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Industry Awareness

Oil and Petroleum Industry

Section A, Group 8PGP-1 2012-13

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Overview

Major Players Indian and International Scenario

Petroleum Industry life cycle

M&A Technological trends & innovations

Key drivers of Growth and Price

Key financial performance indicators (KPIs)

Impact of Budget 2011-2012

Regulations- Global and Indian perspective

Summary

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Petroleum and Oil Industry Business

Exploration, Extraction,production

Store and Transport

Oil Refineries,petrochemicals and Retail

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Indian Production and Consumption

Source: US Energy information Administration

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Source: Statistical Review of World Energy Report, 2011

Global India

Reserves 1349 billion bbl 0.7% of total(5.7 billion bbl)

Production 82.095 millionbbl

1% of global(8.209 millionbbl)

Consumption 87.382 millionbbl

3.9% of global

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Major International players

Saudi Aramco

National Iranian Oil Company

Qatar petroleum

Royal Dutch Shell

Exxon Mobil Corporation

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BPCL (Bharat Petroleum Corporation Limited)

HPCL (Hindustan Petroleum Corporation Limited)

IOCL (Indian Oil Corporation Ltd)

ONGC (Oil and Natural Gas Corporation)

RIL (Reliance India Limited) Essar

Major Indian players

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Steep rise in prices towards end of 1970s and Global

Recession. By 1982, non-OPEC countries produced more oil than OPEC

countries OPEC production peaks in 2009 and Non-OPEC production

peaks in 2003

OPEC production exceeds non-OPEC production in 2007

Petroleum Industry Life Cycle

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Statistics on India - Productionand Consumption

99

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Porters analysis of oil and petroleumindustry

Upstream

Entry Barriers - Largeinvestments required withlong gestation period.

Technology intensive sector

Internal Rivalry amongfirms High due to limitedresources

Bargaining Power ofbuyers Low/limited due tolimited resources

Bargaining Power ofsuppliers - High because offew participants.

Threat of Substitutes Limited substitution with

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Downstream

Entry Barriers - Entryrestricted into auto fuelmarketing. Distribution &logistics intensive sector

Internal Rivalry amongfirms Low due to highdemand. Mostly keen inderegulated products, e.g.lubricants

Bargaining Power ofbuyers - High with bulk/corporate customers, who canpurchase products fromcompetitors

Bargaining Power ofsu liers - Marked b

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Strategic importance of oil andpetroleum sector

15 % of Indias GDP

Indian Oil and Gas Industry have beeneffective in driving the rapid progression ofthe Indian economy.

Crude Oil Important commodity to importGiven rise to high fiscal deficit

Annual fuel subsidies 110000 crore

Rated as Stable by Fitch Ratings

Fossil fuel price escalations has given rise towholesale price index inflation

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M&A Activity in the industry

CNOOC has announced the acquisition of Nexen for

nearly USD 15.1 billion. Kinder Morgan divested all of the oil and gas

exploration and production assets of El Paso Corp forapproximately $7.15 billion.

Reliance Industries and BP have completed the $7.2-

billion deal in which the British company will pick up30% in 21 blocks in August 2011.

ONGC and Cairn (Rajasthan Joint Venture) havecommenced production from the Bhagyam Field inRajasthan.

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Extracting heavy oil

XTL technology

Monotowers

Carbon capture and storage Use of technology to work at remote places

Technological Trends & Innovations

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Raw Material Constraints

Large constraint as Indiadepend upon import for 80% ofits crude supply

Growing demand for Petroleum

Petroleum by products is animportant input in various

industries for the following

Key Drivers of Growth

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Factors

-Global Scenario

-Government Regulations-Taxes and Subsidies

Effects of Government Regulations

-Price control discourages innovation.

