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 200405 to about US $5 billion in 200708 Overall E&P spend is expected to be in the range of US $90$110 billion in the next 710 years
Oil Demand and Supply forecast 180

Million barrels/day
Crude oil-Demand supply trend 160
5 4 3 3.26
4.65
140 120 100 80 60 40 20 0 Production Consumption Imports
2 1
0 2010 Demand Supply 2020 0.81 0.8
2005-06
2006-07
2007-08
2008-09
2009-10
Demand and Supply Dynamics of Oil and Gas (cont.)

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 200910 to 300 MMSCMD Domestic gas demand is expected to grow at 12% CAGR between 2010 and 2015 to 350 MMSCMD
MMSCMD
400 350
350 300
300
250 200 150 100 50 0
166
163
2010 Demand Supply
2015
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
Vast Potential
India has significant potential to discover new oil and gas basins since 78% of the countrys sedimentary area is yet to be explored Sedimentary Area 3.14 million sq km (approximately 4% of the worlds 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)
Policies
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
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
Success Rate
Success rate of major basins
(in %) 70 60
50
40 30 20 10 0 KG Mahanandi Cambay Assam-Arakan Cauvery Rajasthan
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 hasnt picked up in India is the high subsidy burden shared by upstream and downstream companies
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
Hurdles in Potential E&P Activities (cont.)
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
Deregulation and its Impact
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
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 Midstream IOC BPCL HPCL IBP (Indo Burma Petroleum) Reliance Essar GAIL ONGC Jubilant Energy
Downstream IOL Reliance Industries Ltd Reliance Petroleum Ltd Essar Oil BPCL HPCL John Energy Shell India
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 200405 to about US $5 billion in 200708 Overall E&P spend is expected to be in the range of US $90$110 billion in the next 710 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 4550% will be outsourced to oilallied services companies)
1. Oil Services and Engineering (cont.)

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.)
Global upstream spending and large-cap services revenue growth
% Growth,Y-Y
40% 30% 20% 10% 0% -10% -20% -30%

Global upstream spending Large-cap services revenue 2004 18% 18% 2005 32% 24% 2006 30% 34% 2007 18% 19% 2008 23% 20% 2009 -22% -16% 2010e 18% 12%
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 Indias 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 200910 to 285.4 MMSCMD by 2012 and to 405410 MMSCMD, by FY20
2. Natural Gas Pipeline - Ancillary (cont.)

Domestic Gas Supply Projections 400 350 300 250 200 150 100 50
Existing sources(PMT/JV) Existing sources (ONGC/OIL) Production from future exploration New Gas fields Proposed LNG Existing LNG KG D6
0 FY11E
FY12E
FY13E
FY14E
FY15E
FY20E
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
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
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 oil
4. Re- Refining and Re-Cycling (cont.)

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
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 No of players Unsaturated market with 39 players
6. City Gas Distribution
Improved availability of domestic gas supplies but securing supplies would be important
Gas supplies
Significant infrastructure projects planned to cover the key regions of the country
Policy
CGD Business Economics
Infrastructure
Government initiatives on climate change, pricing of alternative fuels are all supportive of CGD market development
Regulations
Learning's and need for rethink healthy debate required for further evolution of regulations
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)
No of players Unsaturated market with 137 players
7. Fire Protection
Direct losses from fire in India are estimated at over US $2 billion per year
Indias 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
7. Fire Protection (cont.)
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
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
Secon Private Limited

Location / Sector Brief Description Bangalore / Oil Services and Engineering Product Offerings 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
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. 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
Key Clients
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 o o o Detailed map features, roads & existing utility networks (Built details) Existing & potential consumers Emergency assisting centers/locations/information Customized query & report generation for gas usage statistics and maintenance statistics etc.
Financials Key Risks / Areas of Further Diligence Investment Recommendation
Their products helps to undertake investigations and surveys efficiently Sales in 2009 PAT in 2009 : 88.00 crore : An increase of 31% as compared to PY : 15.58 crore : An increase of 49% as compared to PY
Net Profit Margin : 17.70%
More details about products and services they offer
Advanced Sys-Tek
Location / Sector Brief Description Gujarat / Automation Packagers 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 Offerings Smartload 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 HPCL, OIL India, Indian Oil Corporation Limited, Indian Petrochemicals Corporation Limited, BPCL, GAIL, IBP Limited, Reliance Industries, ONGC 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 Sales in 2009 PAT in 2009 : 52.69 crore : A decrease of 47% as compared to PY : 4.60 crore : A decrease of 53% as compared to PY
Key Clients
Financials
Key Risks / Areas of Further Diligence Investment Recommendation
Technip KT India Ltd

