oil and gas

Oil and Gas - Indian Scenario

Demand and Supply Dynamics of Oil and Gas

Oil

• E&P spend in the country has doubled from about US $2.5 billion in 2004–05 to about US $5 billion in 2007–08

• Overall E&P spend is expected to be in the range of US $90–$110 billion in the next 7–10 years

2005-06 2006-07 2007-08 2008-09 2009-100

20

40

60

80

100

120

140

160

180

Production

Consumption

Imports

Crude oil-Demand supply trend

2010 20200

1

2

3

4

5

3.26

4.65

0.81 0.8

Demand Supply

Million barrels/day

Oil Demand and Supply forecast

Natural Gas

• Domestic gas supplies are expected to register 9% CAGR over the next 5 years from 163 MMSCMD (Million Metric Standard Cubic Meters Per Day) in 2009–10 to 300 MMSCMD

• Domestic gas demand is expected to grow at 12% CAGR between 2010 and 2015 to 350 MMSCMD

2010 20150

50

100

150

200

250

300

350

400

166

350

163

300

Demand Supply

Refining

• As on 1st April, 2010 domestic refining capacity stood at 185.40 MMTPA (Million Metric Tons Per Annum) and is expected to reach 240.96 MMTPA by the end of 2011-12

MMSCMD

Demand and Supply Dynamics of Oil and Gas (cont.)

India has significant potential to discover new oil and gas basins since 78% of the country’s sedimentary area is yet to be explored

• Sedimentary Area

– 3.14 million sq km (approximately 4% of the world’s sedimentary area)

• Sedimentary basins

– 26 (exploration initiated in 15)

• Prognosticated resources

– 205 billion barrels (for 18 basins only)

• Established reserves

– 70 billion barrels (as of April 1, 2009)

Vast Potential

Snapshot of previous rounds of NELP

NELP-I NELP-II NELP-III NELP-IV NELP-V NELP-VI NELP-VII NELP-VIII

No. of blocks offered 48 25 27 24 20 55 57 70

No. of blocks bid for 28 23 24 21 20 52 45 36

No. of bids received 45 44 52 44 69 185 181 76

No. of Blocks awarded 25 23 23 21 20 52 44 31

Policies and regulations

•100 % FDI is permitted in exploration, refining, pipelines (both petroleum products and gas) and marketing

•Government introduced New Exploration Licensing Policy (NELP) in 1999– Encouraged private sector investment in the oil and gas sector– Provided a level playing field to the public and private sector– Eight rounds of NELP (I to VIII) have been completed– A total of 246 blocks were awarded under the eight bidding rounds (from 2001 to November 2010)

and 68 oil and gas discoveries have been made so far in the NELP blocks

Policies

Success rate of major basins

• Since the success rate of the basins is very low, very few private investments have been made

• Apart from the success rate, another reason why E&P hasn’t picked up in India is the high subsidy burden shared by upstream and downstream companies

KG Mahanandi Cambay Assam-Arakan Cauvery Rajasthan0

10

20

30

40

50

60

70

(in %)

Success Rate

Hurdles in Potential E&P Activities

Subsidy sharing• India relies on imports for more than 75% of its energy needs• The Indian government sets retail prices of petrol, diesel, cooking gas and kerosene to help control

inflation, which are usually not in line with international markets• This price setting policy affects OMC earnings (Oil Marketing Companies : the retailers that sell

end petroleum products), who are forced to sell fuel below the prevailing market rates• To allow for the sale of fuel at cheaper rates, the government provides certain subsidies to such

companies• The upstream companies such as ONGC, Oil India and GAIL bear the under recoveries of OMCs

on the sale of petrol and diesel• The under recoveries for 2011-12 are estimated at around Rs 120,000 crore due to the spike in

global crude oil rates• The upstream companies will have to contribute Rs 45,150 crores as subsidy and the government

plans to raise Rs 13,000 crores by selling a 5% stake in ONGC

Under recovery sharing mechanism (petrol and diesel) ( cooking gas and kerosene by Govt )• 42.7% of GUR (Gross Under Recoveries) : shared by the government (through the issuance of

Special Oil Bonds)• 33.33% of GUR : shared by the Upstream (E&P) companies• 24% of GUR : shared by OMCs

Facts• Retailers are likely to face a revenue loss of Rs.45,000 crore in the quarter April – June 2011

• 1/3rd of the revenue loss is contributed by ONGC, OIL and GAIL(India) (Rs.15,000 crore)

• ONGC has to contribute 82% (Rs.12,300 crore) of the subsidy burden levied on upstream firms

• The three retailers (OMCs) may face a revenue loss of Rs 166,712 crore in FY12– At least half this loss will have to be met by the government

• [Calculation based on a value of $110 per barrel for the Indian crude basket]

• Due to the high subsidy burden, upstream firms suffer from reduced profitability– High profitability leads to reinvestment in E&P activities

Hurdles in Potential E&P Activities (cont.)

• The deregulation of fuel prices will result in fuel pricing in India as per rates prevailing in international markets

• EGoM has partially freed the prices of petrol but a complete deregulation in petrol and diesel prices is expected to happen soon in a phased manner – High Fiscal Deficit

• This would reduce the subsidy shared by the upstream segment to zero– Hence the amount deducted from annual profits towards losses incurred by retailers will now

be available to upstream companies for investment

• OMCs cash flows too will improve

• Back in April 2002, the government had discontinued the previous administered pricing mechanism to link retail prices to market forces

– Hence the profits as well as dividends distributed by these upstream and downstream companies grew at a CAGR of over 40% during 2001 and 2004

Deregulation and its Impact

Value Chain

Oil and Gas Value Chain

Oil and Gas Value Chain (cont.)

