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>Oil & Gas Petrochemicals (ICICI Securities)
CITY GAS DISTRIBUTION
SECTOR UPDATE
* Cairn’s participation a positive surprise as it offers some visibility for the company’s plans. Notably, Cairn would be generating huge positive cashflows once production commences in Q3CY09 in the resource-rich Rajasthan block. CGD is likely to result in utilisation of cashflows from the company’s E&P business. Cairn has bid for Kota and Sonepat in a 50:50 JV with Bharat Petroleum Corporation (BPCL). Interestingly, there may be a possibility of utilising gas from the
Raageshwari field for distribution to Kota and neighbouring areas; this, in turn, could provide gas reserves from the company’s Rajasthan block for its CGD business in Rajasthan. We are awaiting further details about total capex commitment for the business. Though positive, overall upside from the nascent CGD venture would be minimal. However, we maintain Cairn as our top pick in the sector on the back of cheaper valuations and our bullish outlook on long-term crude prices.
* RIL surprises – Bids for only one location. We had expected RIL to be aggressive as regards CGD ventures and bid for maximum number of locations. However, of the six locations opened for bidding, RIL has only bid for Kakinada. Based on the small size of RIL’s CGD venture, we do not anticipate any meaningful impact on the company. Albeit, RIL’s bidding for only one location provides better visibility to small players such as GGCL and Indraprastha Gas (IGL).
* GAIL and IGL to compete outside NCR. GAIL, via its wholly-owned subsidiary GAIL Gas, has bid for Meerut and Sonepat, whereas IGL, in which GAIL has 22.5% stake, has also bid for the same locations. The managements of GAIL and IGL have confirmed that GAIL would not compete with IGL in National Capital Region (NCR). However, both managements have reiterated that they are separate entities and would compete outside NCR on a level playing field.
* Indian Oil Corporation-Adani JV bids for four cities. IOC and the Adani Group have jointly bid for four cities. GSPC Gas has ventured out of Gujarat and bid for Dewas, Madhya Pradesh.
* Ball in PNGRB’s court. Post initial bids, PNGRB would require certifying eachvcompany/JV’s eligibility for the bid and thence evaluate the bids before final allocations. Though the CGD business is in the nascent stage at present, we expect it to grow considerably and replace the more expensive MS/HSD/LPG in due course, thereby also resulting in increased exports of petro-products.
To see full report: Oil Sector
SECTOR UPDATE
Bids announced – Surprises abound.....
* Cairn’s participation a positive surprise as it offers some visibility for the company’s plans. Notably, Cairn would be generating huge positive cashflows once production commences in Q3CY09 in the resource-rich Rajasthan block. CGD is likely to result in utilisation of cashflows from the company’s E&P business. Cairn has bid for Kota and Sonepat in a 50:50 JV with Bharat Petroleum Corporation (BPCL). Interestingly, there may be a possibility of utilising gas from the
Raageshwari field for distribution to Kota and neighbouring areas; this, in turn, could provide gas reserves from the company’s Rajasthan block for its CGD business in Rajasthan. We are awaiting further details about total capex commitment for the business. Though positive, overall upside from the nascent CGD venture would be minimal. However, we maintain Cairn as our top pick in the sector on the back of cheaper valuations and our bullish outlook on long-term crude prices.
* RIL surprises – Bids for only one location. We had expected RIL to be aggressive as regards CGD ventures and bid for maximum number of locations. However, of the six locations opened for bidding, RIL has only bid for Kakinada. Based on the small size of RIL’s CGD venture, we do not anticipate any meaningful impact on the company. Albeit, RIL’s bidding for only one location provides better visibility to small players such as GGCL and Indraprastha Gas (IGL).
* GAIL and IGL to compete outside NCR. GAIL, via its wholly-owned subsidiary GAIL Gas, has bid for Meerut and Sonepat, whereas IGL, in which GAIL has 22.5% stake, has also bid for the same locations. The managements of GAIL and IGL have confirmed that GAIL would not compete with IGL in National Capital Region (NCR). However, both managements have reiterated that they are separate entities and would compete outside NCR on a level playing field.
* Indian Oil Corporation-Adani JV bids for four cities. IOC and the Adani Group have jointly bid for four cities. GSPC Gas has ventured out of Gujarat and bid for Dewas, Madhya Pradesh.
* Ball in PNGRB’s court. Post initial bids, PNGRB would require certifying eachvcompany/JV’s eligibility for the bid and thence evaluate the bids before final allocations. Though the CGD business is in the nascent stage at present, we expect it to grow considerably and replace the more expensive MS/HSD/LPG in due course, thereby also resulting in increased exports of petro-products.
To see full report: Oil Sector
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