Location / Sector Brief Description Delhi / Oil Services and Engineering (EPC) 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 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.
Key Clients
Financials
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
Sales in 2009
: 518.98 crore : An increase of 102% as compared to PY
PAT in 2009
: 26.89 crore : An increase of 95% as compared to PY
Chemtrols Industries Limited

Location / Sector Brief Description Maharashtra (Mumbai) / Oil and Gas Services
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 Key Clients Investment Rationale
Process analyzers system, steam and water analysis (analyzers), environment monitoring, flow metering and custody transfer, petroleum terminal automation, oxygen analyzer, SCADA British Gas Exploration and Production India Ltd, Alstom, Navi Mumbai Municipal Corporation
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) 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 PAT in 2009 : 213.23 crore : An increase of 40% as compared to PY : 5.56 crore : An increase of 10% as compared to PY
Financials
Nirmal Industrial Controls Private limited

Location / Sector Brief Description Maharashtra (Mumbai) / Natural Gas Services Product Offerings 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
Self 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
Financials
Sales in 2009 PAT in 2009
: 58.51 crore : An increase of 18% as compared to PY : 3.63 crore : An increase of 26% as compared to PY
Haryana City Gas Distribution

Location / Sector Brief Description Haryana / CGD 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 Offerings
PNG : Domestic- households Commercial- hotels, hospitals, bakeries etc Industrial- pharmaceutical, printing and dyeing, food and beverage manufacturing etc. CNG : Used as a transport fuel 5 stations at Gurgoan
Key Clients Investment Rationale Financials Key Risks / Areas of Further Diligence Investment Recommendation
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 Sales in 2009 PAT in 2009 : 246.95 crore : An increase of 92% as compared to PY : 13.78 crore : An increase of 11% as compared to PY
Aarvi Encon Private Limited

Location / Sector 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 worldclass 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 Maharashtra (Mumbai) / Oil and Gas Engineering Services
Product Offerings
Basic engineering (process & utility flow diagram), detailed engineering (piping & equipment engineering), project management, procurement assistance, construction supervision, pre commissioning & commissioning assistance etc It also provides manpower outsourcing services 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) Sales in 2008 PAT in 2008 : 37.52 crore : An increase of 84% as compared to PY : 1.12 crore : A decrease of 56% as compared to PY
Key Clients Investment Rationale
Financials
Global Drilling Fluids and Chemicals Limited

Location / Sector Brief Description Delhi / Oil and Gas Services (Chemical Manufacturer) 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 chemicals Testing Services for drilling and other chemicals, rental and sale of filtration units and portable mud laboratories, mud filtration and waste management services
Supplier to over 40 countries worldwide with a large number of repeat customers 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 Sales in 2008 PAT in 2008 : 5.25 crore : An increase of 105% as compared to PY : 0.27 crore : An increase of 293% as compared to PY
Key Clients Investment Rationale
Financials
Samit Spectrum EIT Private Limited (SSEPL)

Location / Sector 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.) Haryana / Oil and Gas Serivices
Product Offerings
Land/ 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 Reliance, Cairn, GSPC, Jindal Petroleum, Indian Oil, GAIL, DGH , Geo Petrol, ONGC, Premier Oil, Schlumberger, BPCL, Jubilant Energy
Key Clients
Investment Rationale OALP and increase in E&P spending It has foreign tie-ups to deliver its services Major E&P firms as its clients
Financials
: 11.15 crore : 5.6 crore : An increase of 489% as compared to PY
Alkor Technologies Limited

Location / Sector Brief Description Product Offerings Geophysical 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 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) Andhra Pradesh / Oil and Gas Services
OALP Present in niche segment of GIS
Financials
: 4.46 crore : An increase of 28% as compared to PY : 1.43 crore : A decrease of 1% as compared to PY
It is 100 % export oriented
IFP Petro Products Private Limited

