot wells on the

east coast of India, Konig contin-

ued. “These are some of the tough-

est deepwater environments in

which we have deployed our tools

BPCL: Moving upstream and offshore For the full interview with R.K. Singh, chairman and managing director of Bharat Petroleum Corporation (BPCL), log onto energy.focusreports.net

FR: Since you became chairman & managing director in December 2010, what have been your biggest priorities?

R.K. Singh: The !rst priority was deciding where we want the company to be in !ve years from now. Having decided on our aspirations and vision for Bharat Petroleum, we needed to work out how to attain them. (…)

Predominantly, BPCL is a downstream company dealing with re!ning and marketing of petroleum products, but we have also looked at other available opportunities and have entered the upstream sector and have been fortunate to make some discoveries along with other consor-tium members. This has certainly encouraged us and we now want to consolidate this upstream business and work towards monetization of the discoveries.

R.K.Singh, chairman & managingdirector, BPCL

FR: All your moves upstream have been in quite high-risk ventures so far – deepwater in Brazil, a wildcat well in Mozam-bique and shale gas in Australia. These are all areas where even experienced players are quite wary about entering. What was the rationale behind such moves?

R.K. Singh: Two things played in our mind. As far as Bra-zil is concerned for example, we bought assets owned by Encana Canada. A lot of data was available for us, and we knew that the prospectivity was very good (…).

The second aspect of this is that Brazil is now having a lot of discoveries in deep water. It is a big success story. The operator of the blocks is Anardarko, a very estab-lished player, and Petrobras also has a stake. They are known to be experts in deep water drilling, and have all the necessary rigs and the equipment that are required for deepwater drilling. So the operator’s image, their capabilities and data meant that we took the decision that this would be the place to grow our upstream busi-ness. I hope that by 2015, oil will start "owing in Brazil for BPCL. Despite the high risk, I believe that the upstream

business is more pro!table.

Parmjit Singh Nayyar, country manag-er - India, Oceaneering International

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in and have been immensely suc-

cessful in helping clients meet their

exploration objectives. It has been

more than 5 years since we started

out on the east coast and are cur-

rently involved in the development

drilling in that area.”

Going deeper: the next step for the shipping industry?The deepwater developments are also attracting the Indian ship-

ping industry. As the sector is going through a global downturn,

shipping companies have found a new potential area in servicing

the booming offshore industry.

“Offshore today means going deeper and deeper into the sea,

and because of the technological improvement, the maritime com-

ponent of the offshore segment is increasing. Obviously if you go

deeper, you require more engage-

ment of the maritime assets,”

explains S. Hajara, chairman and

managing director of the Shipping

Corporation of India (SCI), the

largest and most diversi!ed public

sector undertaking (PSU) under the

ministry of shipping. “Therefore I

believe offshore has a huge poten-

tial and we are trying to increase

our presence there, but we have not been able to break into the

higher segment of rig platforms as of yet. That is very much in our

minds and we have had discussions with a couple of players but

nothing concrete has happened yet,” he continued.

The support industry as well is looking at the offshore industry

with more interest. Bharati Shipyard for instance, one of India’s

leading private shipyards, is targeting the deepwater offshore

sector. “There is a new trend in the industry where companies

Olivier Konig, country manager India, Weatherford Oil & Tools

S. Hajara, chairman and managing di-rector, Shipping Corporation of India

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require vessels with high speci!ca-

tions, especially for deeper water

interventions,” P.C. Kapoor, the

company’s managing director, said.

“For instance, operations on the

east coast of India and in Brazil

require larger vessels. Bharati

Shipyard has decided to go on and

build these vessels. We see a lot of

growth opportunities in this area,

both in the east coast of India and

in Brazil.”

Bharati Shipyard acquired an integrated offshore oil!eld services

provider, Great Offshore, in June 2010 from the family-owned

Great Eastern Shipping Company, capitalizing on the synergies

existing between the two companies. Kapoor continued. “Bharati

has been constructing ships for Great Eastern as well as for Great

Offshore for the last twenty years. A major portion of Great

Offshore’s "eet that is currently

operating has been constructed by

us. There were a lot of interactions

between the two companies before

the acquisition, even before we had

a single share.”

Since the acquisition, Bharati has

been actively growing and renew-

ing Great Offshore’s "eet, phasing

out the older ships to adapt it to

deep water operations. Kapoor explains that, “since we took over,

we have already purchased six vessels for !ve or six years, available

in very attractive places. This purchase brings the total size of our

"eet to 47 vessels, out of which 10 or 12 are to be phased out. We

will double the "eet in the next !ve years, not in terms of number

of vessels, but in terms of operating capacity.”

Christopher Phillips, director of Seatech, a ship broker and char-

terer founded in 2008, has been making good use of the oppor-

tunities generated by the development of the offshore industry,

especially by the discovery in the KG-D6 basin. “There is a lot of

potential in the shipping industry in India, especially on the east

coast belt which is really rich in minerals,” said Phillips. “In the light

of a few power companies increasing their activities in the region,

there are a lot of project movements on this belt. Even Mumbai

has specialized in project cargoes. Simultaneously, in the West,

the states - especially Gujarat - have converted a lot of industrial

growth over the last decade.”

Given that India imports two thirds of its energy needs and

exports about 40% of its re!ning products, additional opportunities

arise for the shipping industry to support the oil and gas sector.

This is the approach that has been taken also by Seatech: as “we

are a young establishment; we have to be aggressive with our

approach and look into every opportunity that comes our way,”

explains Phillips.

Foreign investment in restraintsWhile India’s O&G sector has received a good deal of foreign

investment in past years, many feel it’s not close to what it should

CarSea_OGFJ_1112 1 11/8/11 5:16 PM

P.C. Kapoor, managing director, Bharati Shipyard Limited, and execu-tive director, Great Offshore Limited

Christopher Phillips, director, Seatech

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CarGEI_OGFJ_1112 1 11/9/11 1:51 PM


be yet. India’s regulatory environment and

the high complexity of the market are often

mentioned as holding off foreign players. In

fact, major international companies are said

to be waiting for the country to be ‘mature

enough’.

Aboveground, India’s reputation is

good due to its stable democracy, clear

regulations and policies, especially in

the upstream sector, and widely praised

production sharing contract (PSC) systems

in place.

Gas Thirsty!

In looking to secure its ever-growing hunger for energy, Indian demand for LNG is growing.

Domestically produced gas saw a lower output, making imported gas more crucial. Growth projections for natural gas demand are 4.7 percent annually, which would mean it would reach about 600 million standard cubic meters per day (mscmd) by 2030.

GAIL, India’s principal gas trans-mission and marketing company, is preparing its Dabhol, Hazira and Kochi LNG terminals for 100-120 mscmd of R-LNG, and is establishing an LNG plant in Maharashtra from where it is planning to progressively bring more LNG to India.

Already, under a memorandum signed last June, Gazprom agreed to supply 7.5 million tons of LNG over 25 years to Gujarat State Petroleum Company, Petronet LNG Limited, and GAIL. In this !scal year, eight LNG deliveries have been sourced, and the company expects another !ve or six in the remainder of the year. In the next couple of years, its spot gas portfolio will increase four- to !ve-fold.

B.C. Tripathi chairman and managing director of GAIL told Focus Reports about current and future plans in LNG. He states, “The company has already sourced half a million tons of LNG, for the !rst time doing it indepen-dently, and we are now discussing various other major supply projects. GAIL intends to import !ve million tons of LNG in the next two to three years. That is why we are gearing up GAIL’s infrastructure so the receiving terminals get ready and the pipeline infrastructure is in place in due time.

B.C. Tripathi, chairman & managing director, GAIL

“GAIL is looking not only to grow in the domestic market but internationally. Hence, we would like to have partner-ships with companies that are ready to work with us in the international arena, to source more LNG, for instance. It could be either an upstream investment for producing or near-producing blocks, or it could be LNG and petrochemical plants. What GAIL can bring in is its unique 25 years of experi-ence and expertise in one of the world’s most challeng-

ing, but most promising, energy markets,” Tripathi concluded.

Since the establishment of GAIL in 1984 the Indian oil and gas industry has experienced major trans-formations, especially related to the market liberalization and modernization of the country’s major PSU’s. How has GAIL adapted to this new environment and helped shape it?