Seismic• It is a study of the characteristics and depth of rock – geologists can use these characteristics

to determine if the rock is oil bearing (also known as petrol geology)– Marine Ops involves seismic survey of the ocean– Once the data is collected, it has to be processed and interpreted

Exploration • The exploration company will drill 3-5 selected wells to assess the flow and type of oil– Drilling involves various tools and fluids (pumping chemicals/high-pressure water etc.) to extract oil

from a downhole well (an underground oil well)

Appraisal• Reservoirs are subsurface pools of hydrocarbons contained in fractured rock formations• If oil is struck in the exploration phase through drilling, the type and flow of oil from a reservoir can

be evaluated


Development• Engineering – defines the map of the oil reservoirs/location of the oil wells so that the necessary

equipment can be installed for production and the oil can be transported to refineries– Feed : characteristics of the oil – type + flow– Survey : well analysis– Flow Analysis : assess the oil flows in each well– Approvals : require various approvals for safety/security standards

Procurement• The process of obtaining the required equipment for installation– Hulls : ships which drill– Facilities : Water/waste treatment facilities etc.– SPM (Single Point Mooring) – Pipelines – for collecting and transporting the oil


Installation• Installing and setting up the equipment– Structures : platforms – Pipelines : for collecting and transporting the oil– Risers : vertical pipe in an oil well for transporting oil– Moorings : moor platform so that it does not drift out to the sea– Topsides : the part of an off-shore platform that is above the sea– Commissioning : giving the go-ahead for production to start

Operations/Production • The process of extracting oil– Downhole : an underground oil well– Subsea IMR (Inspection, Maintainance, Repair) : an oil well that is at sub-sea level– Well intervention – intervene to decongest oil flow


Abandonment• The production area is abandoned after all the oil has been extracted

Transportation• Established pipelines to transport the oil and gas to refineries

Refining/Marketing and Distribution• Refineries are usually close to marketing companies• Products include LPG, naphtha, kerosene : most products are ‘transport fuels’


Industry Players

Upstream

• ONGC • GSPC• Niko Resources India• Cairn Energy India • GAIL• Geo Global• Jubilant Energy• Oilex India

Downstream• IOL • Reliance Industries Ltd• Reliance Petroleum Ltd• Essar Oil• BPCL• HPCL• John Energy• Shell India

Midstream

• IOC• BPCL• HPCL• IBP (Indo Burma Petroleum)• Reliance• Essar• GAIL• ONGC• Jubilant Energy

Interesting Sub - Sectors

1. Oil Services and Engineering

• This sector includes companies that provide products & services to the petroleum exploration and production industry– They typically do not produce petroleum themselves

• Products provided by them includes valves, pipes, pressure vessels & skids, process equipment etc. and services provided by them include EPC & EPCM

Global picture• 7% increase in drilling activities globally between 2009 and 2013e • A 10.5% p.a rise in offshore spending is expected to take place• Global exploration budgets are expected to rise by 14% in 2011 to $533 billion

Positives• E&P spend in India has doubled from about US $2.5 billion in 2004–05 to about US $5 billion in

2007–08• Overall E&P spend is expected to be in the range of US $90–$110 billion in the next 7–10 years• The DGH has estimated that US $1.9 billion worth of investments could be made for

onshore seismic surveys alone in the next few years (approx 45‐50% will be outsourced to oil‐allied services companies)

Negatives• E&P spending is dependent on long term oil price expectations• The performance of the oil services sector has historically been 80% correlated to the oil price• E&P spending in turn determines the performance of oil services companies• One of the hurdles in E&P spending in India is subsidy sharing with ONGC• Stiff competition has resulted in poor pricing power

No of players • Saturated market with 177 companies

E&P Spending Change Vs Oil Prices

1. Oil Services and Engineering (cont.)

2004 2005 2006 2007 2008 2009 2010e

Global upstream spending 0.18 0.32 0.3 0.18 0.23 -0.22 0.18

Large-cap services revenue 0.18 0.24 0.34 0.19 0.2 -0.16 0.12

-25%

-15%

-5%

5%

15%

25%

35%

% Growth,Y-Y

Global upstream spending and large-cap services revenue growth

1. Oil Services and Engineering (cont.)

2. Natural Gas Pipeline - Ancillary

• The efficient and effective movement of natural gas from production regions to consumption regions requires an extensive and elaborate transportation system

• Compressor Stations, Metering Stations, Valves and Control Stations are required along with pipeline and pipeline components to ensure that gas is transported effectively and efficiently

Global Picture• Global gas demand is expected to rise by 1.5 % CAGR till 2015

Positives • India's share of Natural Gas from all the energy resources as of 2009 stood at 10%

– The share is quite low compared to the global average (24%), primarily due to supply side constraints

• India’s 44 cubic meter (cm) per capita of natural gas consumption also lags the global average of 429 cm per person

• Domestic gas supplies are projected to increase from 163 million metric standard cubic meters per day (MMSCMD) in 2009–10 to 285.4 MMSCMD by 2012 and to 405–410 MMSCMD, by FY20

Negatives• The main driver for developing gas transmission infrastructure is the availability of requisite

volumes of gas

No of players• Unsaturated market with 87 companies

FY11E FY12E FY13E FY14E FY15E FY20E0

50

100

150

200

250

300

350

400Production from future exploration

New Gas fields

Proposed LNG

Existing LNG

KG D6

Existing sources(PMT/JV)

Existing sources (ONGC/OIL)

Domestic Gas Supply Projections

2. Natural Gas Pipeline - Ancillary (cont.)

• India currently has a trunk gas pipelines network of 9,900 km; this is projected to increase to 20,288 km within the next 3-4 years

3. Drilling Muds and Fluids (Chemicals)

• Drilling fluids are fluids used to aid the drilling of boreholes

• The basic functions of drilling fluids are as follows:– They help in removing cuttings from well– Cools, lubricates and supports the drilling bit

• Drilling fluids represent 7% to 10% of drilling costs

Global picture• Global oilfield chemical demand is expected to rise by 8.6% annually till 2014

Positives• Drilling fluids helps to increase drilling rates, thus improving the efficiency of drilling activities

Negatives• Brand : E&P companies prefer using branded products• It is directly correlated to E&P activities. Any reduction in drilling activities can have a direct bearing