-Price control, subsidies and taxes can introduce distortions

Key Drivers of Price

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For financial year 2010-2011

Key Financial Performance Indicators(1/2)

CompanyNet Revenue (INR

Million)

EBITDA (INR

Million)

Net Profit (INR

Million)

EPS (INR) P/EROE

(%)

HPCL 1602087 55162 9120 26.3 55.9 7.1

BPCL 2119638 46369 8513 21.6 32.5 5

ONGC 1463700 577700 284300 29.2 8.7 19.9

IOCL 3742483 173166 78307 32.1 9.3 12.8

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Key Financial Performance Indicators(2/2)

For financial year 2011-2012

CompanyNet Revenue (INR

Million)

EBITDA (INR

Million)

Net Profit (INR

Million)EPS (INR) P/E ROE (%)

HPCL 1147962 22005 16364 48.3 5.8 13.6

BPCL 1536450 42762 17570 45.6 15.4 11.2

ONGC 1176200 484600 224600 26.3 9.6 20.9

IOCL 3106254 150243 77976 32.3 9.3 14.2

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Ministry of Petroleum and Natural Gas

Ensure availability

Monitor prices and transportation rates

Secure equitable distribution

Enforce retail & marketing service obligations for retail outlets

and entities

Lay down technical & safety standards

Affiliate code of conduct

Regulatory Board KeyFunctions

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Petroleum and Natural Gas Regulatory Board Act, 2006

Establishment of Petroleum and Natural Gas Regulatory Board

Refining, processing, storage and transportation, distribution, marketing

and sale

Natural Gas Pipeline Policy, 2006

Development of natural gas pipelines

Promote investment from the public and private sectors

Ceiling rate for transportation charges

Government Regulations

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FDI

100% in private and 26% in government refineries

Marketing permitted subject to minimum investment in oil and gas sector

New Exploration Licensing Policy (NELP)

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

sector companies

Open availability of exploration acreage

Abolition of the administered pricing policy

APM- prices controlled at production, refining, distribution and marketing

Moving away from subsidies

Government Initiatives

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Industry cartels and organizations Organization of Petroleum Exporting Countries- Gulf Countries

OPEC -79% of world crude oil reserves and 44% of the worlds crude oil

production

Control the prices of crude oil

World Trade Organisation

Do not deal with energy as a distinct sector

Increasing energy needs have led to a growing interest in competitionrules and export restriction practices.

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

Members trade.

The Global Scenario

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Subsidies

High subsidies due to high global prices of crude petroleum

Rs. 1, 31,212 Crore in 2010-2011

1.5 per cent of GDP in 2011-2012

Problem with subsidies

Subsidizing both the rich and the poor

Government paying for under-recoveries- No incentives

Absence of price signaling

Deregulation of petrol and fuel hikes

Welcome by investors, Important for government

Indian Scenario

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Private operators same terms as applicable to

NOCs

100% Foreign participation allowed

Option to amortise exploration and drilling expenses Production Sharing Contracts (PSC) signed on

blocks of land for exploration; No cess levied

First five rounds of NELP expected investment $5

billion

NELP-VI 55 exploration blocks (24 deep water, 6

shallow water and 25 on land) on offer

New Exploration Licensing Policy (NELP)

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Expectations:boost the domestic oil & gas production

creation of oil & gas infrastructure

bringing in demand side efficiency in consumption of productsthrough pricing

Budget Proposals:

Direct Taxes

Exemption to foreign company selling crude oil in India

Relaxation to foreign companies selling crude oil in India

Indirect Taxes Cess levied -increased from Rs. 2500/- to Rs. 4500/- per

metric tonne

Blow to oil producers

Government Subsidy

Oil subsidy aimed at Rs. 43,580 Cr; 36% below the FY12

Impact of Union Budget 2012-2013

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Company Industry Impact Comments

ONGC, OilIndia

Exploration& Production

Will be hit by theincreased cess anddecrease in subsidy

provision

BPCL,

HPCL andIOCL

Refining and

Marketing

Under-recoveries areexpected to increasewith the reducedsubsidy allocation.

However, beingeligible for viability gapfunding sector is apositive.

Impact of Budget (2012 -2013)

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Thank You