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The NELP has been a very successful policy in opening up

the industry for private players and liberalizing the market. A.K.

Arora, director general of Petrofed, one of India’s top oil and gas

representatives, emphasizes the changes NELP brought. “You have

to understand that the rate of participation of private players has

considerably increased since the market liberalization took place.

However, in an evolutionary process you have to start somewhere.

The perceived deviations and imperfections are being taken care

of in a gradual and democratic process, unlike other regimes where

the state requiring something to be done acts differently adopting

varying processes.”

“What no one disagrees with is that the system in India has

evolved towards a market-friendly and level-playing !eld environ-

ment where private players are enjoying great scope for action.

One may criticize the speed of these changes, but can’t deny their

existence.”

However, India is still lagging behind in exploring its offshore,

with underground risks keeping international players at bay in the

upstream industry. The country has the reputation to be unex-

plored, and, although it’s the government’s ardent wish to get

exploration going in as many basins as possible, some say the

country has failed to do so suf!ciently, with available data lacking,

making investors hesitant to deploy activity.

The aforementioned BP deal and the ONGC negotiations with

Shell, Eni and BG to sell stakes in its deepwater developments

on the country’s eastern shore are promising signs for foreign

companies looking to enter India. Nonetheless, there are still many

administrative hurdles and questions on the risk/bene!ts ratio.

One aspect many believe should

change, as expressed by major

international energy companies

looking to conduct exploration

activities in India, are restrictions

imposed by the country's defense

and space authorities on explora-

tion activities.

Just over half a year after it

signed the biggest foreign direct

investment in India’s history, BP, in a joint letter with BHP to the

Indian petroleum ministry, expressed its concerns over these restric-

tions as they would block medium and long-term commitments.

“This is also affecting the con!dence of international companies

in undertaking high-cost, high-risk frontier exploration in offshore

India,” the letter read.

A world nucleus for the service industry"While in the upstream segment there is ample room for improve-

ment on the regulatory front, India has been very successful in

attracting international players supporting the oil and gas industry

through new technologies, solutions and equipment. Sajiv Nath,

managing director of Swiss-based instrumentation and process

automation company Endress+Hauser, said “We could have gone

anywhere in Asia, but we went to India because this is where the

bene!t to risk ratio is the best. India is rationally considered the

main investment destination for the group. India is a sustainable

market which also provides IPR (Intellectual Property Rights) to

protect. Looking at the growth market in India, the bene!ts are far

higher than the risks,” he continued.

One of the main bene!ts is undoubtedly provided by the

quali!ed Indian workforce. “The Indian manpower is a young pool

of engineers with high communication skills (…),” Rabindranath

Burman, director of US manufacturer ITT Corporation, summa-

rized. “India is not only a manufacturing hub but also a talent

pool, speci!cally from the engineering side. ITT demands from its

engineers that they support global projects at the R&D level, while

also synergizing new strategies". And they are up for the task: “We Pipelines in Rajasthan, Courtesy of Cairn India

A. K. Arora, director general, PetroFed

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CarWea_OGFJ_1112 1 11/8/11 4:13 PM

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have extensive training programs, a strong team of people, migrat-

ing from one part of the world to another, and we have the best of

both worlds.”

There are worries, however, that the demand for skilled labor in

India’s oil and gas sector might outstrip supply making it increas-

ingly dif!cult to attract and retain talent, which is critical in a fast

growth economy. “The working environment is very demanding

from a human resources perspective,” Shishir Joshipura, manag-

ing director of SKF, a global supplier of rolling bearings, seals,

mechatronics, services and lubrication systems said. “The rapid

growth will increase the demand for quali!ed resources, thus invit-

ing an increased focus on retention of talent. Innovation, energy

ef!ciency and reliability of operations while managing costs in an

ever improving way are some of the challenges all industries are

faced with,” which, according to Joshipura, could lead to nothing

less than “a war for talent.”

Is India ready to pay the price?Despite a very fast changing environment and the sector’s liberal-

Entering the Indian market

As the industry is booming, foreign companies are "ow-ing in to set a direct base in the country. But what is the best entry strategy in a country as wide and dispersed

as India, that counts so many hotspots for the oil and gas industry? We asked Hydratight, the boltied joint solutions specialist, that is currently setting up the Indian operations.

“The question is how to organise for ourselves the stron-gest possible base here. We need a better understanding of the needs of our local customers (…). The market here isn’t as formal and organised as in the US or in Europe, but we stick to our plan: develop a profound knowledge of the market and establish strong relationships with customers”, explains Alain Wald, EMEA area leader, when we met him in the occasion of the Offshore India and Unconventional Oil & Gas India confer-ence and exhibition in Mumbai.

Murali Narasimhan, country leader India, adds that, despite Bangalore being the hub for the Indian operations, “no single place can realistically handle the entire country’s needs, wher-ever it is based. Bangalore will be the hub, but we intend to develop satellite bases across the country. Our initial focus will be the western part of India, which is where the key O&G play-ers are located. Progressively, we will work on developing the

northern and eastern sides of the market. There is also a lot of development taking place at Kakinada in the south.”

Hydratight sets international standards in joint integrity on a

global scale. Operating from 35 locations, Hydratight offers

fast, accurate solutions to your bolting and machining needs.

Using state-of-the-art equipment, our qualified on-site

technicians offer monitoring, bolting, machining and training

services to maximize safety, reduce plant down-time and

extend facility life.

To find out more visit

www.hydratight.comor email [email protected]

ENGINEERING MAINTENANCE TRAINING SERVICE

CarHyd_OGFJ_1112 1 11/8/11 4:58 PM

Murali Narasimhan, country leader India, and Alain Wald, EMEA business leader, Hydratight

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ization, India’s PSUs are dominat-

ing the industry both upstream

and downstream. Given their size,

entering into agreements with them

is a must for any company wanting

to be present in the Indian oil and

gas industry. Contracts are often

long-term and, given the state

backing of these companies, safe.

In their attitude to new tech-

nologies, there are major differences between India’s National Oil

Companies (NOCs) and International Oil Companies (IOCs), Olivier

Konig, country manager India of Weatherford found. “NOCs and

IOCs in India have a very different approach to technologies. The

IOCs are very forthcoming and open to trying new technologies

while NOCs often have stringent procurement,” he continues.

“Besides, with NOCs, there is not enough "exibility to allow the

addition of new products and

services, when these are not part of

the scope of work that was decided

initially, even if they are brilliant

products that could meet their

objectives and more.”

Indeed, the procurement system

is very strict, as the selection of

suppliers, either service companies

or equipment providers, is based

exclusively on price, what is called the L1, or lowest bid.

Clearly, this process has changed the landscape of the industry,

in"uencing not only the local industry but also the international

companies, which have been progressively reducing their prices

in order to secure contracts with the PSUs. As Dolphin Offshore’s

managing director and CEO Satpal Singh explains, “the worldwide

economic situation and more particularly the reduction in offshore

CarEnd_OGFJ_1112 1 11/8/11 4:16 PM

Shishir Joshipura, managing director and country manager, SKF India

Sajiv Nath, managing director, Endress + Hauser

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dollars a day. It has been very dif!cult for

Indian companies to pick up work.”

The same issue is faced by the equip-

ment suppliers. “The concept of L1 is

hurting the industry,” said Javed A Hawa,

managing director of Hawa Valves, speak-

ing on the valve industry. “There is an

evaluation done by engineers; however,

those engineers are not valve engineers.

They will look at any company and their

products against some parameters that

have been set by their management but

they do not have the in-depth knowledge

to understand what differentiates one valve company from the

next. In fact they are carrying out an evaluation, which is prior to

the bid opening, but that evaluation is skewed from the beginning.

The process is "awed.” In order not to compromise with the qual-

ity standards, the company decided to focus on the global market,

rather than the Indian one. “We realized that the values that we

were bringing to the investor in terms of HSE were better recog-

nized by the global end users in the hydrocarbon sector, rather

than the PSUs.”