No of players• Unsaturated market with 73 players

4. Re- Refining and Re-Cycling

• Re-refining involves refining used oil• Re-cycling only involves filtering used oil for impurities

Global Picture• In 2009

– Global oil refining capacity was expected to increase by 9% to more than 50 million tons– Total re-refining capacity was expected to increase by 19% to around 3 million tons

• In the US, it is mandatory for the US military to use a minimum of 25% of lubricating oil manufactured from re-refined oil, in its machinery

• In the US, major oil companies, including Texaco, Chevron, Unocal and ARCO, purchase re-refined oil and blend it for manufacturing branded lubricants

Positives (India)

ECONOMICS : Helps save expenditure on lubricants up to 50%• The statistics reveal that

– One barrel of lube base stock is obtained by refining around 30-35 barrels of crude oil, on the other hand, re-refining 30-35 barrels of used lube oils will yield 20-22 barrels of lube base oi l

• As per a study,– 10,00,000 tones of lube oil was consumed by the Indian market in 2001

– Around 5,00,000 tones of used oil can be recycled producing 3,50,000 tones of refined base oil

o Results in a saving of $140 million i.e. about Rs.6,370 million in foreign exchange (based on the

assumption that base oil costs US $400 for every MT) – India is fully dependent on the import of lube oil

o Hence by refining used oil we can save a huge amount

Negatives• The collection of used oils is haphazard and the oil does not reach automatically to re-refiners• The small collectors, i.e. garages, service stations, petrol stations, etc. do not sell used oil to authorized

processor but to daily hawkers• These hawkers resell it in unorganized markets for burning as fuel or as an adulterant• No clear policy• Lube oil demand : 60% of overall demand comes from the automotive industry; the rest is used for

industrial lubricants

(Lubricating oils are used to reduce friction between moving surfaces. They also serve to remove heat from working parts in machinery, and provide a protective layering on the metal surfaces to avoid corrosion)

No of players• Saturated market with 191 players

4. Re- Refining and Re-Cycling (cont.)

5. Sludge and Slop Treatment

• One of the byproducts of manufacturing processes at refineries is an oily sludge, which must be treated. By dehydrating the sludge and reducing its volume, companies can save a great deal in burial costs

• An oil sludge contains the following– Oil/ TPH (Total Petroleum Hydrocarbons)– Water– Solids

• Refinery byproducts also include various waste oils (slop oils). They come from drainages, residues and cleaning processes, especially cleaning oil tank bottoms

Global picture for sludge treatment technology• The global market for sludge treatment technology is expected to be worth $4.6 billion

– It is expected to increase to over $5.8 billion in 2013, a CAGR of 4.6%

Positives• Reduces wastage transportation costs: after sludge and slop treatments, only 10% to 20% of the

original volume remains for waste disposal• Solid waste can be incinerated without high risk to the environment


6. City Gas Distribution

CGD Business Economics

Gas supplies

Infrastructure

Regulations

Policy

Improved availability of domestic gas supplies but securing supplies would be important

Significant infrastructure projects planned to cover the key regions of the country

Learning's and “need for rethink” healthy debate required for further evolution of regulations

Government initiatives on climate change, pricing of alternative fuels are all supportive of CGD market development

6. City Gas Distribution (cont.)

Positives• Cheaper

– The recent deregulation of petrol prices has made CNG more economically attractive to automobile owners

• Cleaner source of fuel• Major City Gas Distribution (CGD) players like Indraprastha Gas (IGL) have witnessed 11% -

16% CAGR in sales over the decade• The government aims to a CGD network that covers 200 cities in India by 2015.

Negatives • The main driver for developing gas transmission infrastructure is the availability of requisite volumes

of gas• Regulations are expected to have a significant bearing on investment flows in infrastructure

– CGD regulations are notified by Petroleum & Natural Gas Regulatory Board (PNGRB)


7. Fire Protection

• Direct losses from fire in India are estimated at over US $2 billion per year

• India’s fire protection sector is worth US $338 million and has grown by 71% in the last 6 years alone (2010)

• Over 100 Indian firms manufacture fire-fighting equipment, consumables and supplies and meet approximately 60% - 70% of domestic demand

• Products manufactured by fire protection companies include:– Alarm systems activated by smoke/gas/heat/flame– Automatic sprinklers– Fire hydrants– Empty seamless high pressure carbon dioxide gas cylinders,– Portable fire extinguishers

Positives• Increased usage in awareness in fire protection, safety & security solutions• Strong emergence of new/high growth verticals in economy such as malls, multiplexes, retail

chains, manufacturing plants, IT, BPOs• Fire protection, safety & security solution concerns from temples and religious institutions

Negatives• Stiff competition has resulted in reduced pricing power

No of players • Saturated market with 108 players

7. Fire Protection (cont.)

Investment Recommendations

Sujan Oil and Gas Infra Logistics (SEZ)

About SOGIL

• SOGIL, part of the “act Group” is the first licensed Govt. of India approved SEZ service providing

unit, functioning from Gujarat

• It caters to services related to the oil & gas exploration Industry such as warehousing of imported

machinery, equipment, required raw materials etc.

• In order to meet the needs of the oil & gas industry in the field of material management and

logistical support, they have created a facility at Kandla Special Economic Zone, just 9 kms from

the major Indian port of Kandla.

Services offered

• Along with warehousing facilities, it also provides other services such as customs clearance, inland

shipments and re-export to suppliers

Location / Sector Bangalore / Oil Services and Engineering

Brief Description • An ISO 9001:2008 certified company with over 600 personnel

• A GIS driven Multidiscipline Engineering firm that provides world-class cost-effective solutions using a global delivery model

Product Offerings Oil and Gas pipeline transportation, GIS and software development, highway engineering & construction supervision, irrigation, flood control & water management, consultancy services along with risk analysis in infrastructure development projects for oil terminal, LPG terminal, roads and highways, pipeline projects etc.