Location / Sector Brief Description Delhi / Oil Re Refining and Recycling, Re Packaging 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 watercontaminated oil It manufactures automotive and industrial oils and also sells lube oils under its own brand name
Product Offerings Key Clients Investment Rationale
Re -Refining services, contract packing, Dr Lubes Diagnostic testing facilities for fuel oils, lubricating oils IOCL, 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 Key Risks / Areas of Further Diligence
Not Available
Investment Recommendation
Private Equity Investments
Axis Private Equity

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 Late
Amount Invested US $16 Million
Stake
Date Of Investment June 2008
Other Investors
Avigo Capital Partners

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 midstream 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.
Stage of Investment Growth
Stake
Date Of Investment September 2009
Other Investors
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
Stage of Investment Growth
Stake
Date Of Investment December 2010
Other Investors
Sage Capital
John Energy Limited (Exploration Services)
Provides services, latest technologies and manpower Its clientele include ONGC, GSPC, Cairn India, RIL etc.
Stage of Investment Late
Stake
Date Of Investment July 2006
Other Investors
IDFC Private Equity

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 Stage of Investment Other Amount Invested US $60 Million Stake 50% Date Of Investment October 2009 Other Investors
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 Stage of Investment Other Amount Invested US $5 Million Stake Date Of Investment March 2007 Other Investors IL & 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
Stage of Investment Other
Stake 49.9%
Date Of Investment October 2005
Other Investors IFCI Ventures, UTI
Other Companies Considered
Oil Re-Refining and Re-Cycling

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 PAT in 2010 : 0.22 crore : A decrease of 8% as compared to PY : 0.04 crore : A decrease of 20% as compared to PY
Reasons for not considering further Southern Refineries Limited
Size of the topline and no competitive advantage
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 PAT in 2009 : 11.97 crore : An increase of 7% as compared to PY : 0.42 crore : A decrease of 47% as compared to PY
Reasons for not considering further 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 recycling sector for over 15 years Sales in 2007 PAT in 2007 : 4.03 crore : An increase of 136% as compared to PY : 0.15 crore : An increase of 88% as compared to PY
Reasons for not considering further
Oil Re-Refining and Re-Cycling (cont.)

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 Surya Oil Refinery and Waste Management
No competitive advantage
Produces wide range of specialty oils for Power, Rubber, Tyre, Cosmetics, steel, Petrochemical, Automotive and various other industries
Reasons for not considering further 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 Green India Recycling Company Private Limited
Financials not available 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
Financials not available
Oil Sludge and Slop Treatment

Plant Tec Midcontinent
It was established in the year 2006 as a joint venture firm between Plant-Tech Industrial Services Ltd., MangaloreIndia 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, BioRemediation and finally Land Farming Recovers up to 99% good quality oil from tank bottom sludge Sales in 2010 PAT in 2010 : 5.12 crore : 1.7 crore : An increase of 55% as compared to PY

Osten Enzyme India Private Limited
Size of the topline
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
Consultancy Services
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 Petrodril
Scalabitity
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
Scalabitity
Oil Services and Engineering
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 Sales in 2008 PAT in 2008 : 235.8 crore : An increase of 7% as compared to PY : 65.90 crore : An increase of 30% as compared to PY
Reasons for not considering further Udhe India Limited
Parent company is in Norway
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.
Parent company is in Germany
Oil Services and Engineering (cont.)
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
Reasons for not considering further 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
Parent company in Netherlands
Oil Services and Engineering (cont.)
Jindal Petroleum Limited

Reasons for not considering further Sea Geo Surveys Private 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.
Present in the upstream segment
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.
Drilling Muds and Fluids
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 its 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 PAT in 2010 : 21.29 Cr : An increase of 209% as compared to PY : 2.34 Cr : An increase of 172% as compared to PY

Already considered
Data Provider
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 Sales in 2008 PAT in 2008 : 4.89 crore : An increase of 33% as compared to PY : 1.73 crore : An increase of 18% as compared to PY
Scalabity
Global Scenario
Oil - Demand - Supply Comparison (IEA Reports)

(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
Chart Title
Demand Supply
96 94
Technology Improvement Exploration well success rate Development well success rate Ultimate recovery per well Drilling cost reduction Completion cost reduction Initial production rate Infrastructure cost reduction Fixed operating cost reduction
% Improvement by 2020 7 6 11 22 16 9 14 12
88
87
2010
2015
Gas Demand - Supply Comparison

(Million Metric Standard Cubic Meters Per Day)
Chart Demand Title Supply

Reasons for increase in demand of gas over supply in 2015 Cheaper
520
535
Less Polluting
493 490
2010
2015
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 $72 billion in 2011, representing 2.5% of its GDP
Net Imports Annual expenditure ($bn) Figure at the top of the bar is % share of GDP
2011 projections are based on the assumption that oil prices remain above $90/barrel this year
The Increase in Oil Prices may not be Sustainable (cont.)