However, for international companies that are setting their

foothold in India, PSUs remain the !rst target, and one of the chal-

lenges is increasing the acceptance of new technologies. “Given

the importance of the public sector within the Indian market, the

idea !rst needs to be sold to them,” said Sulzer’s India President

B. Balaji. “At the same time, as markets are developing, customers

also are willing to try new technologies. This has opened up doors

for us, as we are able to bring a lot of world class technology in

India through the Sulzer Chemtech channel.”

Luckily, interest in advanced technology is increasing and the

international players are capitalizing on these nascent opportuni-

ties. Endress+Hauser’s managing director Sajiv Nath has seen

landslide changes in the way in which the country deals with new

technology. “The market has predominantly consisted of PSUs but

has evolved over time. I still remember the phase during the 1980s,

when talking about new technologies and software was not well

CarHawa_OGFJ_1112 1 11/8/11 4:57 PM

Sulzer facilities, Pune

oil and gas development projects forced international companies

to come to India and bid competitively. They started to dump

prices to get work in India, just to keep their assets deployed. As

a consequence, in the last two years, the rates of construction

barges have gone down from 455,000 dollars a day to 175,000

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•

CarTem_OGFJ_1112 1 11/9/11 1:43 PMwww.ogfj.com Oil & Gas Financial Journal December 2011 energy.focusreports.net 17

accepted, he explained. Today it

is the innovative technical “geeks”

who drive the Indian market. In fact,

Indian technologies are more driven

by the end users than by EPCs.

Endress+Hauser has been success-

fully able to identify certain “geeks”

amongst these end users who have

been receptive to technological

change.”

This aspect has been con!rmed by Konig from Weatherford,

who is currently at his second stint in India. “Over the years the

country’s O&G business has evolved and the country is today much

more open to new technologies, which supports Weatherford’s

growth strategy,” he said. “The opening up of the market has been

supported by the entry of international companies There have been

several new private Indian companies that have secured blocks in

the latest NELP rounds”.

From price to quality: the Indian re-evolutionAs historically many of the local manufacturers have been focusing

on lower prices in order to guarantee an access to a very price-

conscious market, for many years the image of India as a cost killer

country impacted the reputation

of Indian manufactured products,

fairly or not.

“Up until 1990, there was not

much of a market scope for the

Indian industry, especially as far as

valves were concerned, Jagdish

Prajapati, managing director of

valve manufacturer Panam Engi-

neers recalls. “Indeed, the purchas-

ing mentality abroad was laden with a few prejudices in terms of

region, business ethics, etc. But once they came to the realization

that products from countries like India can be of high quality, they

began wanting to trade with us more.

While the situation has changed for the better and Indian prod-

ucts are sold on foreign markets, Indian companies still have a gap

to close,” Prajapati said. “There is still a little gap [between Indian

and international quality], as far the industry world is concerned.”

“The acceptance of Indian products is much more prominent

now as compared to 10 years ago”, admits Nath of Swiss-based

Endress+Hauser. To him the ability of Indian engineers to learn and

integrate new technologies has much to do with this success: “The

Indian workforce has tremendous technical skills. Thanks to the

B. Balaji, president, Sulzer IndiaJaved A. Hawa, managing director, Hawa Valves

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technical knowledge the employees have, they can now be trained

easily.”

The fact that Indian companies did overcome many of the

prejudices that haunted them earlier has been con!rmed also by

V.P. Ramachandran, secretary of the Process Plant and Machinery

Association India (PPMAI). “Ten years back, Indian engineering

companies used to go and visit ACHEMA [an international exhibi-

tion congress on Chemical Engineering, Environmental Protection

and Biotechnology, held yearly in Frankfurt, Germany] to under-

stand the latest foreign technologies, learn from them, and perhaps

buy them,” says Ramachandran. “The situation has now changed;

the technology transfer goes the other way around. Now, Indian

companies go there to sell their equipment and technology. They

are looking for buyers for the technologies they are able to manu-

facture from India.”

Overcoming the misconceptions, many Indian manufacturers

look abroad to sell their products. So does H.K. Sippy, chairman

and managing director of Tema India, whose company belongs to

a small group on the globe able to

manufacture high quality, high pres-

sure heat exchangers.

“Foreign operations are de!-

nitely a central focus, due to the oil

sands in South America, Canada,

and Russia. We are ready to com-

pete with players overseas,” Sippy

said. “We are concentrating on

our Screw Plug heat exchangers in

O&G, for which we have a patented

design. The idea is to increase our

global market share to at least

40%.” Tema is one of the Indian

companies that has been strongly

investing in high quality and latest

technology. As Sippy highlights,

“There are several companies

that work with heat exchangers,

although it is true that very few of

them have the design capabilities

that we possess. We have been

able to elevate the standards of our

company to its current standing.

Apart from that, there are com-

panies who have not been able to

bring to the fore the combination

of design and an intricate manu-

facturing process. They may be

!nancially stronger and larger as an

establishment, but technically, they have not been able to bring this

kind of engineering excellence.”

With equipment installed on the !ve continents, GEI Industrial

Systems, specializing in heat transfer technology, is another Indian

manufacturer that has found a way to bring Indian equipment to

international markets. “Almost every week, somebody visits us from

abroad to establish a JV or some kind of manufacturing arrange-

ment with GEI. Foreign visitors have a good opinion of Indian

CarPan_OGFJ_1112 1 11/9/11 1:23 PM

VP Ramachandran, secretary, PPMAI

H.K. Sippy, chairman and managing director, Tema India

Jagdish Prajapati, managing director, Panam Engineer

CarFur_OGFJ_1112 1 11/8/11 4:19 PM


capabilities,” said

C.E. Fernandes,

chairman and

managing direc-

tor of GEI. “There

was a time when

Indian qual-

ity was neither

appreciated nor

accepted in most

countries; however, in the last decade or so a lot has changed.

There has been a shift in perception in recent years and many are

now con!dent of the quality and technology of Indian products,

which are at par with European vendors”, he continues.

With JVs in Oman, Brazil, Singapore, and plans to enter South

Africa, Fernandes has a word of advice on how the international

O&G industry should deal with companies like his. “The O&G

Panam Engineers manufacturing facility

community should look global and

accept companies which are com-

ing up aggressively to meet the

demand in these areas, especially

large multinationals such as Chev-

ron, Shell, ExxonMobil. They should

open up in such a way that compa-

nies from the developing countries,

like GEI, can get a good participa-

tion to join in their progress.”

Re!ning, the future of India?Even though India has been undoubtedly developing its offshore

sector, as well as a vibrant manufacturing industry, the most promis-

ing sector in the O&G industry still seems to be re!ning. India already

contributes to 4% of the world re!ning, with an installed capacity

of almost 200 million tons per annum in 2011, and showcase the

C.E. Fernandes, chairman & managing director, GEI Industrial Systems

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•


largest single-complex re!nery in the world, the Jamnagar complex

by Reliance Industries. Notwithstanding these impressive !gures, the

country is continuously adding new capacity and is expected to reach

300 million tons per annum by 2017.

Most of the state owned players are adding capacity. The PSU

Indian Oil has recently completed the expansion of its Panipat re!nery

to 300,000 barrels a day, from 240,000. State-owned BPCL, based

in Mumbai, with a re!ning capacity of 30 million tons per annum, in

addition to expanding capacity at

its Kochi re!nery, has commissioned

the Bina re!nery, which will have

a capacity of 120,000 barrels per

day with the potential to raise it to

300,000 barrels.

The other Mumbai-based state-

owned re!nery, HPCL, plans to

expand capacity of its Visakh Re!n-

ery by 9 million tons as well as a relo-

cation of the Mumbai re!nery, which currently re!nes 6.5 million tons,

to the west coast of India. The company furthermore commissioned

its !rst re!nery in the north of the country, in Bathinda in the state of

Punjab, through a joint venture with Mittal Energy. The HPCL Mittal

Energy Limited (HMEL) grass root re!nery will be commissioned by

March 2012 and is expected to produce 9 million tons per year.

The expansions in the country’s major re!neries have also allowed

the service industry to increase its capacities. Swiss manufacturer Sul-

zer for instance has been expanding its capacity in order to support

the boom in the re!nery industry. “In fact, Sulzer India has carried out

a signi!cant portion of the mega projects in re!neries in 2006 and

petrochemical in 2007 & 2008. Considering we expanded our plant’s

capacity in 2005 and 2006, so before the booming really started, the

timing was excellent. Successful execution of large projects has given

a lot of con!dence to our customer for future collaborations also”,

Sulzer’s president of Indian operations B. Balaji said.