Key Clients International : HSS Integrated (Malaysia), Cairn Energy PLC, Shell, Alstom Exports (Paris)

Domestic : Government of Gujarat, Jharkhand, Rajasthan, U.P, GSPC, GSPL, Gujarat Gas, L&T, NHAI, IOC, RIL, Siemens

Investment Rationale • Has a diversified product portfolio

• Presence in niche segment of GIS engineering

• Offers a web based system to manage city gas distribution networks. This contains :

o Detailed map features, roads & existing utility networks (Built details)

o Existing & potential consumers

o Emergency assisting centers/locations/information

o Customized query & report generation for gas usage statistics and maintenance statistics etc.

• Their products helps to undertake investigations and surveys efficiently

Financials • Sales in 2009 : 88.00 crore : An increase of 31% as compared to PY

• PAT in 2009 : 15.58 crore : An increase of 49% as compared to PY

• Net Profit Margin : 17.70%

Key Risks / Areas of Further Diligence More details about products and services they offer

Investment Recommendation

Secon Private Limited

Location / Sector Gujarat / Automation Packagers

Brief Description • It is India's largest terminal automation system supplier (oil & gas automation), with over 200 systems installed in India and

abroad

• It offers total terminal management solutions (i.e. design, engineering, supply installation, commissioning & maintenance of the terminal management system using smart terminal manager software (STM)

– STM offers next generation advanced features in addition to those offered by the earlier AUTOLOAD Software

Product OfferingsSmartload field mounted batch controller, sentry proximity vard reader, , dantouch key reader, additive injection panel, overspill device, safe area batch controller, 869S meter micro single board, switch over unit module, 869M quantum flow computer

Key Clients HPCL, OIL India, Indian Oil Corporation Limited, Indian Petrochemicals Corporation Limited, BPCL, GAIL, IBP Limited, Reliance Industries, ONGC

Investment Rationale

• It offers solution to its customers for efficiently managing and operating product distribution through trucks, rail, cars etc. ensuring safety ,security & accuracy

• It also serves many international players outside India which includes well-known companies such as Shell , Petrobars etc.

• It is unique among terminal automation suppliers in not only providing all the turnkey installation services required to bring a new system online, but also in successfully upgrading existing manually operated terminals or terminals automated with older technologies without disturbing ongoing operations

Financials • Sales in 2009 : 52.69 crore : A decrease of 47% as compared to PY

• PAT in 2009 : 4.60 crore : A decrease of 53% as compared to PY


Key Risks / Areas of Further Diligence


Advanced Sys-Tek

Location / Sector Delhi / Oil Services and Engineering (EPC)

Brief Description • It is an EPC contractor serving oil & gas (upstream & downstream), fertilizers, chemicals, pharmaceuticals and connected market sectors on a global basis

• With a staff of more than 500 experienced professionals from the industry, it executes complex projects in process industry on lump sum turnkey (LSTK) basis with full responsibility up to commissioning

Product Offerings Feasibility (economic evaluation, technical and feasibility studies & technology tie-ups), project management (project planning and cost control), design & engineering [Basic Design, FEED, Computational Fluid Dynamics (CFD Modeling)] procurement, construction & commissioning

Key Clients International : Valero (USA), Total (France), ExxonMobil (USA) and CNRL (Canada)

Domestic : BPCL, Cairn, CPCL, Clough Engineering Ltd, GAIL, HPCl, Hindustan Oil Exploration Co. Ltd, Indian Petrochemicals Corporation Ltd, IOCL, L&T Ltd , Mangalore Refinery & Petrochemicals Ltd, RIL etc.


• Overall E&P spend is expected to be in the range of $90 - $110 billion in next 7 -10 years

• Extensive use of technology in its operations






Technip KT India Ltd

Location / SectorMaharashtra (Mumbai) / Oil and Gas Services

Brief Description • A leading solution provider in process analytics, environment and emission monitoring, flow and terminal automation, process instrumentation, steam engineering and utility management systems

• Caters to various industries like cement, steel, oil & gas, power, fertilizer, chemicals and petrochemicals etc.

• An active member in industry associations such as the American Institute of Chemical Engineers, India; Trade Promotion Organization; Indo German Chamber of Commerce; Indo Japanese Association; Indian Institute of Technology; Federation of Indian Chamber of Commerce & Industry

Product Offerings Process analyzers system, steam and water analysis (analyzers), environment monitoring, flow metering and custody transfer, petroleum terminal automation, oxygen analyzer, SCADA

Key ClientsBritish Gas Exploration and Production India Ltd, Alstom, Navi Mumbai Municipal Corporation

Investment Rationale• Products and Services offered helps to increase efficiency in the industry

• Diversified customer base

• Collaboration with various companies such as General Monitors, Siemens Automation, Siemens Automation, Groth Corporation (provides different types of valves for these companies)

Financials • Their Sales have increased from 70.62 Cr in 2006 to 262.05 Cr in 2010.

• As of 2010 EBIDTA Margin were 7.11 % and Net Profit Margins were 2.61 %

• Sales in 2009 : 213.23 crore : An increase of 40% as compared to PY





Chemtrols Industries Limited

Nirmal Industrial Controls Private limited

Location / Sector Maharashtra (Mumbai) / Natural Gas Services

Brief Description • Established in 1973

• Provides expert solutions for Self Actuated Pressure Control Valves and allied process control system and solutions

• Offers its expertise to various industries such as oil & gas, petrochemical, pharmaceutical, steel and power

• Has offices in Qatar, Bangladesh, UAE, Taiwan and Oman

Product OfferingsSelf actuated pressure control valves, low pressure nitrogen blanketing systems, gas pressure reducing station with safety shut off and metering skids

Key Clients


• Diversified customer base

• Domestic gas supplies are projected to increase from 163 MMSCMD to 405–410 MMSCMD by 2020

• The Government of India has set a target of covering 200 cities under CGD network by 2015 (currently 20 cities)

• It has devised a vocational training course called "rub the gold”, to provide technically trained manpower for designing, constructing, operating and maintaining the natural gas transmission and distribution infrastructure






Location / Sector Haryana / CGD

Brief Description • A company promoted by SKN- Bentex group

• Offers natural gas infrastructure for domestic, commercial, industrial and transport sectors in Haryana

• Has permission to distribute natural gas in Gurgaon, Rohtak, Rewari & Jhazzar districts of Haryana state and Neemrana & Bhiwadi in Rajasthan

Product OfferingsPNG :Domestic- householdsCommercial- hotels, hospitals, bakeries etcIndustrial- pharmaceutical, printing and dyeing, food and beverage manufacturing etc.

