| The largest multinational oil company in India, with group revenues of Rs 5,000-6,000 crore, is looking to expand into India's oil and gas exploration and production businesses. To achieve this, it continues to bank on a memorandum of understanding (MoU) it signed two years ago with the country's largest exploration company Oil and Natural Gas Corporation (ONGC). Asserting that the MoU, which many term "dead", is alive, the chairman of the Shell Group of Companies in India, Vikram Mehta, says the company has ambitious plans for India, but they have been slow in materialising. He talks with Rakteem Katakey on the oil sector and the successes and problems of India's search for oil security.
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| Its almost two years since you signed the MoU with ONGC. Nothing seems to be happening. Your comments
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| Things are happening. The MoU is alive and will be renewed early next year. We are in discussions with ONGC and I am hopeful that sometime next year we will succeed in converting the statements of intent into tangible projects with enhanced oil recovery, technology transfer, safety and specific downstream projects. Also, Shell and ONGC are already in partnerships in Brazil, Syria, Egypt. Why Shell did not bid for exploration licenses under the New Exploration and Licensing Policy (NELP) regime. What is keeping Big Oil from coming to India?
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| Global petroleum companies review each project against the basket of other opportunities available globally. .... A decision to invest in one country, basin or field or distinct from another does not mean the latter is not prospective. It means simply that it does not rank, and given that companies however large have finite resources (capital and human) choices have to be made. .....
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| The fact is that our sedimentary basins contain hydrocarbons but it has not been easy to locate these hydrocarbons. That said, the success of the smaller companies has reinvigorated the interest of the majors and I expect that this latest round will see a greater response than before.
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| One of the primary ways of securing oil for the country is increasing domestic production. While there have been some significant gas discoveries in the country, no large oil discoveries have been made. Moreover, output from producing fields is also declining...
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| The Indian government has worked out a multi-pronged strategy. First, to develop our indigenous hydrocarbon resources. NELP embodies that policy. Secondly, to secure equity crude overseas.
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| ONGC Videsh (OVL) has now an expanded international footprint. I have always argued that such investments must be made for commercial and not for strategic reasons - this because oil is a tradable (and except under circumstances of extreme instability when irrespective of whether we had equity crude or not access to supplies would get choked) it can always be purchased. I should add that several of OVL's investments (Sudan, Sakhalin) are commercial successes.
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| Thirdly, creation of strategic reserves. Underpinning these three prongs is the added focus on increasing the recovery rate of oil/gas from our domestic producing fields. It is currently around 28 per cent, whereas the recovery rate for fields of comparable geology globally is around 40 per cent.
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| ONGC is cognizant of this problem and they are looking to develop international partnerships to bring in the requisite state of art technology for enhancing oil recovery.
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| Where do you see oil prices going from the current $90 a barrel?
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| There has been a paradigm shift in the oil market. On the demand side there are today many more drivers of demand than before. Earlier, the OECD countries were the principal engines of demand growth.
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| Today in addition to OECD, there is China, India, Russia and the West Asia. On the supply side, there is anxiety. The era of 'easy oil' is over. Globally, there is no shortage of hydrocarbons.
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| It is simply difficult to find them and then once found difficult to develop them. This is because they are in geologically difficult and logistically extreme topography (eg. Deep waters, Arctic etc).
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| Also an increasing share is coming from unconventionals (oil sands and heavy oil, among others). Then there is the role of the 'wall street' trader. The speculative fervor of these financiers has intensified the run-up in prices.
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| In addition, the industry is facing a shortage of rigs and equipment. This has driven up costs across the value chain. Finally, there is tightness in the market for technical talent. Several of these factors should ease up in time.
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| Demand should slow down in response to high prices and equally new supplies should come on stream; the order book of rig manufacturers is full and the number of technical institutes are on the increase. My simple advice: Do not conjecture about the future trend in prices, but equally do not ignore the fundamentals.
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| After the Dubai project, what else is Bharat Hotels looking at overseas?
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| That will happen eventually. First, I will concentrate on consolidating our position in the domestic market. South and West Asia will obviously be the natural extension of the company.
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| So are you more serious about consolidation or expansion?
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| Both. While we consolidate, we will look at new opportunities. We are keen to enter Pune, Hyderabad, Chennai and Amritsar. The challenge is in finding viable real estate.
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| How will you make your brand unique from other hotels?
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| The uniqueness will come from the extra comfort we will provide in our rooms, or free internet services in the hotels. Our two hotels in Goa and Srinagar have golf courses and have not been marketed right.
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| I will also look to tie up with other golf courses and promote a golfing holiday. We have a private jet which can be used to fly our biggest clients from Goa to Srinagar.
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| Innovation is another important area. At my staff meeting, I have told each employee to come up with one creative idea everyday. All good ideas will be implemented.
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| How will you improve the marketing initiative?
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| I am revamping our loyalty programme. Besides that, there will be more collaboration with international carriers. I am also exploring tie-ups with exclusive high-end credit card service providers for marketing partnerships. |
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