The new projects have also created a shift in the structure of the

industry, as “there has been a shift from a PSU dominated market to

a number of private partnerships.

For instance, the biggest re!neries in

India are not PSUs but Reliance and

HMEL, which is a partnership with

the Mittal Group”, ITT’s managing

director Burman pointed out.

Indeed, these major expansion

projects have created a number of

opportunities for the service industry

and Burman believes that the extra

CarSul_OGFJ_1112 1 11/16/11 1:56 PM

Hydrocracker project, Haldia refinery, Courtesy of Punj LloydRabindranath Burman, director and country head, ITT Corporation India

A. Basheeruddin, managing director and co-founder, Furnace Fabrica

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CarITT_OGFJ_1112 1 11/10/11 2:48 PM


capacity in these re!neries “will de!nitely be a driving force

in both the top and the bottom line of the pro!t and losses

(P&L)” of the company.

Furnace Fabrica, an Indian EPC player with a strong focus

on the downstream, has been taking advantage of these

new projects as well. As managing director A. Basheeruddin

explained, “We successfully completed expansion projects

for Hindustan Petroleum Corporation Limited (HPCL). Now

we are executing a sulphur recovery unit for the same client.

We expect to get a major chunk of the business from [the

expansion of the Bombay re!nery]. We completed the expansion plans of the Haldia re!nery

as well. In fact, we were the !rst company to build the second hydrogen reformer at the Indian

Oil Corporation re!nery, with a capacity of 94.62 mmkCal/hr”. Currently, the company is work-

ing on three acid coolers with anodic protection design for Indian Oil Corporation’s Paradip

re!nery. “Many companies will !nd it dif!cult to meet the stringent requirements,” Basheer-

uddin said on this last project. “There were only two bidders. One was from America and we

were the second. We beat them out on the price, which is often one of the main criteria in

India, considering it is a highly price-sensitive market.

“In addition to this, we are one of the few international companies with experience in

dismantling re!neries for reconstruction, not for scrapping. We are able to dismantle, rebuild,

and also expand re!neries. Our capacity is unique in that respect”, continues Basheeruddin.

G. Sathiamoorthy, managing director of Tecnimont ICB (TICB), part of the Italian engineer-

ing, procurement and construction company, Maire Tecnimont Group, con!rms the number of

opportunities available, not only downstream: “India is currently buzzing with new opportuni-

ties for gas treatment, re!nery and fertilizer units. TICB has the references and the capabilities

to undertake these projects. There is a lot potential in the O&G industry, some LNG terminals

are under discussion. The company is eyeing few prospects in the re!ning segment. We do

foresee the re!ning sector to gain momentum next year with new expansion projects getting

!nalized.”

And with all the projects coming up, from upstream offshore to the re!ning sector, this

revolution happening in the Indian oil and gas industry is becoming less and less silent.

G. Sathiamoorthy, managing director, Tecnimont ICB

Correction: Country Report: India, the silent revolution - Part 1, Oil & Gas Finan-cial Journal, July 2011: on page 72 the photograph on top is of Dr. A. K. Balyan, CEO & managing director, Petronet LNG Limited, and not as wrongly state of B. C. Tripathi, chairman and managing director, GAIL.

CarGail_OGFJ_1112 1 11/8/11 4:14 PM

••

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•India Pt.2

In its search to solve the question of India’s energy security, the Indian state government has been pushing to promote exploration activities in the country, and efforts of both public and private sector enterprises have recently been concentrating on the offshore exploration. With shallow

water expertise steady in place, India’s shores are witnessing a new round of development as deep-water explorations attract high levels of both domestic and foreign engineering and manufacturing.

Nonetheless, the dominance of state-owned players, strong price awareness, and modest foreign investment might throw grit in the machine of India’s offshore oil and gas sector.

Focus Reports presents you with an insight look from Mumbai, India’s offshore epicenter.

The Silent Revolution

Project Director: Federica Torgneur. Editorial Coordinator: Nicolas Carayon. Project Assistants: Mathilde Paquet & Fleur Richard. Editorial Con-tributor: Herbert Mosmuller. Report Publisher: Ines Nandin. For exclusive interviews and more info, please log onto energy.focusreports.net or write to [email protected]

Kedarnath jack-up rig, drilling depth 20,000 feet, courtesy of Great Offshore Limited


advertisement

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New Horizons OffshoreThe story of India’s offshore started with the discovery of the

Bombay High oil!eld 160 kilometers off the coast of Mumbai. “The

Oil and Gas (O&G) discovery in Bombay High took the country

by surprise,” explained Satpal Singh, managing director and

CEO of Dolphin Offshore, one of the !rst Indian offshore support

companies. “There was no expectation that India had offshore oil

resources. We had historic !ndings in Assam and Gujarat, which

had been found during the days of the British presence in India.

The entire production was oil - hardly any gas was restricted to that

source. There was no development of O&G technology; there was

no trading institution over here, although after a period of time,

Oil & Natural Gas Corporation (ONGC) started to develop certain

institutions.”

“It actually all started with a lot of foreign companies, consider-

ing there was no Indian company that had suf!cient expertise,”

Amit Biswas, CEO of Ambico, explained the initial development

of India’s offshore industry. Biswas’ company is a service bound

offshore agency with Joint Ventures (JV) with Malaysian offshore

engineer IEV, British Found Ocean and a partnership with the Aus-

tralian offshore project contractor Tamboritha. “Over the last !fteen

years, a lot of Indian companies have come in, for exploration and

production (E&P) of offshore oil and gas,” Biswas continued.

“The crews of the vessels, along with the companies mastering

the supply vessels, were foreigners,” Biswas continues. “It took us

some time to train local people and qualify them (…) My partner

was, in fact, the !rst ever Indian master to handle an offshore ves-

sel. Slowly, Indian companies came in. Now we see some JV or full-

"edged Indian companies taking lump sum turnkey jobs. Before,

only foreign companies were doing it, and Indian companies were

providing a bit of support.”

“The country’s offshore sector”, said Singh, “possesses such

levels of homegrown expertise nowadays that it could do without

foreign expertise. The growth and development of the Bombay

High !eld provided tremendous opportunities for Indian companies

to start new ventures and over the next 2 decades the country grew

towards self reliance in being able to meet the requirements of the

Oil & Gas industry.”

Beyond Bombay HighWhile the output of the Bombay High !eld run by state-owned

ONGC decreased from a 20 million ton peak in 1989 to 9 million

tons now, India’s offshore industry received a next boost in 2002,

when Reliance Industries, India’s largest private player in the petro-

leum sector, discovered the biggest natural gas reserves in India.

This was in the D6 block in Krishna Godavari (KG) basin, 37 miles

off the Indian east coast in the Bay of Bengal. The !eld has proven

plus probable reserves of 11.3 Tcf. Similar to what happened in the

Bombay High !eld, the development of the operations at the east

coast has seen India’s domestic industry, with the support of foreign

companies, working hard to close the knowledge gap .

Reliance Industries’ operations in the KG basin were quickly

recognized as India’s most important offshore activity and even one

of the most important in the world; the !eld was the world’s largest

gas discovery in 2001. Indeed, as P.M.S. Prasad, Reliance Industries’

executive director, told Focus Reports, “our drilling partner, Trans-

ocean, says that our operations at a water depth of 10,194 feet are

the deepest that have ever been done [worldwide]”; this project

has also seen the participation of the Houston-based oil!eld service

company, Oceaneering, with an all Indian team.

“We had to start from scratch, so having created an organiza-

tion, trained a lot of people and acquired some competencies and

infrastructure, we are now looking at opportunities outside India,”

continues Prasad. “We have a very good safety, exploration, devel-

opment and project management record, and now we are looking

to capitalize on these competencies outside the country.”