CNG :Used as a transport fuel5 stations at Gurgoan

Key Clients

Investment Rationale• In PNG distribution, the company has 2,000 household gas consumers in domestic sector and is planning to take that figure to

15,000

• In CNG distribution, the company is planning to increase its CNG stations from 5 to 12 by 2011 and to 50 by 2015

• It is also planning to increase the supply of gas to commercial players from 2,000 SCM (Standard Cubic Meters) to 15,000 SCM

• It has already laid a pipeline network of 70 km that is capable of connecting 2000 industries; this will be connected by 2011






Haryana City Gas Distribution

Aarvi Encon Private LimitedLocation / Sector Maharashtra (Mumbai) / Oil and Gas Engineering Services

Brief Description

• Founded in1987

• It is an ISO 9001: 2008 certified company and has been creating value for its clients in India and overseas by delivering world-class engineering and manpower outsourcing services

• To aid further growth it has formed one more company “Aarvi Engineering & Consultancy Pvt Ltd” which will separately handle engineering services, “Arvi Encon Pvt Ltd” will continue to handle its Manpower Outsourcing Business

Product Offerings Basic engineering (process & utility flow diagram), detailed engineering (piping & equipment engineering), project management, procurement assistance, construction supervision, pre commissioning & commissioning assistance etcIt also provides manpower outsourcing services

Key Clients Essar, HPCL, Reliance Industries, Punj Lloyd, TATA, Petrofac, ericsson. L&T, Aker Solution, Udhe India


• Has a huge clientele from various sectors such as Oil &Gas, Power, Infrastructure, Refineries, Ports & Terminals Telecom, Fertilizers, Cement etc.

• CRISIL has assigned SME-1 rating for the second year in a row indicated highest credit worthiness

• It pioneered engineering manpower outsourcing services in India (has placed more than 10,000 personnel)






Location / Sector Delhi / Oil and Gas Services (Chemical Manufacturer)

Brief Description • It is the single largest certified manufacturer of specialty drilling fluids and mud chemicals based out of India for the oil and gas drilling and exploration and mining Industry

• It also offers contract manufacturing services for leading service companies

• Export percentage : 51% - 60%

• 6 different manufacturing locations

Product Offerings Drilling fluids and specialty chemicals for oil field and mining applications, mud chemicals and workover/completion fluid, chemicals for well stimulation, production chemicals and general utility chemicalsTesting Services for drilling and other chemicals, rental and sale of filtration units and portable mud laboratories, mud filtration and waste management services

Key Clients Supplier to over 40 countries worldwide with a large number of repeat customers

Investment Rationale• The only Indian company to have a complete testing facility for testing chemicals and specifically drilling fluids that is open to all

service companies

• It is the top supplier for ONGC, the biggest drilling fluids consumer of India (60% of chemical that ONGC buys) and hence it serves 80 % of the Indian market

• It wants to develop its presence in foreign markets through representative offices and agents

• In the coming years, it will not only be manufacturing chemicals, but it also plans to enter the service sector






Global Drilling Fluids and Chemicals Limited

Location / Sector Haryana / Oil and Gas Serivices

Brief Description

• An ISO 9001:2008 certified company, it is a subsidiary of Samit Enterprises Pvt. Ltd .

• Established in 2000 as a technical joint venture with Spectrum Geo Ltd., UK (earlier called Spectrum Energy and Information Technology Ltd.)

Product OfferingsLand/ marine 2D/3D/4D seismic data processing & integrated interpretation services, structural modeling, fault seal analysis, survey planning and seismic modeling services, operational seismic & log data archival/transcription/tape copying

Key ClientsReliance, Cairn, GSPC, Jindal Petroleum, Indian Oil, GAIL, DGH , Geo Petrol, ONGC, Premier Oil, Schlumberger, BPCL, Jubilant Energy


• OALP and increase in E&P spending

• It has foreign tie-ups to deliver its services

• Major E&P firms as its clients

Financials • Sales in 2008 : 11.15 crore





Samit Spectrum EIT Private Limited (SSEPL)

Location / Sector Andhra Pradesh / Oil and Gas Services

Brief Description

• Alkor Technologies Limited provides IT solutions in the area of Geomatics,

• It is registered with Software Technology Parks of India (STPI) as a 100% Export Oriented Unit (EOU)

Product OfferingsGeophysical services (seismic data processing & rig positioning services), data conversion (converting paper maps & drawings into vector format), Geographic Information System (GIS) applications, application development, field data acquisition, consultancy services

Key Clients


• OALP

• Present in niche segment of GIS




Key Risks / Areas of Further Diligence It is 100 % export oriented


Alkor Technologies Limited

Location / SectorDelhi / Oil Re Refining and Recycling, Re Packaging

Brief Description • It was founded in 1977 in collaboration with Indian Institute of Petroleum, Dehradun (IIP) and pioneered the used oil refining industry by establishing the first refining unit in North India

• Major oil companies such as IOCL, HPCL and BPCL have tapped into its refining capabilities for dealing with water- contaminated oil

• It manufactures automotive and industrial oils and also sells lube oils under its own brand name

Product Offerings Re -Refining services, contract packing, Dr Lubes – Diagnostic testing facilities for fuel oils, lubricating oils