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% Japans GDP would decrease by 0.4% The Euro zones 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
Debt and GDP Growth Rate
Low Debt Countries Tend to Grow Faster

Real Annual GDP Growth, In %
8 6 4 2 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -2 -4 -6
High-debt countries (gross government debt > 60% of GDP) Low-debt countries (gross government debt < 60% of GDP)
Kenneth Rogoff in his book This Time Its 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
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%
Million barrels/day
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
United States
China
Japan
India
Russia
Brazil Germany Saudi Arabia
South Korea
Canada Mexico
France
Iran
United Kingdom
Italy
Spain
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% Spains ratio is currently 6.9% Italys 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
Europe (cont.)
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
China
Fiscal risks under estimated (2010) Official stats : Chinas Debt to GDP stood at only 20% Chinas local government debt was $1.14 trillion, a whopping 180% of the equity base of all Chinese banks and 24% of Chinas 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 Doesnt have a commercial banking system
Research Methodology
Initial information from reports by Mrinal Webliography Financials from MCA and Prowess Company websites Discussions Reports

Oil and Gas

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Oil and Gas - Indian Scenario

Demand and Supply Dynamics of Oil and Gas

Oil Demand and Supply forecast 180

Crude oil-Demand supply trend 160

140 120 100 80 60 40 20 0 Production Consumption Imports

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

2010 Demand Supply

Snapshot of previous rounds of NELP

No. of blocks offered

No. of blocks bid for

No. of bids received

No. of Blocks awarded

Hurdles in Potential E&P Activities

Hurdles in Potential E&P Activities (cont.)

Deregulation and its Impact

Oil and Gas Value Chain

Oil and Gas Value Chain (cont.)

Oil and Gas Value Chain (cont.)

Oil and Gas Value Chain (cont.)

Oil and Gas Value Chain (cont.)

Oil and Gas Value Chain (cont.)

Oil and Gas Value Chain (cont.)

Oil and Gas Value Chain (cont.)

Transportation Established pipelines to transport the oil and gas to refineries

Interesting Sub - Sectors

1. Oil Services and Engineering

1. Oil Services and Engineering (cont.)

1. Oil Services and Engineering (cont.)

Global upstream spending and large-cap services revenue growth

40% 30% 20% 10% 0% -10% -20% -30%

2. Natural Gas Pipeline - Ancillary

2. Natural Gas Pipeline - Ancillary (cont.)

3. Drilling Muds and Fluids (Chemicals)

4. Re- Refining and Re-Cycling

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

5. Sludge and Slop Treatment

6. City Gas Distribution

CGD Business Economics

6. City Gas Distribution (cont.)

No of players Unsaturated market with 137 players

7. Fire Protection (cont.)

Negatives Stiff competition has resulted in reduced pricing power

No of players Saturated market with 108 players

Sujan Oil and Gas Infra Logistics (SEZ)

Secon Private Limited

Financials Key Risks / Areas of Further Diligence Investment Recommendation

Net Profit Margin : 17.70%

More details about products and services they offer

Net Profit Margin : 8.73%

Key Risks / Areas of Further Diligence Investment Recommendation

Technip KT India Ltd

: 518.98 crore : An increase of 102% as compared to PY

Key Risks / Areas of Further Diligence Investment Recommendation

: 26.89 crore : An increase of 95% as compared to PY

Net Profit Margin : 5.18%

Chemtrols Industries Limited

Product Offerings Key Clients Investment Rationale

Net Profit Margin : 2.61%

Key Risks / Areas of Further Diligence Investment Recommendation

Nirmal Industrial Controls Private limited

Sales in 2009 PAT in 2009

Key Risks / Areas of Further Diligence Investment Recommendation

Net Profit Margin : 6.20%