Oil demand & supply

Source: University of Petroleum & Energy Studies (UPES), IORS 2011

400350300250200150100500

Demand

2001-02

99.7

32.03

2002-03

114.3

33.05

2005-06

140

33.98

2011-12

199.6

33.47

2024-25

376.5

61.4Supply

InMMT

CarBha_OGFJ_1112 1 11/9/11 2:59 PM

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•

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CarAmb_OGFJ_1112 1 11/22/11 10:58 AM6 energy.focusreports.net December 2011 Oil & Gas Financial Journal www.ogfj.com

Full of achievements, including

125 deepwater wells drilled and a

strong track record, Reliance Indus-

tries signed another milestone in its

international strategy by signing a

joint venture with BP last Febru-

ary through which the American

supermajor committed to invest 7.2

billion USD (30 per cent stake) in 21

of Reliance’s oil and gas blocks.

In a press conference following the signing of the deal, Reliance

Industries chairman Mukesh Ambani said that “These guys are the

best (in exploration). If you want to climb the Mount Everest, make

sure you have the best Sherpa with you.”

Reliance’s successful deal was followed last August by news

that ONGC was holding talks with international oil companies

already present in India including Shell, Eni and BG to sell stakes

in its deepwater wells off the country’s resource-rich eastern shore.

At the same time, ONGC has also been carrying out a Rs. 9,000

crore (approximately 2 billion USD) redevelopment investment to

increase oil and gas output of its Bombay High !eld.

Indeed: “In India we are endowed with around 138 billion

barrels of oil and oil equivalent, but most of them lie in frontier

locations/deep water and ultra deep water. In order to search for

these resources our country needs advanced technology,” explains

Ashley Jerome D'sa, CEO of Oil Field Instrumentations (OFI), a

company delivering mud logging services.

D’sa praises the New Exploration Licensing Policy (NELP) intro-

duced in the early 1990’s to further liberalize participation at E&P

tenders, as: “the general impact of such policies is the increasing

entry of foreign investment and private companies in the Indian

upstream market. Obviously, this has also given more opportuni-

ties for growth in the sector that we are in. We have been working

on almost every project; with ONGC for instance, we have been

working with them in all the assets and basins – onshore as well as

offshore. We have also been working with private and MNC’s like

Cairn, Reliance, GSPC, British Gas, Shell, Gazprom, NIKO, Hardy

Petroleum and many others. If the exploration industry continues to

grow we hope to see growth in OFI’s business as well.”

The growth should be supported by the upcoming Open Acre-

age Licensing Policies (OALP), which will replace the old NELP,

and could play an important role in bringing in the necessary

technologies.

“It will de!nitely attract further investment. Under the NELP,

Satpal Singh, managing director & CEO, Dolphin Offshore Enterprises

Amit Biswas, CEO, Ambico Ashley Jerome D'sa, CEO, Oil Field Instrumentation (OFI)

••

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•


companies have to follow a !xed format and process and must

participate in the tenders. With the new Open Acreage Licensing

Policy, whether it happens in 2012 or 2013, there should be more

opportunities for new players to come in. This would also give easy

access of geological data to E&P operators,” hopes D’Sa.

As the government is working on more investor-friendly policies,

India is quickly becoming a strategic location for global players.

Parmjit Singh Nayyar, Oceaneering country manager India, is one of

those who clearly spots India as key for business: “Wherever there

is deep water, Oceaneering comes in,” he told Focus Reports.

“We have always gone for strategic locations, and in fact India is a

standalone location. The country has a lot of open future for oil and

gas and that is why India was selected. The country currently makes

a signi!cant contribution to the growth and Oceaneering is also

very keen on India for the future.”

The company can also provide a solution not only in deep

waters but even when it comes to shallow water. “Let’s say where

divers cannot go, we come in. We are the kind of company that can

support any type of operation. For any kind of dif!culty we come

up with a solution,” clari!es Nayyar.

“India is a strategic location to establish operations,” agrees

K.G. Remesh director of Swiber Offshore, a Singaporean com-

pany that controls a "eet of offshore support service vessels and

construction vessels, when asked what made his company come to

India.“We believe India to be one of the most dynamic and fastest

growing markets for offshore oil and gas activities, with a big and

CarDol_OGFJ_1112 1 11/8/11 4:55 PM

Kedarnath being towed by Great Offshore'sanchor handling tug supply vesselsCourtesy of Great Offshore

••

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•

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growing demand for offshore marine support services in India. India

has a signi!cant pool of engineers and is a strategic location for

market expansion.”

Another deepwater specialist, Weatherford, has been active

in India since 1996, when it opened an of!ce in Mumbai. Olivier

Konig, country manager India of Weatherford Oil & Tools, sees

an important role for the deepwater sector in modernizing India’s

O&G industry. “Deep offshore operations require top class technol-

ogies,” Konig said. “This sector has been driving the trend for India

to accept, bring in and adopt new technologies, being pushed by

service companies as well, consider-

ing we have the knowledge, the

understanding and the experience

in this sector.

“Weatherford has pioneered the

drilling of deep hot wells on the

east coast of India, Konig contin-

ued. “These are some of the tough-

est deepwater environments in

which we have deployed our tools

BPCL: Moving upstream and offshore For the full interview with R.K. Singh, chairman and managing director of Bharat Petroleum Corporation (BPCL), log onto energy.focusreports.net

FR: Since you became chairman & managing director in December 2010, what have been your biggest priorities?

R.K. Singh: The !rst priority was deciding where we want the company to be in !ve years from now. Having decided on our aspirations and vision for Bharat Petroleum, we needed to work out how to attain them. (…)

Predominantly, BPCL is a downstream company dealing with re!ning and marketing of petroleum products, but we have also looked at other available opportunities and have entered the upstream sector and have been fortunate to make some discoveries along with other consor-tium members. This has certainly encouraged us and we now want to consolidate this upstream business and work towards monetization of the discoveries.

R.K.Singh, chairman & managingdirector, BPCL

FR: All your moves upstream have been in quite high-risk ventures so far – deepwater in Brazil, a wildcat well in Mozam-bique and shale gas in Australia. These are all areas where even experienced players are quite wary about entering. What was the rationale behind such moves?

R.K. Singh: Two things played in our mind. As far as Bra-zil is concerned for example, we bought assets owned by Encana Canada. A lot of data was available for us, and we knew that the prospectivity was very good (…).

The second aspect of this is that Brazil is now having a lot of discoveries in deep water. It is a big success story. The operator of the blocks is Anardarko, a very estab-lished player, and Petrobras also has a stake. They are known to be experts in deep water drilling, and have all the necessary rigs and the equipment that are required for deepwater drilling. So the operator’s image, their capabilities and data meant that we took the decision that this would be the place to grow our upstream busi-ness. I hope that by 2015, oil will start "owing in Brazil for BPCL. Despite the high risk, I believe that the upstream

business is more pro!table.

Parmjit Singh Nayyar, country manag-er - India, Oceaneering International

••

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•

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CarOFI_OGFJ_1112 1 11/9/11 1:48 PMwww.ogfj.com Oil & Gas Financial Journal December 2011 energy.focusreports.net 9

in and have been immensely suc-

cessful in helping clients meet their

exploration objectives. It has been

more than 5 years since we started

out on the east coast and are cur-

rently involved in the development

drilling in that area.”

Going deeper: the next step for the shipping industry?The deepwater developments are also attracting the Indian ship-

ping industry. As the sector is going through a global downturn,

shipping companies have found a new potential area in servicing

the booming offshore industry.

“Offshore today means going deeper and deeper into the sea,

and because of the technological improvement, the maritime com-

ponent of the offshore segment is increasing. Obviously if you go

deeper, you require more engage-

ment of the maritime assets,”

explains S. Hajara, chairman and

managing director of the Shipping

Corporation of India (SCI), the

largest and most diversi!ed public

sector undertaking (PSU) under the

ministry of shipping. “Therefore I

believe offshore has a huge poten-

tial and we are trying to increase

our presence there, but we have not been able to break into the

higher segment of rig platforms as of yet. That is very much in our

minds and we have had discussions with a couple of players but

nothing concrete has happened yet,” he continued.

The support industry as well is looking at the offshore industry

with more interest. Bharati Shipyard for instance, one of India’s

leading private shipyards, is targeting the deepwater offshore

sector. “There is a new trend in the industry where companies

Olivier Konig, country manager India, Weatherford Oil & Tools

S. Hajara, chairman and managing di-rector, Shipping Corporation of India

••

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•


require vessels with high speci!ca-

tions, especially for deeper water

interventions,” P.C. Kapoor, the

company’s managing director, said.