Key ClientsIOCL, HPCL, BPCL, Asian Paints Ltd, Castrol India Ltd, Goodyear Tyres, Jai Bharat Maruti Ltd, Tide Water Oil Co. Ltd


• Over the years IFP has become a fully integrated refinery with blending, filling and testing facilities under one roof

• First Indian company to exchange used oil for new oil and saves upto 50%

• Has diversified its portfolio by entering into contract packaging and have been exclusive contract packagers for Indian Oil Corporation and BPCL for the past 4 years

Financials Not Available



IFP Petro Products Private Limited

Private Equity Investments

Corrtech International Private Limited (Gas Pipelines)

• Positioned itself as India's proven and trusted leader in the field of cathodic protection and corrosion control

• It has been providing cathodic protection systems for over 25 years on a turnkey basis and has a strong customer base

Stage of Investment Amount Invested Stake Date Of Investment Other Investors

Late US $16 Million June 2008

Axis Private Equity

Naftogaz India Private Limited (EPC)

• A leading EPC contractor in the oil & gas business, it is involved in a variety of oil & gas activities both in the upstream and mid-stream segments

• Owns three on-land Oil & Gas Blocks in India and has a strong clientele

• It is also present into Construction of Refineries, Construction of Offshore Platforms ,Construction of Oil & Gas Pipeline.


Growth US $14 Million September 2009

Avigo Capital Partners

International Finance Corporation (IFC)

Bhagyanagar Gas Limited (Gas Distribution)

• A JV of HPCL, GAIL and Kakinanda seaports

• Provides City gas & CNG distribution in various cities and LPG for automobiles


Growth US $5 Million December 2010

Sage Capital

John Energy Limited (Exploration Services)

• Provides services, latest technologies and manpower

• Its clientele include ONGC, GSPC, Cairn India, RIL etc.


Late US $22 Million July 2006

Krishna Godavari Gas Network Limited (Gas Distribution)

• It is a joint venture of the Government of Andhra Pradesh, which owns most of the gas and Gujarat State Petroleum Corporation

• It owns and operates a network of pipelines

• It also offers oil and natural gas exploration, development, and production services


Other US $60 Million 50% October 2009

IDFC Private Equity

Central UP Gas Limited (Gas Distribution)

• CUGL is promoted by GAIL (India) Limited and Bharat Petroleum Corporation Limited to implement City Gas Distribution (CGD) projects in the cities of eastern Uttar Pradesh


Other US $5 Million March 2007IL & FS Investment

Managers Ltd

IDFC Project Equity

Sabarmati Gas (Gas Distribution)

• It is a joint venture with BPCL in 2006 for the development of city gas distribution networks in North Gujarat

• It has established 15 CNG stations as of December 31, 2010, and intends to set up an additional 21 CNG stations by 2014


Other US $16 Million 49.9% October 2005 IFCI Ventures, UTI

Other Companies Considered

Century Refineries Private Limited • It started in March' 1997 and recycles used hydraulic oils using vacuum distillation

• It is also engaged in incineration of hazardous wastes and disposal of used coolants

– Sales in 2010 : 0.22 crore : A decrease of 8% as compared to PY

– PAT in 2010 : 0.04 crore : A decrease of 20% as compared to PY

– Net Profit Margin : 18.18%

Reasons for not considering further Size of the topline and no competitive advantage

Southern Refineries Limited• It is the largest Re-refinery in India for recycling the used petroleum oil using the most modern technology patented in India by

Oryx Engineering and Consultancy Pvt Ltd, named as Hi Vac Process

• It processes and makes its own Branded lubricating oil of various grades “DUROL Lubricants”

– Sales in 2009 : 11.97 crore : An increase of 7% as compared to PY

– PAT in 2009 : 0.42 crore : A decrease of 47% as compared to PY



Savas Engineering Company Private Limited • It develops custom solutions for virtually any application involving vacuum processes for heavy duty insulation and is in the oil

re-cycling sector for over 15 years


– PAT in 2007 : 0.15 crore : An increase of 88% as compared to PY



Oil Re-Refining and Re-Cycling

Lubri Sales (India)

• It is authorized by the ministry of environment to remove the used oil generated by the industry and institution of India

• It process the used oil with highly environment friendly technology and tests its finished products for quality and specifications at the R&D Division

Reasons for not considering further No competitive advantage

Surya Oil Refinery and Waste Management

• Produces wide range of specialty oils for Power, Rubber, Tyre, Cosmetics, steel, Petrochemical, Automotive and various other industries


Mytol Petrotech Private Limited

• It offers innovative & environmentally friendly solution for used oil re-refining, specially suited for small & medium size plants

• It is into used oil refining, used oil recycling, oil purification, waste oil recycling, used oil reprocessing and hazardous waste management


Oil Re-Refining and Re-Cycling (cont.)

Petrof Refining Technologies

• It offers total in house end to end responsibility of Turnkey Project

• It provides tools and equipments required for the re-cycling process

Reasons for not considering further Financials not available

Green India Recycling Company Private Limited

• It was established in the year 2009 and offers a diversified range of recycled products like white paper, crude oil, cotton fibres, all types of metal, PET Flakes, etc.

• Along with manufacturing it also trades a wide range of products comprising aluminium cans, corrugated box, glass bottles, waste papers, other metals, activated charcoal etc. Its products are well appreciated all across the world, specially Middle East, Europe, Asia and China

• It offers services such as, door-to-door scrap collection, cleaning & waste management, educating & creating awareness among people, tie-ups with corporate offices, hotels, firms, etc. for waste collection

Reasons for not considering further Financials not available

Oil Re-Refining and Re-Cycling (cont.)

