Hitting the Bull's Eye With Sustainability, Expansion and R & D

D Rajkumar
Managing Director & CEO, Bharat PetroResources Limited (BPRL),
D Rajkumar, Managing Director & CEO, Bharat PetroResources Limited (BPRL), discusses the company's successful venture into the upstream business, the challenges the sector is infested with, the biggest and recent Mozambique discovery, their exploratory activities for shale gas in Australia, and more, in an exclusive interview with Mittravinda Ranjan and Sneha Sinha.

Please detail the company's venture into the upstream business and the success the endeavor has brought it.
Our venture into the upstream business began in 2003, with an allocation of around Rs. 1000-1500 crores. The motive behind BPRL getting into upstream was to ensure part supply security, for we know the total requirement for our refineries by 2015 would be 40 million metric tonnes, and reaching over to this through one particular initiative alone is very difficult. This initiative also ensured that we become a vertically integrated company.

The first concrete step in Upstream for BPCL was the winning of Participating Interest (PI) in three blocks under the NELP IV bidding round with ONGC as the Operator. In 2005, the government of India decided to permit the Navratna companies to explore some blocks outside the boundaries of the country, and BPRL used this opportunity to expand its exploration portfolio. Within two years(in 2007) an opportunity came to us in Brazil, when we bid for the Brazilian assets of a Canadian company, which held participating interest in about 10 deepwater blocks in offshore Brazil. This initiative was further driven by the fact that Petrobras was the operator of 9 of these 10 blocks. The very next year, in 2008, the deal was consummated, and within 10 days there was a discovery announced in the blocks where Anadarko is the operator. When Anadarko had to farm out some of their participating interest in Mozambique, they brought that opportunity to both Videocon and BPRL, which we bid for and were successful again. 20 percent of the PI in Mozambique block is held equally and separately by Videocon and BPRL. When Anadarko wanted to farm out some of their participating interest in Indonesia, they again approached us, and here Videocon and BPRL have 12.5 percent participating interest each.

What challenges you see in front of yourself as an E & P company ?
The requirement for energy is constantly rising. Finding oil and gas in the country and outside remains a challenge for an Exploration and Production (E & P) company. For a downstream company getting into upstream is a risky business, for the inputs are deterministic, whereas the outputs are probabilistic, implying the returns could or couldnít be there. It is also a difficult venture, for it requires a huge quantum of money, to the tune of millions of dollars.

How confident are you with the Mozambique discovery?
Mozambique discovery is turning out to be a very huge one. Currently, all the consortium partners are pretty confident about the potential of this area. From the exploration and appraisal activities that have been carried out so far, we can estimate that this block has the potential of approximately 30-60 TCF of natural gas, 30 on the lower and 60 on the upper side. The said discovery is only on the northern portion of the block. We are confident that the southern portion, too, holds hydrocarbons, but we can be certain about this only when we will explore the area.

When do you plan to begin the exploration in the southern portion ?
We will carry out the exploration activities in the southern portion by the end of this year, or towards the beginning of next year.

The initially discovered area, called the Prosperidade complex, extends into the neighboring block, where ENI is the operator. As per the contract with the government, if there are any prospects straddling both the blocks, then we have to develop it in an integrated manner, also known as unitisation. With Unitisation, project costs would reduce. This would be of interest to the government too, for the outgo from their side would be minimised, leading to lower cost recovery.

Currently, we are appraising the second complex, which contains the recent discovery wells 'Atum and Golfinho'. After the latest discovery, we have seen that the reserves in this complex would be in the range of 10 to 30 + TCF; together with the Prosperidade complex, it would be around 30 to 60 TCF. Initiatives are on to enable the first LNG cargo by 2018.

We are currently appraising the discoveries, which will be over towards the end of this year, following which we will start exploration in the southern portion. There are indications that there could be oil in the southern portion of the block. If oil is discovered, we need not wait till 2018 for monetisation.

When will you reach the appraisal stage, and what all measures are to be undertaken for this?