“For instance, operations on the

east coast of India and in Brazil

require larger vessels. Bharati

Shipyard has decided to go on and

build these vessels. We see a lot of

growth opportunities in this area,

both in the east coast of India and

in Brazil.”

Bharati Shipyard acquired an integrated offshore oil!eld services

provider, Great Offshore, in June 2010 from the family-owned

Great Eastern Shipping Company, capitalizing on the synergies

existing between the two companies. Kapoor continued. “Bharati

has been constructing ships for Great Eastern as well as for Great

Offshore for the last twenty years. A major portion of Great

Offshore’s "eet that is currently

operating has been constructed by

us. There were a lot of interactions

between the two companies before

the acquisition, even before we had

a single share.”

Since the acquisition, Bharati has

been actively growing and renew-

ing Great Offshore’s "eet, phasing

out the older ships to adapt it to

deep water operations. Kapoor explains that, “since we took over,

we have already purchased six vessels for !ve or six years, available

in very attractive places. This purchase brings the total size of our

"eet to 47 vessels, out of which 10 or 12 are to be phased out. We

will double the "eet in the next !ve years, not in terms of number

of vessels, but in terms of operating capacity.”

Christopher Phillips, director of Seatech, a ship broker and char-

terer founded in 2008, has been making good use of the oppor-

tunities generated by the development of the offshore industry,

especially by the discovery in the KG-D6 basin. “There is a lot of

potential in the shipping industry in India, especially on the east

coast belt which is really rich in minerals,” said Phillips. “In the light

of a few power companies increasing their activities in the region,

there are a lot of project movements on this belt. Even Mumbai

has specialized in project cargoes. Simultaneously, in the West,

the states - especially Gujarat - have converted a lot of industrial

growth over the last decade.”

Given that India imports two thirds of its energy needs and

exports about 40% of its re!ning products, additional opportunities

arise for the shipping industry to support the oil and gas sector.

This is the approach that has been taken also by Seatech: as “we

are a young establishment; we have to be aggressive with our

approach and look into every opportunity that comes our way,”

explains Phillips.

Foreign investment in restraintsWhile India’s O&G sector has received a good deal of foreign

investment in past years, many feel it’s not close to what it should

CarSea_OGFJ_1112 1 11/8/11 5:16 PM

P.C. Kapoor, managing director, Bharati Shipyard Limited, and execu-tive director, Great Offshore Limited

Christopher Phillips, director, Seatech

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CarGEI_OGFJ_1112 1 11/9/11 1:51 PM


be yet. India’s regulatory environment and

the high complexity of the market are often

mentioned as holding off foreign players. In

fact, major international companies are said

to be waiting for the country to be ‘mature

enough’.

Aboveground, India’s reputation is

good due to its stable democracy, clear

regulations and policies, especially in

the upstream sector, and widely praised

production sharing contract (PSC) systems

in place.

Gas Thirsty!

In looking to secure its ever-growing hunger for energy, Indian demand for LNG is growing.

Domestically produced gas saw a lower output, making imported gas more crucial. Growth projections for natural gas demand are 4.7 percent annually, which would mean it would reach about 600 million standard cubic meters per day (mscmd) by 2030.

GAIL, India’s principal gas trans-mission and marketing company, is preparing its Dabhol, Hazira and Kochi LNG terminals for 100-120 mscmd of R-LNG, and is establishing an LNG plant in Maharashtra from where it is planning to progressively bring more LNG to India.

Already, under a memorandum signed last June, Gazprom agreed to supply 7.5 million tons of LNG over 25 years to Gujarat State Petroleum Company, Petronet LNG Limited, and GAIL. In this !scal year, eight LNG deliveries have been sourced, and the company expects another !ve or six in the remainder of the year. In the next couple of years, its spot gas portfolio will increase four- to !ve-fold.

B.C. Tripathi chairman and managing director of GAIL told Focus Reports about current and future plans in LNG. He states, “The company has already sourced half a million tons of LNG, for the !rst time doing it indepen-dently, and we are now discussing various other major supply projects. GAIL intends to import !ve million tons of LNG in the next two to three years. That is why we are gearing up GAIL’s infrastructure so the receiving terminals get ready and the pipeline infrastructure is in place in due time.

B.C. Tripathi, chairman & managing director, GAIL

“GAIL is looking not only to grow in the domestic market but internationally. Hence, we would like to have partner-ships with companies that are ready to work with us in the international arena, to source more LNG, for instance. It could be either an upstream investment for producing or near-producing blocks, or it could be LNG and petrochemical plants. What GAIL can bring in is its unique 25 years of experi-ence and expertise in one of the world’s most challeng-

ing, but most promising, energy markets,” Tripathi concluded.

Since the establishment of GAIL in 1984 the Indian oil and gas industry has experienced major trans-formations, especially related to the market liberalization and modernization of the country’s major PSU’s. How has GAIL adapted to this new environment and helped shape it?

••

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•


The NELP has been a very successful policy in opening up

the industry for private players and liberalizing the market. A.K.

Arora, director general of Petrofed, one of India’s top oil and gas

representatives, emphasizes the changes NELP brought. “You have

to understand that the rate of participation of private players has

considerably increased since the market liberalization took place.

However, in an evolutionary process you have to start somewhere.

The perceived deviations and imperfections are being taken care

of in a gradual and democratic process, unlike other regimes where

the state requiring something to be done acts differently adopting

varying processes.”

“What no one disagrees with is that the system in India has

evolved towards a market-friendly and level-playing !eld environ-

ment where private players are enjoying great scope for action.

One may criticize the speed of these changes, but can’t deny their

existence.”

However, India is still lagging behind in exploring its offshore,

with underground risks keeping international players at bay in the

upstream industry. The country has the reputation to be unex-

plored, and, although it’s the government’s ardent wish to get

exploration going in as many basins as possible, some say the

country has failed to do so suf!ciently, with available data lacking,

making investors hesitant to deploy activity.

The aforementioned BP deal and the ONGC negotiations with

Shell, Eni and BG to sell stakes in its deepwater developments

on the country’s eastern shore are promising signs for foreign

companies looking to enter India. Nonetheless, there are still many

administrative hurdles and questions on the risk/bene!ts ratio.

One aspect many believe should

change, as expressed by major

international energy companies

looking to conduct exploration

activities in India, are restrictions

imposed by the country's defense

and space authorities on explora-

tion activities.

Just over half a year after it

signed the biggest foreign direct

investment in India’s history, BP, in a joint letter with BHP to the

Indian petroleum ministry, expressed its concerns over these restric-

tions as they would block medium and long-term commitments.

“This is also affecting the con!dence of international companies

in undertaking high-cost, high-risk frontier exploration in offshore

India,” the letter read.

A world nucleus for the service industry"While in the upstream segment there is ample room for improve-

ment on the regulatory front, India has been very successful in

attracting international players supporting the oil and gas industry

through new technologies, solutions and equipment. Sajiv Nath,

managing director of Swiss-based instrumentation and process

automation company Endress+Hauser, said “We could have gone

anywhere in Asia, but we went to India because this is where the

bene!t to risk ratio is the best. India is rationally considered the

main investment destination for the group. India is a sustainable

market which also provides IPR (Intellectual Property Rights) to

protect. Looking at the growth market in India, the bene!ts are far

higher than the risks,” he continued.

One of the main bene!ts is undoubtedly provided by the

quali!ed Indian workforce. “The Indian manpower is a young pool

of engineers with high communication skills (…),” Rabindranath

Burman, director of US manufacturer ITT Corporation, summa-

rized. “India is not only a manufacturing hub but also a talent

pool, speci!cally from the engineering side. ITT demands from its

engineers that they support global projects at the R&D level, while

also synergizing new strategies". And they are up for the task: “We Pipelines in Rajasthan, Courtesy of Cairn India

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•


have extensive training programs, a strong team of people, migrat-

ing from one part of the world to another, and we have the best of

both worlds.”