Plant Tec Midcontinent• It was established in the year 2006 as a joint venture firm between Plant-Tech Industrial Services Ltd., Mangalore–India and Mid

Continent Environment Projects Pte. Ltd., Singapore

• It is the only Indian Service Company providing the ultimate solutions for Mechanized Tank Cleaning including In-Situ Sludge Treatment, Bio–Remediation and finally Land Farming

• Recovers up to 99% good quality oil from tank bottom sludge

– Sales in 2010 : 5.12 crore



Reasons for not considering further Size of the topline

Osten Enzyme India Private Limited • It manufactures, supplies & exports E-Oil (Advatage of E Oil : Due to the external mechanical agitation, the entire sludge

particles will be dismantled and the viscosity of sludge will be greatly reduced and the sludge will be converted back in to usable fuel oil)

Reasons for not considering further

Petroferm and Chemical Limited • It is a specialist in tank cleaning, crude oil sludge treatment and oil recovery applications

• It is engaged in on site treatment of crude oil sludge directly fro tanks or pits


No competitive advantage

Oil Sludge and Slop Treatment

Promantec Consultants Private Limited

• It Provide project and technology management, front end consultancy services, as well as operational and maintenance support services including start up, commissioning and maintenance turnarounds in power, chemical and hydrocarbon processing industries

• It is leading in consultancy services offered to the oil and gas sector

• Its clients include Bridge and Roof Company, Cairn, Daeilm Industrial Co. (Korea), Eastern Bechtel Co. (Abu Dhabi), ESSAR, ISCO (Kuwait), L&T, Punj Loyd, Toyo Engineering (Japan), etc.

Reasons for not considering further Scalabitity

Petrodril

• It offers advisory services in the field of Oil & Gas ,Business Development Liaison Services, Permits and Licensing, Environmental Approvals, Logistics

• It has a very strong clientele

Reasons for not considering further Scalabitity

Consultancy Services

Aker Powergas Private Limited • It is one of the leading EPCM companies in India providing services to wide range of sectors such as Oil and Gas, Refineries,

Petrochemical, Chemical and Metal across the Globe

• It is a part of Aker Solutions ASA, a leading global provider of engineering and construction services, technology products and integrated solutions which has aggregated annual revenues of approximately US $11 billion and employs approximately 24,000 people in about 30 countries




Reasons for not considering further Parent company is in Norway

Udhe India Limited

• Its parent company is Uhde GmbH (Germany 1970)

• It is a Premier Indian Engineering Company for EPCM / EPC-LSTK implementation of Chemical and Industrial Plants

• It has a very strong clientele : ESSAR, IOC, Farabi Petrochemicals (Saudi Arabia), etc.

Reasons for not considering further Parent company is in Germany

Oil Services and Engineering

Aktis Engineering Solutions

• Along with Oil and Gas it caters to 6 other sectors : Automotives, Aero Space, Heavy industries, Renewable Energy, Irrigation

• It is in the areas of engineering design, analysis, prototyping & manufacturing


Shell Global Solutions (India)

• It is a part of Royal Dutch Shell which is the largest and most diversified international investor in India's energy sector among all global integrated oil companies with nearly US $1 billion invested already in India

Reasons for not considering further Parent company in Netherlands

Oil Services and Engineering (cont.)

Jindal Petroleum Limited

• The company was founded in 2008 and is based in New Delhi, India

• Jindal Petroleum Ltd engages in the domestic and overseas oil and natural gas operations and has exploration rights in Rajasthan, India, Georgia, Peru, South America

• Jindal Petroleum Limited operates as a subsidiary of Jindal Steel & Power, Ltd.

Reasons for not considering further Present in the upstream segment

Sea Geo Surveys Private Limited

• It was incorporated in the year 1998 and carries out all types of offshore/marine, reservoir surveys, land surveys and positioning surveys, vessel management and tracking

• The company also undertakes all types of GIS, CAD/cam jobs, digitisation, scanning and vectorisation etc. in India

• Its clients include : IOC, BPCL, ONGC, Punj Loyd, Indian Petrochem.Co.Ltd., etc.


Oil Services and Engineering (cont.)

Gumpro Drilling Fluids Private Limited • It was established in 1983 and is a leading manufacturer and exporter of drilling fluid additives, which are widely used in natural

gas ware and exploration drilling rigs

• It also provides manpower to operate and maintain liquid mud plants

• Products are manufactured through in-house R&D by making investments in it’s laboratory infrastructure, equipment and qualified personnel

• It has introduced a new division of service, Gumpro Mud School where Engineers are trained to be further qualified as Mud Engineers under the influence and guidance of experienced professionals

• Sales in 2010 : 21.29 Cr : An increase of 209% as compared to PY

• PAT in 2010 : 2.34 Cr : An increase of 172% as compared to PY


Reasons for not considering further Already considered

Drilling Muds and Fluids

Infraline Energy

• It is an ISO 9001:2008 accredited premier service provider of critical business information, industry databases, business intelligence and related services in the Energy Sector

• It helps its clients calculate and narrow down the technical, economic and political risks by reducing the time needed to assess an opportunity in various segments of energy value chain, thereby increasing the productivity of key functions supporting operational and strategic corporate decision making

• Its service offerings includes subscription based information services, customized research services, reports & publications (news letter on Oil and Gas) and conferences & workshops, all in an organized method




Reasons for not considering further Scalabity

Data Provider

Global Scenario

Oil - Demand - Supply Comparison (IEA Reports)

2010 2015

87

94

88

96

Chart TitleDemand Supply

(Million Barrels/day)

Reasons for increase in oil production in 2015 • Technological advancements • An increase in unconventional supply sources by 38% : gas-related liquids, Canadian oil sands and extra heavy oils

Technology Improvement% Improvement

by 2020

Exploration well success rate 7

Development well success rate 6

Ultimate recovery per well 11

Drilling cost reduction 22

Completion cost reduction 16

Initial production rate 9

Infrastructure cost reduction 14

Fixed operating cost reduction 12

Gas – Demand - Supply Comparison

2010 2015

493

535

490

520

Chart TitleDemand Supply

Reasons for increase in demand of gas over supply in 2015

• Cheaper

• Less Polluting

(Million Metric Standard Cubic Meters Per Day)

The Increase in Oil Prices may not be Sustainable

• According to the IEA, the ratio of countries’ import bills to GDP is close to levels reached during the financial crisis in 2008