Appraisal of discoveries is already in progress. Monetisation of the gas has to be via the LNG route. For this, Reserve Certification is the first thing to be completed. Entering into long-term contract for selling of the gas (SPA) is the next thing that we need to do. Huge sums of money would be required when we move towards LNG, and this can only become possible if we enter into long-term contracts based on which long term finances can be tied up.

Then we need to enter into Project Agreement (PA) with the government, which would encompass basically all the commercial things involved in the upstream , downstream, marketing side, etc. Next is the completion of the Front End Engineering Design (FEED) contract and have the EPC contract ready. Last but not least is that the funds will have to be tied up. For this we have already engaged a lead financial advisor for advising the entire consortium. Getting the said tasks completed would require time, and all these have to be completed before 2013.

When do you plan to invite an IPO in the years to come, where GAIL investment can also be a part of?
It's too early to launch an Initial Public Offering (IPO) for BPRL. We will take a view on this matter as our projects progress further.

How is the working condition in Mozambique? How friendly are the policies over there?
Mozambique is a very small country in terms of GDP (with a population of 10-11 million people), and since 1995 it is been stable with no civil unrest or any major problem.

As for government policies, they are investor friendly. Currently, the country is in need of more infrastructure. The project cost will include developing a jetty and export terminal facilities, and everything will have to start from scratch. The Government of Mozambique has sourced support from the World Bank, for appointing an advisor, who would help them in setting up policies. The first thing they are currently doing is to amend the law to include LNG. In the recent transaction of Cove Energy, the government has been very proactive. All these are indicative of the fact that they are encouraging the developmental activities in the country.

Tell us about your interest in shale gas. BPRL has already spudded a well in Perth basin in May 2011. What is the progress on shale gas asset so far, and when does the company plan to start production from the well ?

This investment is only to the tune of around 13 million Australian dollars. There was hydrocarbon indication in the well that we drilled recently. We will be fracking this well soon, depending on availability of fracking equipment. We moved to Australia to learn the business of shale gas exploration as quickly as possible. Learning and understanding the business is key to us, which will give us an advantage when shale gas policy is unveiled in India.

What are the issues that you will have to face?
Land and water are going to be the major issues, which will have to be addressed by the government policies.

Environmentalists in many countries are opposed to shale gas development. There are varying thoughts on this, differing from country to country. In countries like the US, shale gas development is going well. In our country also some pilot projects for shale gas exploration are being undertaken.

A lot of water is required for fracking activities and hence it poses a major challenge in water deficient areas. Also, in India, owing to pressures on land, land use for shale gas exploration could be a big issue.

What is the plan outlay of expenditure for BPRL in the current fiscal; and what are your plans (production strategy) over the next 5 years ?
We have already spent USD 650 million. Till 2015-2016, we will require another USD 1.8 billion. In Mozambique, till 2018, the fund required will be to the tune of USD 14-15 billion for the entire consortium. Our 10 per cent would amount to USD 1.5 billion.

What is the total production of the blocks?
We are currently holding participating interest in a total of 26 exploration blocks. As of now we donít have any production. Unfortunately, getting into a producing asset demands huge investment, so we are not entering into such assets at this point in time. Currently, we are focusing on early monetisation of the discoveries in Brazil, Mozambique and Indonesia. We are expecting our first revenue to come by 2015-16 in Brazil and Indonesia, and by 2018 in Mozambique.

What are your plans for the next five years?
Currently, we want to consolidate and prioritise the blocks. Monetisation of the assets, is foremost in our agenda, for we want to expedite revenue generation. We have set the target of becoming an Operator by 2015, and for this we have become a joint operator in two blocks, one with M/s HOEC in Rajasthan, and the other with M/s GAIL in the Cambay basin.

We need to have the right people and also the right technology. We have about 10 geoscientists, and have our workstations with state-of-the-art softwares, which we use for our own interpretation.

This year will be a defining year for us, as we will be drilling a number of deep-water wells both in India and abroad.