There are worries, however, that the demand for skilled labor in

India’s oil and gas sector might outstrip supply making it increas-

ingly dif!cult to attract and retain talent, which is critical in a fast

growth economy. “The working environment is very demanding

from a human resources perspective,” Shishir Joshipura, manag-

ing director of SKF, a global supplier of rolling bearings, seals,

mechatronics, services and lubrication systems said. “The rapid

growth will increase the demand for quali!ed resources, thus invit-

ing an increased focus on retention of talent. Innovation, energy

ef!ciency and reliability of operations while managing costs in an

ever improving way are some of the challenges all industries are

faced with,” which, according to Joshipura, could lead to nothing

less than “a war for talent.”

Is India ready to pay the price?Despite a very fast changing environment and the sector’s liberal-

Entering the Indian market

As the industry is booming, foreign companies are "ow-ing in to set a direct base in the country. But what is the best entry strategy in a country as wide and dispersed

as India, that counts so many hotspots for the oil and gas industry? We asked Hydratight, the boltied joint solutions specialist, that is currently setting up the Indian operations.

“The question is how to organise for ourselves the stron-gest possible base here. We need a better understanding of the needs of our local customers (…). The market here isn’t as formal and organised as in the US or in Europe, but we stick to our plan: develop a profound knowledge of the market and establish strong relationships with customers”, explains Alain Wald, EMEA area leader, when we met him in the occasion of the Offshore India and Unconventional Oil & Gas India confer-ence and exhibition in Mumbai.

Murali Narasimhan, country leader India, adds that, despite Bangalore being the hub for the Indian operations, “no single place can realistically handle the entire country’s needs, wher-ever it is based. Bangalore will be the hub, but we intend to develop satellite bases across the country. Our initial focus will be the western part of India, which is where the key O&G play-ers are located. Progressively, we will work on developing the

northern and eastern sides of the market. There is also a lot of development taking place at Kakinada in the south.”

Hydratight sets international standards in joint integrity on a

global scale. Operating from 35 locations, Hydratight offers

fast, accurate solutions to your bolting and machining needs.

Using state-of-the-art equipment, our qualified on-site

technicians offer monitoring, bolting, machining and training

services to maximize safety, reduce plant down-time and

extend facility life.

To find out more visit

www.hydratight.comor email [email protected]

ENGINEERING MAINTENANCE TRAINING SERVICE

CarHyd_OGFJ_1112 1 11/8/11 4:58 PM

Murali Narasimhan, country leader India, and Alain Wald, EMEA business leader, Hydratight

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ization, India’s PSUs are dominat-

ing the industry both upstream

and downstream. Given their size,

entering into agreements with them

is a must for any company wanting

to be present in the Indian oil and

gas industry. Contracts are often

long-term and, given the state

backing of these companies, safe.

In their attitude to new tech-

nologies, there are major differences between India’s National Oil

Companies (NOCs) and International Oil Companies (IOCs), Olivier

Konig, country manager India of Weatherford found. “NOCs and

IOCs in India have a very different approach to technologies. The

IOCs are very forthcoming and open to trying new technologies

while NOCs often have stringent procurement,” he continues.

“Besides, with NOCs, there is not enough "exibility to allow the

addition of new products and

services, when these are not part of

the scope of work that was decided

initially, even if they are brilliant

products that could meet their

objectives and more.”

Indeed, the procurement system

is very strict, as the selection of

suppliers, either service companies

or equipment providers, is based

exclusively on price, what is called the L1, or lowest bid.

Clearly, this process has changed the landscape of the industry,

in"uencing not only the local industry but also the international

companies, which have been progressively reducing their prices

in order to secure contracts with the PSUs. As Dolphin Offshore’s

managing director and CEO Satpal Singh explains, “the worldwide

economic situation and more particularly the reduction in offshore

CarEnd_OGFJ_1112 1 11/8/11 4:16 PM

Shishir Joshipura, managing director and country manager, SKF India

Sajiv Nath, managing director, Endress + Hauser

••

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•


dollars a day. It has been very dif!cult for

Indian companies to pick up work.”

The same issue is faced by the equip-

ment suppliers. “The concept of L1 is

hurting the industry,” said Javed A Hawa,

managing director of Hawa Valves, speak-

ing on the valve industry. “There is an

evaluation done by engineers; however,

those engineers are not valve engineers.

They will look at any company and their

products against some parameters that

have been set by their management but

they do not have the in-depth knowledge

to understand what differentiates one valve company from the

next. In fact they are carrying out an evaluation, which is prior to

the bid opening, but that evaluation is skewed from the beginning.

The process is "awed.” In order not to compromise with the qual-

ity standards, the company decided to focus on the global market,

rather than the Indian one. “We realized that the values that we

were bringing to the investor in terms of HSE were better recog-

nized by the global end users in the hydrocarbon sector, rather

than the PSUs.”

However, for international companies that are setting their

foothold in India, PSUs remain the !rst target, and one of the chal-

lenges is increasing the acceptance of new technologies. “Given

the importance of the public sector within the Indian market, the

idea !rst needs to be sold to them,” said Sulzer’s India President

B. Balaji. “At the same time, as markets are developing, customers

also are willing to try new technologies. This has opened up doors

for us, as we are able to bring a lot of world class technology in

India through the Sulzer Chemtech channel.”

Luckily, interest in advanced technology is increasing and the

international players are capitalizing on these nascent opportuni-

ties. Endress+Hauser’s managing director Sajiv Nath has seen

landslide changes in the way in which the country deals with new

technology. “The market has predominantly consisted of PSUs but

has evolved over time. I still remember the phase during the 1980s,

when talking about new technologies and software was not well

CarHawa_OGFJ_1112 1 11/8/11 4:57 PM

Sulzer facilities, Pune

oil and gas development projects forced international companies

to come to India and bid competitively. They started to dump

prices to get work in India, just to keep their assets deployed. As

a consequence, in the last two years, the rates of construction

barges have gone down from 455,000 dollars a day to 175,000

••

••

•

CarTem_OGFJ_1112 1 11/9/11 1:43 PMwww.ogfj.com Oil & Gas Financial Journal December 2011 energy.focusreports.net 17

accepted, he explained. Today it

is the innovative technical “geeks”

who drive the Indian market. In fact,

Indian technologies are more driven

by the end users than by EPCs.

Endress+Hauser has been success-

fully able to identify certain “geeks”

amongst these end users who have

been receptive to technological

change.”

This aspect has been con!rmed by Konig from Weatherford,

who is currently at his second stint in India. “Over the years the

country’s O&G business has evolved and the country is today much

more open to new technologies, which supports Weatherford’s

growth strategy,” he said. “The opening up of the market has been

supported by the entry of international companies There have been

several new private Indian companies that have secured blocks in

the latest NELP rounds”.

From price to quality: the Indian re-evolutionAs historically many of the local manufacturers have been focusing

on lower prices in order to guarantee an access to a very price-

conscious market, for many years the image of India as a cost killer

country impacted the reputation

of Indian manufactured products,

fairly or not.

“Up until 1990, there was not

much of a market scope for the

Indian industry, especially as far as

valves were concerned, Jagdish

Prajapati, managing director of

valve manufacturer Panam Engi-

neers recalls. “Indeed, the purchas-

ing mentality abroad was laden with a few prejudices in terms of

region, business ethics, etc. But once they came to the realization

that products from countries like India can be of high quality, they

began wanting to trade with us more.

While the situation has changed for the better and Indian prod-

ucts are sold on foreign markets, Indian companies still have a gap

to close,” Prajapati said. “There is still a little gap [between Indian

and international quality], as far the industry world is concerned.”

“The acceptance of Indian products is much more prominent

now as compared to 10 years ago”, admits Nath of Swiss-based

Endress+Hauser. To him the ability of Indian engineers to learn and

integrate new technologies has much to do with this success: “The

Indian workforce has tremendous technical skills. Thanks to the

B. Balaji, president, Sulzer IndiaJaved A. Hawa, managing director, Hawa Valves

••

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•


technical knowledge the employees have, they can now be trained

easily.”

The fact that Indian companies did overcome many of the

prejudices that haunted them earlier has been con!rmed also by

V.P. Ramachandran, secretary of the Process Plant and Machinery

Association India (PPMAI). “Ten years back, Indian engineering

companies used to go and visit ACHEMA [an international exhibi-

tion congress on Chemical Engineering, Environmental Protection

and Biotechnology, held yearly in Frankfurt, Germany] to under-

stand the latest foreign technologies, learn from them, and perhaps

buy them,” says Ramachandran. “The situation has now changed;

the technology transfer goes the other way around. Now, Indian

companies go there to sell their equipment and technology. They

are looking for buyers for the technologies they are able to manu-

facture from India.”