• The United States, for example, will see its oil import bill increase by $72 billion in 2011, representing 2.5% of its GDP

2011 projections are based on the assumption that oil prices remain above $90/barrel this year

Net ImportsAnnual expenditure ($bn) Figure at the top of the bar is % share of GDP

• An IEA study had considered hypothetical increases of world crude oil prices from $25 to $35 per barrel. The results were as follows:

– US GDP would decrease by 0.3%– Japan’s GDP would decrease by 0.4%– The Euro zone’s GDP would decrease by 0.5%

• The disruptions in oil supply associated with the Arab oil embargo of 1973-74 and the Iranian Revolution of 1978-79 caused unprecedented increases in oil prices and were associated with worldwide recessions

• A number of studies have indicated that most U.S. recessions in the post-World War II era were preceded by oil supply shocks and the associated sudden rise in oil price

The Increase in Oil Prices may not be Sustainable (cont.)

Debt and GDP Growth Rate

• Kenneth Rogoff in his book “This Time It’s Different”, argues that sovereign debt levels above 60%-90% of GDP restrain growth

IMF estimates• Public debt levels of major developed economies are currently estimated at around 80-100 % of 2014

GDP– These countries will have to run budget surpluses of around 3-4% to maintain these debt levels

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

-6

-4

-2

0

2

4

6

8

High-debt countries (gross government debt > 60% of GDP)

Low-debt countries (gross government debt < 60% of GDP)

Real Annual GDP Growth, In %

Low Debt Countries Tend to Grow Faster

Economies Posing Downside Risk To Oil Prices

Consumption of Oil – Country wise

• The United States accounts for over 25% of global oil consumption• China accounts for 14% • The EU accounts for 12%-14%

Unite

d Sta

tes

China

Japa

nIn

dia

Russia

Brazil

Germ

any

Saudi

Ara

bia

South

Kor

ea

Canad

a

Mex

ico

Fran

ce Iran

Unite

d Kin

gdom Ita

ly

Spain

18.7

8.2

4.4

2.9 2.7 2.4 2.4 2.4 2.2 2.2 2.1 1.9 1.8 1.7 1.5 1.5

Million barrels/day

U.S.

• Consumer spending accounts for two-thirds of U.S. GDP• U.S. Debt to GDP Ratio stood at 93% (August 2010)• Household Debt stood at 96% of GDP• Quantitative Easing (QE)

–Assists governments in financing the budget deficit–Purchases by central bank keep interest rates low, allowing governments to increase

borrowing

at cheaper cost

Did QE 2 work ? (27 Aug 2010)• Jobs created : 7,00,000• Cost per job : $850,000 ($600 billion injected for creating 700,000 jobs)• Average used home price in August 2010 : $1,77,300 and in May 2011 : $1,63,700 (down by 8%)• GDP growth in August 2010 : 2.6% and the current GDP growth : 1.8%• Inflation has trebled from 1.1% in August 2010 to 3.2%

Government stimulants set to expire• QE 2 by June 2011• Unemployment benefits and payroll tax cuts by December 2011

Europe

Overall Debt to GDP levels in the Eurozone were 88% in 2010.

Is austerity the choice?• Ireland started implementing austerity measures since 2008, hence :

– Debt to GDP went up from 43.9% (2008) to 64% (2010)– Fiscal deficit as a percentage of GDP doubled from 7.3% (2008) to 14.3% (2010)

• Greece got a bailout of €110 billion last year and it also accepted austerity measures, hence :– Debt to GDP Ratio has increased from around 110% (2010) to around 140% (2011)

External debt to export ratio• The average external debt to export ratio for countries that have defaulted since 1970 is

2.3%– Spain’s ratio is currently 6.9% – Italy’s ratio is currently 5.1%

Default or restructuring impact on ECB (Greece)• The ECB holds around €50 billion of Greek debt alone • The total exposure to Greece, including lending to Greek banks and loans against Greek

government bonds, is much higher : €130 - €140 billion • If Greece defaults, then the ECB could suffer losses as high as €65 - €70 billion

– This would require the ECB to be recapitalized by Euro zone members • As of 1 Jan 2011, the ECB had a paid-up capital of €5.2 billion (due to be increased to € 10.8

billion)

Why financial markets may freeze?• French and German banks have lent around €510 billion and €410 billion respectively to PIGS

(Portugal, Ireland, Greece, Spain)– British banks alone have lent €324 billion to Ireland and Spain

Complex cross funding • Spain, which may need financial support, has €98.3 billion of exposure to Portugal as well as €7.7

billion of exposure to Ireland

Credit Default Swap (CDS) • The gross exposure to PIIGS (Portugal, Ireland, Italy Greece, Spain) is about €616 billion

Europe (cont.)

China

Fiscal risks – under estimated (2010)• Official stats : China’s Debt to GDP stood at only 20%• China’s local government debt was $1.14 trillion, a whopping 180% of the equity base of all

Chinese banks and 24% of China’s GDP (UDICs – The Urban Development Investment Corporations)• SOEs do about half of the bank lending

– Bank lending in China was 134% of GDP, so SOEs are about 65% of GDP in terms of

borrowing

Transparency in public accounts • UK was ranked 88 out of 100, while China was ranked 14 out of 100

(Ranked on a scale of 100 : 100 being the most transparent and 0 being the least)

Risk of crashing • Investment is already 50% of GDP in China

• 60 years of data have shown that overinvestment leads to Hard Landing – Prominent examples include the Soviet Union in the ‘60s and ‘70s and East Asia before

the financial crisis in 1997

Heavily focused on property• Doesn’t have a commercial banking system

Research Methodology

• Initial information from reports by Mrinal• Webliography• Financials from MCA and Prowess• Company websites • Discussions• Reports

Thank You…

oil and gas

Documents

net profit

diligence

players saturated

players unsaturated

city gas distribution

natural gas

sludge treatment

success rate