Overcoming the misconceptions, many Indian manufacturers

look abroad to sell their products. So does H.K. Sippy, chairman

and managing director of Tema India, whose company belongs to

a small group on the globe able to

manufacture high quality, high pres-

sure heat exchangers.

“Foreign operations are de!-

nitely a central focus, due to the oil

sands in South America, Canada,

and Russia. We are ready to com-

pete with players overseas,” Sippy

said. “We are concentrating on

our Screw Plug heat exchangers in

O&G, for which we have a patented

design. The idea is to increase our

global market share to at least

40%.” Tema is one of the Indian

companies that has been strongly

investing in high quality and latest

technology. As Sippy highlights,

“There are several companies

that work with heat exchangers,

although it is true that very few of

them have the design capabilities

that we possess. We have been

able to elevate the standards of our

company to its current standing.

Apart from that, there are com-

panies who have not been able to

bring to the fore the combination

of design and an intricate manu-

facturing process. They may be

!nancially stronger and larger as an

establishment, but technically, they have not been able to bring this

kind of engineering excellence.”

With equipment installed on the !ve continents, GEI Industrial

Systems, specializing in heat transfer technology, is another Indian

manufacturer that has found a way to bring Indian equipment to

international markets. “Almost every week, somebody visits us from

abroad to establish a JV or some kind of manufacturing arrange-

ment with GEI. Foreign visitors have a good opinion of Indian

CarPan_OGFJ_1112 1 11/9/11 1:23 PM

VP Ramachandran, secretary, PPMAI

H.K. Sippy, chairman and managing director, Tema India

Jagdish Prajapati, managing director, Panam Engineer

CarFur_OGFJ_1112 1 11/8/11 4:19 PM


capabilities,” said

C.E. Fernandes,

chairman and

managing direc-

tor of GEI. “There

was a time when

Indian qual-

ity was neither

appreciated nor

accepted in most

countries; however, in the last decade or so a lot has changed.

There has been a shift in perception in recent years and many are

now con!dent of the quality and technology of Indian products,

which are at par with European vendors”, he continues.

With JVs in Oman, Brazil, Singapore, and plans to enter South

Africa, Fernandes has a word of advice on how the international

O&G industry should deal with companies like his. “The O&G

Panam Engineers manufacturing facility

community should look global and

accept companies which are com-

ing up aggressively to meet the

demand in these areas, especially

large multinationals such as Chev-

ron, Shell, ExxonMobil. They should

open up in such a way that compa-

nies from the developing countries,

like GEI, can get a good participa-

tion to join in their progress.”

Re!ning, the future of India?Even though India has been undoubtedly developing its offshore

sector, as well as a vibrant manufacturing industry, the most promis-

ing sector in the O&G industry still seems to be re!ning. India already

contributes to 4% of the world re!ning, with an installed capacity

of almost 200 million tons per annum in 2011, and showcase the

C.E. Fernandes, chairman & managing director, GEI Industrial Systems

••

••

•


largest single-complex re!nery in the world, the Jamnagar complex

by Reliance Industries. Notwithstanding these impressive !gures, the

country is continuously adding new capacity and is expected to reach

300 million tons per annum by 2017.

Most of the state owned players are adding capacity. The PSU

Indian Oil has recently completed the expansion of its Panipat re!nery

to 300,000 barrels a day, from 240,000. State-owned BPCL, based

in Mumbai, with a re!ning capacity of 30 million tons per annum, in

addition to expanding capacity at

its Kochi re!nery, has commissioned

the Bina re!nery, which will have

a capacity of 120,000 barrels per

day with the potential to raise it to

300,000 barrels.

The other Mumbai-based state-

owned re!nery, HPCL, plans to

expand capacity of its Visakh Re!n-

ery by 9 million tons as well as a relo-

cation of the Mumbai re!nery, which currently re!nes 6.5 million tons,

to the west coast of India. The company furthermore commissioned

its !rst re!nery in the north of the country, in Bathinda in the state of

Punjab, through a joint venture with Mittal Energy. The HPCL Mittal

Energy Limited (HMEL) grass root re!nery will be commissioned by

March 2012 and is expected to produce 9 million tons per year.

The expansions in the country’s major re!neries have also allowed

the service industry to increase its capacities. Swiss manufacturer Sul-

zer for instance has been expanding its capacity in order to support

the boom in the re!nery industry. “In fact, Sulzer India has carried out

a signi!cant portion of the mega projects in re!neries in 2006 and

petrochemical in 2007 & 2008. Considering we expanded our plant’s

capacity in 2005 and 2006, so before the booming really started, the

timing was excellent. Successful execution of large projects has given

a lot of con!dence to our customer for future collaborations also”,

Sulzer’s president of Indian operations B. Balaji said.

The new projects have also created a shift in the structure of the

industry, as “there has been a shift from a PSU dominated market to

a number of private partnerships.

For instance, the biggest re!neries in

India are not PSUs but Reliance and

HMEL, which is a partnership with

the Mittal Group”, ITT’s managing

director Burman pointed out.

Indeed, these major expansion

projects have created a number of

opportunities for the service industry

and Burman believes that the extra

CarSul_OGFJ_1112 1 11/16/11 1:56 PM

Hydrocracker project, Haldia refinery, Courtesy of Punj LloydRabindranath Burman, director and country head, ITT Corporation India

A. Basheeruddin, managing director and co-founder, Furnace Fabrica

••

••

•

CarITT_OGFJ_1112 1 11/10/11 2:48 PM


capacity in these re!neries “will de!nitely be a driving force

in both the top and the bottom line of the pro!t and losses

(P&L)” of the company.

Furnace Fabrica, an Indian EPC player with a strong focus

on the downstream, has been taking advantage of these

new projects as well. As managing director A. Basheeruddin

explained, “We successfully completed expansion projects

for Hindustan Petroleum Corporation Limited (HPCL). Now

we are executing a sulphur recovery unit for the same client.

We expect to get a major chunk of the business from [the

expansion of the Bombay re!nery]. We completed the expansion plans of the Haldia re!nery

as well. In fact, we were the !rst company to build the second hydrogen reformer at the Indian

Oil Corporation re!nery, with a capacity of 94.62 mmkCal/hr”. Currently, the company is work-

ing on three acid coolers with anodic protection design for Indian Oil Corporation’s Paradip

re!nery. “Many companies will !nd it dif!cult to meet the stringent requirements,” Basheer-

uddin said on this last project. “There were only two bidders. One was from America and we

were the second. We beat them out on the price, which is often one of the main criteria in

India, considering it is a highly price-sensitive market.

“In addition to this, we are one of the few international companies with experience in

dismantling re!neries for reconstruction, not for scrapping. We are able to dismantle, rebuild,

and also expand re!neries. Our capacity is unique in that respect”, continues Basheeruddin.

G. Sathiamoorthy, managing director of Tecnimont ICB (TICB), part of the Italian engineer-

ing, procurement and construction company, Maire Tecnimont Group, con!rms the number of

opportunities available, not only downstream: “India is currently buzzing with new opportuni-

ties for gas treatment, re!nery and fertilizer units. TICB has the references and the capabilities

to undertake these projects. There is a lot potential in the O&G industry, some LNG terminals

are under discussion. The company is eyeing few prospects in the re!ning segment. We do

foresee the re!ning sector to gain momentum next year with new expansion projects getting

!nalized.”

And with all the projects coming up, from upstream offshore to the re!ning sector, this

revolution happening in the Indian oil and gas industry is becoming less and less silent.

G. Sathiamoorthy, managing director, Tecnimont ICB

Correction: Country Report: India, the silent revolution - Part 1, Oil & Gas Finan-cial Journal, July 2011: on page 72 the photograph on top is of Dr. A. K. Balyan, CEO & managing director, Petronet LNG Limited, and not as wrongly state of B. C. Tripathi, chairman and managing director, GAIL.

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Oil and Gas India report (Part 2) 2011

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